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The past few months have offered tangible proof of an economic recovery in the United States, but executives in the industrial and transport sector, whose businesses rely on that recovery, still see plenty of reasons for caution.A debt crisis in Europe -- which helped put global stock markets into a tailspin last week and then drove a similarlyrapid rebound on Monday -- is one of the areas of uncertainty. Others include the strength of the U.S. consumer amid 9.9 percent unemployment and new regulation from U.S. President Barack Obama's administration."It will take consumer spending quite a while to recover here, based on all the uncertainty that's still out there," Bill Zollars, who heads the No. 1 U.S. trucker YRC Worldwide Inc, told the Reuters Manufacturing and Transportation Summit."Customers are coming back in greater numbers. (The recovery) is probably going to be slower and more gradual than in previous recessions. It's certainly not a V-shaped recovery."Zollars said the environment remains unpredictable and volatile, citing Europe's debt crisis as an example. The European Union agreed on an emergency loan package on Monday that with International Monetary Fund support could reach 750 billion euro ($1 trillion) to prevent the spread of a debt crisis within the euro zone.The industrial Midwest, the so-called "Rust Belt" region of the United States, is recovering more quickly than other parts of the country, Zollars said.Jim Griffith, the chief executive of global bearings maker Timken Co of the Rust Belt city of Canton, Ohio, feels "hopeful but cautious" about the sustainability of a U.S. economic recovery."We believe the recovery is real," Griffith told the summit. "We believe it's modest, and we're running the company on the basis that there will be a slow, gradual improvement in the economy."Timken, which saw shipments of some of its products drop by more than half during the worst part of the recession, is not ready to declare the recovery sustainable, because it cannot predict demand beyond a couple of months. A list of concerns for a company with a global supply chain also includes the health of suppliers, Griffith said."Whether this recovery is sustainable, whether it continues at a moderate pace or accelerates, has dramatically different results for us," Griffith said. "We can go from people-rich to capacity-constrained very quickly."'THE REAL DEAL'The key to the next few months will be business -- as opposed to consumer -- spending, said Bill Phelan, president of PayNet Inc, which publishes a monthly index that measures the volume of financing."The recovery is beyond just an export-driven recovery," Phelan said. "It's taking hold domestically among all levels of the economy. We can say with more confidence that this is the real deal."Lending to small businesses is up, loan delinquencies are falling at their fastest rate ever, and capital spending is up in industries like transportation and agriculture.Still, the recovery is happening slowly, he said. Capital spending by consumer and restaurant companies is still down, and it is still falling in the construction sector. Though delinquency rates are declining, they remain elevated."The banks' big issue is finding healthy earning assets," Phelan said.Phelan described an environment where both lenders and business executives are trying to figure out the contours and defining characteristics of a new economic cycle. For now, uncertainty is the defining factor, Phelan said, something underscored by last week's extraordinary stock market volatility.The trouble in Europe puts a question mark over exports; the new U.S. healthcare law -- and prospects for other new regulation -- add uncertainty over costs; and lenders need to both put money to work and avoid undue risk."We're moving into a new era of uncertainty," Phelan said. "The storm clouds are on the horizon. With so much liquidity out there, (you have) conditions for a frothy market."(Reporting by Nick Zieminski, editing by Gerald E. McCormick)
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