Market Update and Steel Shorts
The economy moved on from its usual first quarter doldrums to post growth of 2.6 percent during April to June, according to the Bureau of Economic Analysis (BEA).
Q1 growth has typically been a low outlier in recent years, and the economy started off 2017 with growth of just 1.2 percent. Some analysts had forecast expansion of as much as 3 percent for the second quarter, and while the economy did not quite reach that mark, 2.6 percent was still the second-highest quarterly growth in two years.
“We continue to be range-bound with growth that is pretty modest compared with history,” the chief economist at Nationwide said. “Some quarters, such as this one, were a little above it, some are a little below it, but, really, if you look at the years in total, they’re not moving much from this 2 percent growth on average.”
Consumer spending, which accounts for about 70 percent of all economic activity, grew at an annualized rate of 2.8 percent during the quarter, up from 1.2 percent during Q1, according to the BEA. Things appear to have slowed at the end of the second quarter, though, with consumer spending expanding by just 0.1 percent (non-annualized) in June.
Job growth in June came in above expectations, with 220,000 positions created, but the unemployment rate still inched up to 4.4 percent after reaching a 16-year-low of 4.3 percent in May. The labor force participation rate rose a tenth of a point to 62.8 percent in June. Ten years ago, the rate was around 66 percent, but it has dipped fairly steadily during the past decade because of both economic and structural factors – such as the retirement of baby boomers – and it has been mostly below 63 percent since late 2013.
Although the economic numbers have been lackluster, and consumer spending still has not pushed inflation up to the Federal Reserve’s target rate of 2 percent, the Federal Reserve Federal Open Market Committee, as expected, increased the target range for the federal funds rate a quarter-point to 1 to 1.25 percent at its June meeting. This marked the second time this year – and the fourth time since the Great Recession – that the Fed has raised rates.
“Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year,” the Fed stated in announcing the rate hike. “Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending has picked up in recent months, and business fixed investment has continued to expand.”
Part of the reason inflation has been so low is that wage growth has stayed below its pre-recession levels. In the late-1990s and early-2000s, monthly wage growth, measured at an annualized rate, hovered around 5 percent, and from then until 2007, it was around 4 percent. But it stayed close to 2 percent from 2010 until mid-2014 and, while it has recovered somewhat since then, it has typically hovered between 3 and 3.5 percent in recent years. In June, wages increased 3.2 percent, according to the Wage Growth Tracker from the Federal Reserve Bank of Atlanta.
Housing starts in June rose 8.3 percent from May and were 2.1 percent ahead of the June 2016 total, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales, though, dipped 1.8 percent from May to June, according to the National Association of Realtors, a decline that the group’s chief economist attributed to “interested buyers … being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget.”
Car sales continue to trend well behind the 2016 pace, with July sales 13.8 percent below the same month last year and total sales through the first seven months of the year down 11.7 percent. Even light truck sales, which usually show strong growth, fell 2.5 percent in July. Year to date, however, light truck sales were still 3.5 percent ahead of the 2016 numbers.
The Conference Board’s Consumer Confidence Index rose almost four points to 121.1 in July. (The index’s baseline is 100 in 1985.) “Overall, consumers foresee the current economic expansion continuing well into the second half of this year,” the board’s director of economic indicators said.
The University of Michigan’s Index of Consumer Sentiment fell 1.7 points to 93.4 from June to July, but researchers noted that, “The relatively small decline still left the Sentiment Index higher in the first seven months of 2017 than in any other year since 2004.” As has become standard, the researchers reported very large differences between how Republicans and Democrats view the economy. They added, though, that, “Importantly, the partisan gap has narrowed in the past six months, mostly due to Republicans tempering their optimism. The recent declines among Republicans were somewhat predictable, but the maintenance of extreme pessimism among Democrats is more surprising.”
Confidence in the manufacturing sector slipped slightly in July, according to the Institute for Supply Management’s Purchasing Managers Index. The index fell 1.5 points to 56.3, which was still 3.7 points ahead of where it was in July 2016. (Any rating over 50 indicates growth in the manufacturing sector.) Of 18 industries surveyed, 15 reported growth.
The Dow Jones Industrial Average ended July at a record high of 21,891.12, while the S&P 500 Index finished the month at 2,470.30, about 7 points off its record close of five days earlier.
The dollar lost a little value in mid-summer, but, on July 31, was still trading at 0.85 euros, 0.76 pounds, 110.43 yen and 6.73 yuan.
Business and consumer confidence remain high, and the Dow Jones is up about 10.5 percent since the start of the year and about 17.5 percent since Election Day. President Donald Trump has made some pro-growth moves – such as pulling back on regulations – but the businessman’s panacea that some expected from the GOP having control of the House and the Senate with a Republican in the White House has not yet emerged. The list of legislative accomplishments this year is short, while the to-do list remains long. Now that Republicans in Congress appear to have abandoned their effort to repeal and replace the Affordable Care Act – a project on which they spent much of the first half of the year – that may change. Tax reform is likely up next, and if done correctly, this could give the economy a significant boost. Optimism about the economy continues to be tempered, though, by the Trump administration’s short sightedness on trade. Though the Department of Commerce has not yet completed its Section 232 investigation of steel imports, the White House seems determined to impose additional restrictions on the steel trade, a move that would undermine Trump’s goal of posting 3-4 percent growth a year. That campaign promise would not survive a trade war.
July 2017 Steel Shorts
Trump Says Steel Import Decision Coming ‘Fairly Soon’
President Donald Trump in late July appeared less eager than usual to restrict steel imports.
