Foodservice Equipment Reports Fortnightly
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Welcome to FER Fortnightly Online Newsletter
May 2, 2006








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In This Section:
Commodities Costs Forecast To Rise 11%
General Economy Shows Surprising Strength
Blue Chip Still Predicts A Second-Half U.S Slowdown

This issue's Regulatory ReportSponsor: Franke Foodservice Systems Industry Report
Sponsor: Server Products

Economic Report FER E&S Economic Forecast Meetings

Commodities Costs Forecast To Rise 11%
Just when many were hoping inflationary pressures on materials might subside, new factors are pushing up the cost of nonferrous metals, steels, plastics, energy and even corrugated for shipping.

Purchasing magazine, which tracks transaction prices of more than 100 commodities, predicts a market basket of 100 such products will rise a blended 11% through 2006. Actual prices in the first quarter this year surprised most forecasters, including Purchasing, according to Executive Editor Tom Stundza. The 100 items tracked for the magazine's price index reached a composite 199.2 index value for the period (100=first quarter 1992), much higher than anticipated, though off the 207.1 seen in the last quarter of '05.

"This factor has led to new projections of higher prices for raw materials in future quarters—at least through '07," Stundza said.

The reasons for the increases: higher energy costs and increased world-wide demand in a market in which supplies are stagnant, Stundza said. The recent record highs for crude oil are likely to keep the pressure on all commodities.

Among the materials that saw continued price increases in the first quarter were aluminum and copper. Aluminum 3003 sheet rose to $1.69 a pound, up from $1.57 in fourth quarter '05 and $1.30 in the first quarter '04. Copper sheet reached $2.91 a pound, up from $2.85 in the fourth quarter and nearly a dollar a pound higher than the beginning of '04. (Forecasts through the end of '08 for more than 100 materials and commodities are available at www.purchasingdata.com.)

Stainless, cold-rolled and galvanized steels saw slightly moderating prices in the first quarter, but Purchasing forecasts prices will head back up in the second and third quarters this year before beginning to moderate again.

This jibes with reports Foodservice Equipment Reports magazine and FER Fortnightly have heard from manufacturers and fabricators in the field, who say prices for all the metals have been rising in recent months.

The Wall Street Journal Asia reported that U.S. steel shipments rose 3.5% during the first two months of '06 compared with the year earlier period, according to data from the Metals Service Center Institute.

 

General Economy Shows Surprising Strength
The U.S. economy grew faster in the first quarter of 2006 than some economists anticipated. The U.S. Department of Commerce estimates growth of real gross domestic product hit 4.8% in the quarter. The consensus forecast of economists polled in early April by Blue Chip Economic Indicators was 4.6%, though some later surveys estimated growth as high as 5%.

Another aspect of the data release that buoyed economy watchers and employers was a very restrained growth in the cost of labor during the quarter. The Labor Cost Index rose only 0.6% January through March, its lowest quarterly increase since the first quarter of 1999.

Other economic data released in the past two weeks also shows surprising strength, leading some to speculate that the surge could last into the second quarter. Blue Chip economists see growth of 3.4% in the quarter. Most forecasters, including the Federal Reserve Bank, expect growth to slow toward an annualized 3% rate by the fourth quarter of '06.

Durable goods orders rose 6.1% in March. Even after pulling out strong aircraft and defense goods, other capital goods rose 3%, the best showing in months. This confirms a trend toward strong investment by businesses as well as decent consumer spending on such items.

Housing is also holding up better than many had anticipated, with new-home sales rising 13.8% in March.

And job growth has averaged around 200,000 each month during February and March. The positive data raised spirits on Wall Street last week, especially after signals from Fed Chairman Ben. S. Benanke that the Federal bank may put off another interest rate hike after the expected rise to 5% widely forecast by the Fed in next month's meeting. The restrained labor costs may help ease that decision.


Section sponsored by FER E&S Economic Forecast Meetings

Blue Chip Still Predicts A Second-Half U.S Slowdown
Economists surveyed by Blue Chip Economic Indicators may have underestimated first quarter real gross domestic product growth by a couple of tenths of a point, but it's unlikely to sway the more than 50 leading prognosticators from their consensus view that the economy will slow.

Executive Editor Randall Moore pointed out in the April overview that when the meager fourth quarter 2005 growth of 1.7% is combined with the faster 4.8% growth of the first quarter '06, the combined average is 3.3%, continuing the deceleration since the first quarter '04. And so the economists forecast slowing to 3.4% in the second quarter, 3% in quarter three and a below trend 2.8% in the fourth quarter.

Of course, they are not the only ones forecasting this scenario. The Federal Reserve Bank expects a similar outcome.



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