What junk sales and Chicago Fed tell us about the economy

Recycling at the United Scrap yard in Cicero, Friday, March 22, 2013. (Alex Garcia, Chicago Tribune)

My husband and I are buying a house today.

So I sought out two experts — one owns a scrap yard in Cicero — to advise me about the timing of our purchase. Has the economy hit bottom?

First, I drove to United Scrap Metal to interview Marsha Serlin, chief executive and founder of the scrap yard. After a divorce, she started the business with $200 and a rented Budget truck in 1978. She recorded more than $250 million in revenue last year.

Then I called William Strauss. Strauss is a senior economist at the Federal Reserve Bank of Chicago, which processes its own special scrap in the basement: Millions of dollars in worn-out cash. Strauss has worked at the Fed for more than 30 years.

Serlin supplied anecdotes; Strauss shared PowerPoint slides. But they told the same story.

United Scrap's business model is simple. Serlin buys scrap metal. She shears, shreds or chops it into a clean and reusable form, and resells it at a higher price than she paid for it.

The scrap yard accepts old faucets, refrigerators and such — but manufacturing drives her business. She told me to think about the making of a fork. What happens to the metal that was once in between the prongs? It ends up in a scrap yard like Serlin's.

So if the fork production line isn't operating, Serlin has nothing to pick up and process. At the same time, at the depths of the recession, would-be buyers were canceling orders. Her chief operating officer, Larry Snyder, said he couldn't sell copper at any price — and the prices of metals he could sell were dropping by more than half.

"It was for us a very traumatic time," Serlin said. "We tried to stay even with our inventory. We didn't try to hold it for 60 days (and) then sell it. We sold on a daily basis, all day. But we could sell it only for half the price. We had no margin. We had a loss. But '09 picked up ... and we were back to profitability by the beginning of '09. The markets didn't change much, but we had a better handle on it."

Serlin said her company "began buying (scrap) at the right price" and "learned to do more with less." They cut overtime and increased automation, said her son, Brad, United Scrap's president.

Their volumes returned to normal in 2010 and without a doubt, Snyder said, the automotive industry drove their recovery.

Toyota went from needing "no aluminum whatsoever to whatever we could deliver," Snyder said. "They wanted everything we had for months."

Two industries soon followed: commercial construction and telecommunications infrastructure, such as new cell towers and fiber-optic cable lines. Recently, they've seen a pickup in the medical imaging and airport equipment sectors.

Prices have stabilized after years of volatility, and demand has steadied, Snyder and Brad Serlin said.

They still feel weakness, though. Brad Serlin said United Scrap's "portion of the pie is growing" but the pie itself is shrinking.

For instance, Rexam, which makes beverage cans, is moving an Elk Grove Village production line to Ohio at the end of the month for logistical reasons. That will result in 25 positions being cut, although some workers will be moved to other jobs, said a spokesman for Rexam, Greg Brooke.

United Scrap will feel the ripple effect, as giant haystacks of crushed Monster Beverage cans will no longer be processed and resold from its yard.

And when Serlin opened her second location, in Philadelphia in November, she was able to obtain more than 125 pieces of heavy equipment — from forklifts to Bobcats, cranes and trucks — in less than three months.

"That's what really surprised us," Brad Serlin said.

And not in a good way.

"When business is good, you have to wait months to get trucks and equipment," Marsha Serlin said.

At the Federal Reserve, Strauss' numbers queue up with what Serlin's team is experiencing. National output in the motor vehicles and parts industry grew 130 percent from June 2009 to February 2013, leading all other industrial categories, Strauss said.

And the category with the second-highest rise in output, "primary metals," such as steel and aluminum, is a major component of auto production.

"It's like a tennis ball," Strauss said. "The sectors that fall the most can bounce back the strongest."

That's also why manufacturing in the Midwest has outperformed the U.S. economy during the recovery — because we fell more.

"Primary metals and automotive are the sweet spots for Midwest manufacturing," he said. "We have less than 13 percent of the U.S. population but produce about 30 percent of the vehicles and a third of the steel."

In all, American manufacturing has recovered 85.7 percent of the output it lost during the recession, Strauss said.

"We are getting awfully close to reaching all-time record highs in manufacturing," Strauss said.

But here's where the numbers turn grim.

While the manufacturing sector added about 517,000 jobs since mid-2009, that increase represents only 22.6 percent of the jobs lost during the downturn.

"So we've recovered 85 percent of the work with only 22 percent of the jobs," Strauss said. "Manufacturers are becoming more efficient."

Strauss said that we have hit bottom according to most every economic indicator.

Residential housing, though, will not recover until people recover. And many people won't recover — because their jobs will never come back. They'll go do something else at a lower wage.

So I'm not expecting a windfall on my house.

Melissa Harris can be reached at mmharris@tribune.com or 312-222-4582.

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