This year, 2005, is kind of like the Kentucky Derby. We started out with cautious optimism about business and world affairs, hoping that it would be markedly better than the previous year. Most of our industry friends were less than thrilled with 2004. Gradually, we have seen some signs of life on the U.S. economy and also more opportunity for U.S. business to reach into foreign markets.
It is an important time for the U.S. economy and our industry. While some statistical information indicates an improvement in the overall business climate (a modest increase in non-farm employment of 146,000 in June, and improvement in productivity of 6.55 in the manufacturing of durable goods vs. the same quarter last year), the fact remains that business gains have been modest for a long time now.
If you look at the Federal Reserve Beige Book you will find the words modest, subdued, marginal and poor, more than you will find the words robust, substantial and strong. The most recent report was not very upbeat. It states that manufacturing activity decreased or slowed in May for all the districts. Several districts report weak new orders and higher inventory levels, including weakness in the telecommunications industry, declines in furniture sales, high steel inventories, and rising inventories of semiconductors. However, Chicago reports that many contacts say the worst of high inventory levels is over. St. Louis reports planned expansions of output in the high-tech, tobacco and chemical industries.
As we come around the third turn of 2005, the third quarter shows some signs of life. China has shown some willingness to work on trade issues by taking a first, tentative step toward a free-floating currency, stopping the practice of pegging the Yuan to the U.S. dollar. With the old policy, the complaint was that Chinese currency was unfairly undervalued, so that Chinese products were sold at cheaper prices here and our products were more expensive there. This first step in becoming a full and fair trading partner with the world is a good sign for U.S. business. Also, the demand for steel and oil in China slowed somewhat, hopefully relieving some pressure on those markets.
Many of my business partners and friends have seen some improvement recently and are seeing some real growth for the first time in several years. What we need to know now is: will it last?
The coatings industry will get a good look at itself this month. From September 19-22, we will be in the final phases of the third quarter of the year when we meet in Indianapolis for Coatings 2005. The participants at the show, exhibitors, presenters and attendees will have a chance to see what is going on and who is doing well. My expectations are high, in spite of the weakness in some sectors. Maybe we have made the third turn and we are finally in the economic home stretch.