Well, gridlock has become deadlock in Washington. The government is down. You know things are bad when politicians even quibble about affording the funerals of our valiant soldiers who gave their lives for this country.
Of course the question on their constituents’ minds is, “How will this affect the lives of MY loved ones if I can no longer afford to put food on our table?”
This being a blog about material handling and logistics, let’s look at one of our leading economic indicators: conveyor orders. They’re down almost 4% compared to this time last year. That news, coming from the Conveyor Equipment Manufacturers Association (CEMA), might not be enough to cause insomnia, but combine it with the portent of our country defaulting on its debts, and it’s downright terrifying to Fred Thimmel. He’s president of Bryant Products as well as CEMA’s Government Affairs Committee Chair. He started a blog for CEMA and this situation was the subject of his first post. He didn’t pull punches.
“The feckless, warring parties on both sides are threatening to bring on a disaster that will cost our economy 4-20 times the issues they are arguing about, could more than double our borrowing costs and trigger a broader global downturn,” he wrote. “This is insanity.”
I followed up with him, congratulating him on rallying the material handling industry to pressure their warring representatives to do something positive before it’s too late. But I also wanted his take on how this deadlock might affect his customers’ livelihoods—i.e., what if their sales slump and they’re stuck in the same boat as CEMA members? Although this was an e-mail exchange, I could see him throwing up his hands.
“I wish I could be of more help but I am just a guy with few political opinions and one that is absolutely terrified by this deadlock,” he wrote. “You need to check with an economist on what a rise in Treasury interest rates would do to commercial ones. I suspect it would put upward pressure on them. As for logistic implications, what happened in 2008 would probably happen again.”
I took Fred’s advice and contacted one of the most spot-on economists I know: Alan Beaulieu, of ITR Economics. The good news is, Alan is not that concerned about the vote to raise the debt ceiling.
“Either way, it won’t cause an immediate crisis or general economic contraction,” he said. “I think the potential of either party wanting to be responsible for all that angst is about zero. This is a lot of wind without an actual storm.”
But then I asked him about the issue that terrifies Thimmel and most business people who sell industrial products: the cost of financing.
“I would expect commercial rates to also go up if Treasury Yields do,” he said.
For companies that have gotten used to low interest rates, the prospect of returning to 2008 IS terrifying. Ron Giuntini, one of MH&L’s editorial advisory board members and president of a consulting firm bearing his name, didn’t mince words when I asked him to weigh in:
“When the Fed raises interest rates, all HELL will break out because companies are now addicted to low interest rates and if financial inventory carrying costs go up 2-3 fold—that is, from about 1% to 3 or 4%, CEOs and CFOs will be pounding supply chain managers to reduce inventory investment.”
There’s still hope. President Obama just nominated a new Chair of the Federal Reserve: Janet Yellen. She has a reputation as both a researcher and a policymaker, and she knows how weakening demand for industrial products will affect employment. Let’s hope she’ll use that knowledge to help this country get back to an American dream that’s more about putting food on the table than about paying for heroes’ funerals.