Regional President Speech

I Presentation to Steel Group for Mr. Moskow Opening Remarks It is a pleasure to be here at your conference today. I find it most appropriate that /Ne &u 4 )ft). 00111G tD the midwest to discuss the steel industry. Besides its traditional concentration in the region, (@ 50% of total production) it is also very timely to talk about a comeback industry iri the heart of the comeback Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis region of the county. It is amazing what a difference a decade makes./ Ten years ago the region and the steel industry were cited as examples of the rust belt/ Today after a decade of restructuring the industry and the region are both viewed as examples of an economic revival. Although many questions persist, it is important that we keep in mind the distance we have -- travelled when assessing future challenges. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In an attempt to set the stage for today's /;dM-~eut-1 discussion I ~~ take a few SoA1-e LAcl<jJU>UJJf} moments to give you • on the outlook for the economy and the steel industry. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I. Economic Outlook: A. Any assessment of the steel industry Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis must always begin with a general assessment of economic activity -- the industry is logically driven by the pace of overall activity. 1. Our current assessment views the expansion as continuing, in spite of the mixed signs being sent by a number of data series. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2. Although the third quarter is exhibiting some signs of weakness, / iv, f !lo v ~ m -e A.J r 11 otlf se hzek in the fourth quarter should occur and provide a better indication of what lies ahead in 1995. 3. The pace of activity is down from - - /AfltJ 4~ gains in the first half of the year, but our assessment is that the decline in the rate of the expansion has been modest. (Note: Iron and ~ Steel products averaged about 10% per quarter since 93 Q3 in the IP. July and August averaged @7% annualize rate). II. Outlook for Steel: Sk~ A. The domestic~industry has bounced Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis back from the sluggishness during the 1999-91 recession. Shipments fell by 7% in 1991, following a flattening of Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis activity during the late 1980s. 1. As the recovery and now expansion has taken hold the pick-up in activity -c;..___ z::::::s, in the industry has been substantial/ Domestic shipments rose 4% in 1992, increased 8% in 1993 and are projected to increase by 4% in 1994. Although growth in shipments is expected to slow in 1995 the surge in activity has certainly been robust. 2. While foreign competition remains a Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis serious challenge for the future, / /# /lA flr imports today are being driven by a need for domestic producers to obtain raw steel that can be processed into finished steel for domestic customersF ote: exports are down as goes to domes~ ailable supply tomersJ , '94=3.0m, '95=2.5mTons Steel imports are up as producers Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis q import slabs and roll them on their own mills. '93=19.5m, '94= (see .5m, '95=24mTons 1 ed charts) 3. Another challenge comes from minimills which continue to out perform integrated producers and with improving technology will become an increasingly important supplier of /0 quality steels to local markets. B. One plus for the industry has been the Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis resurgence of the dil~~stic auto industry including tranplants;fshipment levels for the domestic industry are approaching ~11-time record high& (1977-78 was the peak) and the strength of the industry has provided a spur to the steel industry/ Additionally, the auto industry has not hit its peak yet, sales and production levels should Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis // continue to increases through 1995. We currently expected total vehicle sales to increase to 15.5 million units in 1995. 1. Domestically sourced auto production is also receiving a boost from foreign transplants -- in some recent months 55% of all foreign nameplate vehicle sales were sourced in the U.s./ By 1996 over two-thirds of Toyota and Honda sales should come from U.S. sourced models. ~.1\/ 1 resents opportunities to domestic suppliers, including the steel industry.) 2. The strong demand for the industry /4,M~ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis has also hd ti fnff rttblc iHt19aet os {J)b ,, 1t ,;,,5" ,Jr, pricfig/and the bottom-line. Steel prices fell in excess of 7% between 1989 and 1992/ a slight rebound has occurred in 1993-94,UKI ~ r.:: ~ e ~egotiations ~~ (5 auto producers ~1Mtrprice • • for the new model year. 3. The impact of the more favorable operating environment is seen most dramatically in terms of the bottom- line/ The industf)'._l~s! almost $4 billion in 1992 and the current return to profitability has been an impressive tum around. III. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Extended Outlook: I 'f A. Yet, in spite of the improvement in the Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis current operating environment, the steel industry continues to grapple with a number of key issues -- topics that have brought us here today. 1. ~ ...__... the current environment is c:::....--- one that is characterized by high capacity utilization, rising prices and J>~ i~pr~fity'fThe extended outlook remains one that is highly ===-- competitive and in a state of ~= Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis perpetual change. 2. In all fairness the industry has made incredible gains in productivity during the last decade. For instance, BLS estimates that between 1980 and 1992 the industry posted a 4.5% annual growth rate in terms of output per employee hour. 3. The key is focusing on the fact that these improvements must continue ""- -:::::::::::::: = - and that competitive challenges persist. 4. In this regard the industry continues to struggle with numerous historical legacies including labor-management relations/he operating structure of integrated mills/and a changing international marketplace. 5. A key issue facing the future prospects of integrated steel Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis producers is profitability in an increasing competitive global economf and aJ1f. rising environmental conscious public. Without the resources to sustain efficiency gains and meet environmental standards, integrated LL. mills in the U.S. wi01 continue to face the prospects of a declining market for their steel. 6. Other issues remain pricing Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis c~nstraints,, trade relations,/ and continuing shifts in environmental regulations and existing technology. 7. As normal there is never a dull moment in the industry, a fact that brings us all together today. 

Michael Moskow (1994, September 28). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19940929_michael_moskow

@misc{wtfs_regional_speeche_19940929_michael_moskow,
  author = {Michael Moskow},
  title = {Regional President Speech},
  year = {1994},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19940929_michael_moskow},
  note = {Retrieved via When the Fed Speaks corpus}
}