I had the honor to meet Federal Reserve Chairwoman Janet Yellen and several manufacturing leaders to discuss manufacturers’ perspective on the state of the economy. Several manufacturers stressed there was an improved degree of optimism and some new-found confidence because Washington seemed less dysfunctional (no Government shut downs looming, etc), however everyone was concerned with the negative GDP growth in the first quarter.
Was this decline indicative of a loss of momentum or was it a nasty winter that depressed activity, activity that will bounce back in the second quarter?
The general theme was that housing is a concern and the world is becoming increasingly globally competitive.
One consistent theme was that stronger USA factories were exporting, but Europe remained a weak market (this is the same week that Europe announced Negative Interest Rates as a way to jump-start their economies!)
Marlin Steel's Suggestions on Monetary Policy
I shared with the Chairwoman that Marlin Steel makes wire baskets for industry (Automotive, Aerospace, Pharmaceutical, Medical and Industrial powerhouses) and our material handling baskets are used to clean parts for clients like Toyota and Caterpillar, so we are exposed to a broad cross section of the US economy. I suggested two ways to get the economy firing on all cylinders:
First, cut taxes because most factories were at competitive disadvantage with formidable economic rivals (Germany and Canada, especially) because our companies pay more taxes. As a result, we are losing jobs that Germans are winning and this means fewer jobs in the US. These are crucial jobs we need now to reduce unemployment.
Secondly, I said we should RAISE interest rates because this will be a psychological boost for the economy. Our country is on such sound footing now that we do not need the economic crutch coming from the Federal Reserve any more. In addition, our county is seeing some bubbles form (junk bond market) and that is an ominous sign. Lastly, raising interest rates will get consumers and business people off the sidelines and start borrowing money now to buy things that will improve their business and grow the economy. In our case, we bought the biggest robot in company history this week to capture the historically low rates (we received a financing deal for 10-year money @4.97%!) That is too good to stay valid; low interest rates mean a low hurdle for new investments, so poorly-thought-out ventures get funded.
I insisted to the Chairwoman that she should provide the profound psychological mind shift we need – it’s time to get moving. The economy is rolling again and it is time to get off the sidelines. Raising interest rates will embolden business people to act – which is what our job seekers desperately need. It will provide the needed confidence we have turned the corner. Gentlemen and ladies, start your engines.
Response to Marlin Steel's Manufacturer Perspective
The Chairwoman listened intensely but challenged me when she said that when we revised rates recently, it hurt the housing market. She believes that interest rate increases are off the table if unemployment is equal to 6.5%.
It was refreshing to see Federal Reserve leadership engaging with manufacturing leadership to understand the trends in the market and pulsing people in the trenches to get a feeling of the future growth trends from job creators.