Dilip Vishwanat for The New York TimesThe steel industry, having entered the recession n the best of health, is emerging as a leading indicator of what lies ahead. As steel production goes — and it is now in collapse — so will go the national economy.
That maxim once applied to Detroit’s Big Three car companies, when they dominated American manufacturing. Now they are losing ground in good times and bad, and steel has replaced autos as the industry to watch for an early sign that a severe recession is beginning to lift.
Is manufacturing still that significant in the modern US economy? According to the CIA World Factbook, industry is 19.8% of the US economy.
The industry itself is turning to government for orders that, until the September collapse, had come from manufacturers and builders. Its executives are waiting anxiously for details of President-elect Barack Obama’s stimulus plan, and adding their voices to pleas for a huge public investment program — up to $1 trillion over two years — intended to lift demand for steel to build highways, bridges, electric power grids, schools, hospitals, water treatment plants and rapid transit.
Well, as Bill Gross wrote in his Investment Outlook column in July 2008, the government will have to fill the vacuum created by reducing corporate and consumer spending. Gross: This economy will need an additional jolt of $500 billion or so of government spending real quick. It must replace both reduced residential investment and consumption whose decline has placed the
“What we are asking,” said Daniel R. DiMicco, chairman and chief executive of the Nucor Corporation, a giant steel maker, “is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘buy America’ clause.”
Good thought. Naive, perhaps misleading, but a nice thought.
Steel goes into nearly everything made in America, from homes and office buildings to cars, appliances and light bulb sockets, and as construction and manufacturing wound down, so did the output of steel, plunging 50 percent since September.
It must be kept in mind that, as the CIA World Factbook points out, the US industry is 79% services. So construction is not going to do much for a large part of the national economy. While construction works are needed, while the infrastructure of many parts of the nation could do with being fixed, even replaced, that in itself does not appear to be the most pressing need is: confidence, credit, a floor under house prices.
The cutback has been particularly hard on workers at the big integrated mills like those at U.S. Steel and Arcelor Mittal USA, with their blast furnaces and coke ovens converting iron ore and other materials into steel. Operated at less than full capacity, these mills are less efficient than the equally large “minimills,” like Nucor, whose electric arc furnaces can be operated efficiently at lower speeds.