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SUMMER 2020

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Distributor's Link Magazine Summer 2020 / Vol 43 No3

58 THE DISTRIBUTOR’S

58 THE DISTRIBUTOR’S LINK GLOBALFASTENERNEWS.COM by JOHN WOLZ EDITOR editor@globalfastenernews.com ECONOMIST TELLS NFDA: EXPECT A VOLATILE RECOVERY “Expect a volatile recovery,” Alex Chausovsky of ITR Economics told the National Fastener Distributors Association. “Recovery will come,” he assured the NFDA in a virtual speaker summit replacing the association’s COVID-19 cancelled June meeting. Chausovsky said 2020 is a “black swan-driven recession,” but expect 2021 to be recovery and business cycle rise, followed by the “backside of the business cycle” in 2022. For now he advised being “sure your cash flow modeling is reliable” and that you “take advantage of various lending programs and your lines of credit.” Know how your suppliers and customers are doing and focus on the markets and customers based on their recovery rates, Chausovsky advised. Develop your own rates-of-change, he said. “Timing is everything.” Federal Reserve chairman Jerome Powell is urging consumers to spend more. And Chausovsky observed that people are finding ways to spend even while homebound, such as “grilling, renovating and gardening.” Chausovsky noted that Powell reassured the nation that there is “no limit to what the Fed can do” and will use “new ammunition.” But that is not likely to include negative interest rates. Want to sell your fastener business? Valuations were “out of control” in 2018, Chausovsky recalled. In contrast, the low point in the cycle will probably be in early 2021 and the next peak is probably 2025 or 2026, Chausovsky predicted. Tighten your belts right now and “be ready to pivot,” Chausovsky advised. Know which suppliers and customers are doing well. Focus on the markets and customers doing well in recovery rates. Chausovsky said his “core message is that you’ve got to find a balance.” That includes cashflow, inventory and other medium and long term factors. Ask questions such as “how many customers will no longer take delivery?” Eventually there will be a rising trend, he reiterated. There are ways to take advantage of the current “low point” such as acquisitions and HR. “The caliber of people in the labor pool” is high, Chausovsky pointed out. There are “impartial, nonpolitical” measures of the COVID-19 situation – such as the death rate, Chausovsky BUSINESS FOCUS ARTICLE pointed out. June 21 – the day before his presentation – had the lowest death total since mid-March. “That becomes a positive sign. Are we past the worst?” Chausovsky asked. The Fed “is prepared to do whatever it takes” to protect the economy. New ammunition, not likely negative rates. “Now is the time to borrow,” Chausovsky declared. COVID-19 has turned around the U.S. economy where all the leading economic indicators were rising for the second half of 2020. All 12 turned down, though some are returning to positive. Chausovsky said what is needed “is two or three months of consistent rising” in the indicators. ¤ A factor in the future of the U.S. economy is a shift from “lowest cost” to reliable “sourcing and short lead times,” Chausovsky told the NFDA. ¤ U.S. retail is down 43.9% vs. a 7.1% increase for discount stores. ¤ Housing market will be strong with a “shortage of inventory,” Chausovsky cited. ¤ Manufacturing is down 14% ¤ The oil and gas industry is troubled by suppressed prices. ¤ Automotive manufacturing is “reeling” right now, Chausovsky noted. April was down 99% from April 2019, but May improved to only 83.2% down from May 2019. Heavy duty trucks were down 71.8%, heavy equipment down 42%, ship building down 12% and household appliances. The U.S. appliances market is an example of changing due to “re-shoring.” ¤ The housing market down 19.3%, but it is “bent but not broken,” Chausovsky finds. However, nonresidential construction lags the economy by 12 months and will be down for two years. ¤ Partially spurred by the work-from-home boom due to COVID-19, computers and electronics are off less than 1%, Chausovsky said. ¤ MRO remains strong because “it is still required.” Before COVID-19, ITR Economics was forecasting the first half would be a mild slowing, picking up in the second half. ITR was then expecting a late 2022 recession with a soft landing in 2023. GLOBALFASTENERNEWS.COM

THE DISTRIBUTOR’S LINK 59

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