August 2017 Economic Report

Transcription

1 August 217 Economic Report

2 Table of Contents Economic Overview... 1 Terminology & Methodology.. 2 Business Cycle... 3 US Paper & Paper Products Production Index US Pulp, Paper, & Board Mills Production Index US Commercial Printing Production Index US Paper Bags & Treated Paper Products Production Index US Periodical, Book, and Other Publishers Production Index... 8 US Media Spending on Print Advertising US Durable Goods New Orders (without Aircraft) US Paper Producer Price Index.. 11 Leading Indicators Appendix.. 13 Management Objectives ITR Economics All Rights Reserved

3 overview The US economy, as measured by Real GDP, is growing. US Real GDP was up 2.1% during the second quarter of 217. Accelerating growth in the Manufacturing sector (up.7%) and recovery in the Mining sector (virtually even with the year-ago level) are contributing to the accelerating growth in US Industrial Production (up.%). However, US Electric and Gas Utilities Production is slowing, up.7% year over year, and is expected to contract mildly during the next two quarters. Yearover-year rise will return by early US Industrial Production Index Trend US Consumers are finding themselves in an optimal economic situation consisting of rising real wages, low unemployment, low inflation, low interest rates, a rising stock market, and relatively-low commodity prices. US Overall Wages are up 2.6%,.3 percentage points above the five-year average of 2.3%. Inflation is rising but is low relative to historical norms. Prices at the pump remain low. S&P price growth is accelerating, creating additional wealth for Americans who own equities. Rise in US Savings as a Percentage of Disposable Income, a two -year leading indicator to US Industrial Production, bodes well for consumers ability to drive the US economy during in 218. A strong US consumer is good news for further growth within the US housing market. Global leading indicators, such as the OECD Major Six Leading Indicator and the JP Morgan Global Manufacturing Purchasing Managers Index, are rising. Rising leading indicators evince that we can expect further accelerating growth in the US economy this year. Prepare for a good 8 8 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 second half of the year in the US and global macroeconomy by ensuring you have adequate capital and labor available to avoid capacity constraints. Investing in capital equipment at today s low interest rates is a worthwhile strategy to consider. The paper industry is recovering, in line with upward movement in the US industrial economy. US Paperboard Mills Production is outperforming the industry. US Paper Mills Production is underperforming the industry but is recovering. The general upward movement in those sectors will last for a year before overall decline returns. Invest in process and system efficiencies now to boost your profit margins without over expanding and leaving your company vulnerable to large losses when the declining trend returns. 8 8 ITR Economics 1 August 217

4 Terminology & Methodology Monthly Moving Total (MMT) vs Monthly Moving Average (MMA): Averages are used in cases where the data cannot be compounded, such as an index, percent, price level, or interest rates. Totals are used for cases where it makes sense to add the data together such as units sold or total dollars spent. 3MMT/A and 12MMT/A: Data Trends: A 3-month or 12-month moving total/average is the total/average of the monthly data for the most recent 3 and 12 months, respectively. The 3MMT/A illustrates the seasonal changes inherent to the data series. The 12MMT/A removes seasonal variation in order to derive the underlying cyclical trend. It is also referred to as the annual total or annual average. A rate-of-change figure is the ratio comparing a data series during a specified time period to the same period one year ago. Rates-of-change are expressed in terms of the annual percent change in an MMT or MMA, 3MMT/A, and actual monthly data. Rates-of-Change: Rates-of-change reveal whether activity levels are rising or falling compared to last year. A rate-of-change trend illustrates and measures cyclical change and trends in the data. ITR Economics three commonly used rates-of-change are the 1/12, 3/12, and 12/12, which represent the year-over-year percent change of a single month, 3MMT/A, and 12MMT/A (respectively). A rate-of-change above zero indicates the data is higher than one year prior, while a rate-of-change below zero indicates the data is below one year prior. Accelerating Growth (B): 12/12 is rising and is above zero; the data trend is accelerating in its ascent and is above the year-ago level. This is the second positive phase of the business cycle. Recovery (A): 12/12 is rising but is below zero; the data trend is below the year-ago level and is either heading toward a low or is in the early stages of rise. This is the first positive phase of the business cycle. Business Cycle: The data trends and rates-of-change identify positions in the business cycle. Those positions are: Above year-ago level Below year-ago level 217 ITR Economics All Rights Reserved Slowing Growth (C): 12/12 is declining but remains above zero; the data trend ascent is slowing or has stopped its rise, but it is still above the year-ago level. This is the first negative phase of the business cycle. Recession (D): 12/12 is declining and is below zero; the data trend is below the year-ago level and the rate of decline is increasing. This is the second and final negative phase of the business cycle. ITR Economics 2 August 217

5 Business Cycle Industry Phase Current US Paper & Paper Products Production Index A -.4%.1% -2.3% -2.1% US Pulp, Paper, & Board Mills Production Index A -.8% -.4% -1.1% -1.8% US Commercial Printing Production Index A -.7%.4% -.3% -1.7% US Paper Bags & Treated Paper Products Production Index A -8.% -2.3% 1.3% -6.1% US Periodical, Book, and Other Publishers Production Index A -3.%.9% -.6% -2.4% US Media Spending on Print Advertising D -1.6% -1.1% -7.3% -1.6% US Durable Goods New Orders (without Aircraft) B 2.4% 3.6% 2.% -2.% US Paper Producer Price Index D -.7%.1% -.1%.1% ITR Economics 3 August 217

