Of Recessions and Recoveries
There is an old maxim that wise business leaders keep one eye on their own enterprise and the other eye on the direction of the economy. With that in mind, two questions are on the minds of many metalcasting leaders these days: How long will the recession last? How strong and durable will the next economic rebound prove to be?
As faithful Modern Casting readers know, the U.S. economy was strong in 2018, following passage of the 2017 tax-reform law, with real GDP peaking at 4.6% in the fourth quarter. So strong, in fact, that metalcasters, and manufacturers in general, experienced even more challenges in hiring and retaining the workers needed to meet surging customer demand. The robust economy continued into early 2019, but manufacturing slowed in the second half of the year. Then just 10 weeks into 2020, the nation’s governors began shutting down the economy due to Covid-19 and the U.S. was in its first recession in more than 10 years.
Duration of the Recession
How long is the recession likely to last? Recent history is only a partial guide. In the previous five recessions between 1980 and 2008, the shortest downturn was six months and the longest was 18 months. Looking further back, the Panic of 1893 and the Great Depression remind us that economic slumps can persist longer.
What distinguishes this recession from those in the past is the obvious difference: Past downturns were caused by economic shocks such as surging oil prices, rising interest rates or massive loan defaults, whereas this recession is tied to a pandemic and the government’s attempt to protect human health. That distinction makes it very difficult to project an end date. The development of an effective vaccine for Covid-19, and continued progress on medications that reduce the severity and morbidity of the virus, likely will play a major role in determining the timing of the economic recovery.
Strength of the Recovery
This leads to the second question—how strong and durable will the next recovery be? Encouraging signs include the stock market, which rose throughout the summer in anticipation of a recovery, and the housing market, which rebounded quickly off the March bottom and is likely to remain strong so long as interest rates stay low. More sobering is the August 24 National Association of Business Economics survey raising the distinct possibility of a double-dip recession.
Public policies will also play a role. For example, a true bipartisan commitment to funding water and transportation infrastructure after the election would be a positive for the economy. Conversely, any major increase in unnecessarily broad business regulations in 2021 would be a drag on growth, just as it has been in the past. This is a reminder that foundry leaders should continue to make their views known to policymakers (by newspaper op eds, letters, phone, email and social media) and to encourage their employees to vote.
Count on AFS to Support Our Foundries
During the recession and beyond, the American Foundry Society will continue to advocate for policies conducive to strong manufacturing growth. AFS will also provide technical assistance and programming, conduct research, and deliver member services—including the brand-new health-benefits, energy-discounts and digital-advertising programs—that meet member needs and help them succeed. We appreciate your support and welcome your comments and suggestions.