During a July 25 interview with The Wall Street Journal, Trump reiterated his commitment to “addressing the steel dumping,” but, while he described the nation’s current steel import situation as “very unfair,” he also indicated that the issue is not his top priority.
“We’re waiting till we get everything finished up between health care and taxes and maybe even infrastructure,” Trump said three days before a Republican effort to pass a health care bill failed in the Senate. “But we’re going to be addressing the steel dumping at a very – fairly soon.”
Trump, though, also used part of the interview to extol the virtues of protectionism.
“You know, our country was built, to a large extent, on protecting our manufacturers,” Trump said. “If you go back to Jefferson, you go back to all of these great, great people that ran the United States properly, it was really based on a certain form of tariff and a certain form of protection. We’re just the opposite now. We’re the people that are getting beat up.”
The Department of Commerce was expected to release the findings of its Section 232 investigation of the impact of imported steel on national security by late June, but the inquiry has continued into August. That report is expected to include recommendations on what, if any, actions to take to limit steel imports.
During a briefing with members of the House Ways and Means Committee, Commerce Secretary Wilbur Ross reportedly echoed Trump’s comments about the process being delayed until other agenda items are completed. Reuters reported that Ross “also told lawmakers the issue had a lot of complexities and that he was considering the interests of both steel makers and steel users and [was] concerned about potential trade retaliation against U.S. agricultural products.”
E.U. Warns of Trade War if U.S. Restricts Steel Imports
A European Union official indicated that a trade war would result if the United States imposes significant new restrictions on steel imports.
The Department of Commerce has been conducting a Section 232 investigation of the impact of imported steel on national security since April. The agency has a total of 270 days to report its findings, which could include recommendations regarding tariffs, quotas or similar measures.
European Commission President Jean-Claude Juncker said on July 7 that embracing protectionism “would be wrong” and would invite retaliatory measures.
“We will respond with countermeasures if need be, hoping that this is not actually necessary,” Juncker said. “We are prepared to take up arms if need be.”
Politico reported that Juncker stressed the importance of free trade during a closed-door meeting that included Trump at the G20 Summit in Germany.
“Trade agreements are not only about selling and buying,” Juncker said. “They’re about job creation.”
AIIS has repeatedly warned that efforts by the United States to restrict the free and fair trade of steel would lead to retaliation by other nations that would ultimately damage the U.S. economy and hurt American workers.
G20 Strengthens Language Regarding Steel Excess Capacity
Leaders of the nations attending the G20 Summit in Germany in July strengthened language expressing the group’s position on steel excess capacity.
The G20 Leaders’ Declaration states that the heads of the world’s 20 largest economies “commit to further strengthening our cooperation to find collective solutions to tackle” excess capacity in steel.
“We urgently call for the removal of market-distorting subsidies and other types of support by governments and related entities,” the declaration stated. “Each of us commits to take the necessary actions to deliver the collective solutions that foster a truly level playing field.”
In addition, the statement urged nations “to rapidly develop concrete policy solutions that reduce steel excess capacity.”
The statement released after the 2016 G20 Summit used weaker, less active language regarding the issue, with the leaders mostly stating that they “recognize” problems related to excess capacity.
The 2017 language was a win for the Trump administration, which has expressed more support for protectionist measures, especially regarding steel, than previous administrations. The United States, though, did agree to back language in the declaration that states, “We will keep markets open noting the importance of reciprocal and mutually advantageous trade and investment frameworks and the principle of non-discrimination, and continue to fight protectionism including all unfair trade practices and recognise the role of legitimate trade defence instruments in this regard.”
Commerce Department Issues Determinations in Antidumping Cases
The Department of Commerce on July 21 announced an affirmative final determination in the antidumping duty investigation of imports of steel concrete reinforcing bar from Taiwan.
The dumping margins ranged from 3.5 to 32.01 percent, according to the agency.
“The United States can no longer sit back and watch as its essential industries like steel are destroyed by foreign companies unfairly selling their products in the U.S. markets,” Commerce Secretary Wilbur Ross said. “We will continue to take action on behalf of U.S. industry to defend American businesses, their workers, and our communities adversely impacted by unfair imports.”
A final determination by the International Trade Commission (ITC) of whether the rebar imports injured or threatened to materially injure the domestic steel industry is expected to be announced by Sept. 5.
On June 23, the department announced affirmative final determinations in the antidumping duty investigations of imports of finished carbon steel flanges from India and Italy and an affirmative final determination in the countervailing duty investigation of imports of those flanges from India.
The agency reported that the dumping margins ranged from 11.32 to 12.58 percent for India and from 79.17 to 204.53 percent for Italy. The subsidy rates in the countervailing duty investigation of India ranged from 5.66 to 9.11 percent.
Final determinations by the ITC in the cases are expected by Aug. 7.
What will happen to your business if new restrictions are imposed on steel imports?
How much revenue could your firm lose to new duties, tariffs and quotas that would reduce the amount of steel that the United States imports?
The American Institute for International Steel is leading the fight against the anti-free trade movement in Washington, D.C. As the President embraces protectionist policies and the Department of Commerce conducts a Section 232 investigation, AIIS has undertaken an aggressive campaign to educate lawmakers, regulators, the press and the public about the indispensible role that steel imports play in the U.S. economy.
We are writing today to ask you to join us in this fight. Your membership in AIIS will increase our influence during this critical time and move us closer to victory over those who would put the short-term interests of a few politically favored companies ahead of sound economic principles and the well being of the nation.
AIIS is the only association that is dedicated to preserving the free and fair trade in steel. We ask that you make an investment in your company’s future and join today.
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