6 Market Segments US Paper & Paper Products Production Index Annual Trend: 9.9 Phase: A Year-over-Year: -.4% Month Moving Average 12 1 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 8-1 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-1 Industry Outlook 217: 218: 219:.1% -2.3% -2.1% US Paper & Paper Products Production during the 12 months through July was.4% below the year-ago level. Results are tracking along the lower forecast range. However, leading indicator evidence indicates that Production will rise back into range in the coming quarters. The forecast is unchanged from the May report. Production will generally decline through at least the end of 219. The US Paper Capacity Utilization Rate is generally declining, suggesting Production is likely to decline further in the coming months. US Pulp, Paper, and Board Mills Production is in a recovery trend and contributing to the upward movement in Paper & Paper Products Production. US Paper Bag and Coated and Treated Paper Production, down 8.%, is underperforming the market and hindering Production growth. Focus on niche markets as the overall industry falls below pre-recession levels in the coming years. ITR Economics 4 August 217

7 Market US Pulp, Paper, & Board Mills Production Index Segments Annual Trend: 94.9 Phase: A Year-over-Year: -.8% Month Moving Average 12 1 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 8-1 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-1 Industry Outlook 217: 218: 219: -.4% -1.1% -1.8% US Pulp, Paper, & Board Mills Production during the 12 months through July was down.8% from last year. Production is trending along the lower range of the forecast. The forecast is unchanged since the last report. Production will generally decline into late 219. Quarterly US Exports of Paper and Paperboard are up 6.% year over year. Rising Paper and Paperboard Exports indicate that there is potential for mild cyclical rise for Pulp, Paper, & Board Mills Production in the near term. However, the US Paper Capacity Utilization Rate is suggesting that Production rise will be tempered in the short term before decline takes hold by the end of this year. Focus your marketing resources on business sectors with more positive long-term fundamentals. ITR Economics August 217

8 Market Segments US Commercial Printing Production Index Annual Trend: 99.2 Phase: A Year-over-Year: -.7% Month Moving Average 14 2 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 6-2 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-2 Industry Outlook 217: 218: 219:.4% -.3% -1.7% US Commercial Printing Production transitioned to Phase A, Recovery, since the last report. Average annual Production in July was down.7% from the prior year. Results were below the forecast range and leading indicator evidence indicated that the long-term expectations were too optimistic. This necessitated revising the forecast downward. Production activity will plateau through mid-218 before subsequently declining through at least the end of 219, in conjunction with the paper industry and the overall economy. The Printing and Related Support Activities Utilization Rate is 2.9% above the five-year average, suggesting more resources with the industry are being used. The Rate is further supporting our expectation of an ongoing Production recovery. Evaluate your system and process efficiencies to protect profits as Production plateaus, but do not overextend yourself as Production will be below the current level by 219. ITR Economics 6 August 217

9 Market US Paper Bags & Treated Paper Products Production Index Segments Annual Trend: 77.3 Phase: A Year-over-Year: -8.% Month Moving Average 14 2 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 6-2 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-2 Industry Outlook 217: 218: 219: -2.3% 1.3% -6.1% US Paper Bags & Treated Paper Products Production during the 12 months through July was 8.% below the year-ago level. Results are within the forecast range and no adjustments to the forecast are necessary at this time. Production will rise into mid-218 before declining through at least the end of 219. Production is underperforming the overall paper industry. However, an expanding industrial economy will increase the demand for paper productions, such as paper bags and treated paper, driving the growth in Production into mid-218. Make sure your staff is the right size to take advantage of the impending growth period without over hiring, as Production will fall below the current level by mid-219. ITR Economics 7 August 217

10 Market US Periodical, Book, and Other Publishers Production Index Segments Annual Trend: 83.3 Phase: A Year-over-Year: -3.% Month Moving Average 16 1 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 4-2 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-2 Industry Outlook 217: 218: 219:.9% -.6% -2.4% Average annual US Periodical, Book, and Other Publishers Production through July rose for the fifth consecutive month but is down 3.% from one year ago. A data revision resulted in the data coming in above the forecast range, necessitating a revision to the forecast. Production will rise mildly into early 218. Subsequent decline in Production will persist through at least the end of 219. US Total Retail Sales is expected to accelerate into mid Increasing consumer activity bodes well for increased demand in Production and supports the outlook for rising Production into 218. Communicate competitive advantage and build your brand. Setting yourself apart in niche markets will help profits as Production will fall below the current level in 219. ITR Economics 8 August 217

11 Market Segments US Media Spending on Print Advertising Annual Trend: $27.6 billion Phase: D Year-over-Year: -1.6% 6 12-Month Moving Total 6 1 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-2 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-2 Industry Outlook 217: -1.1% US Media Spending on Print Advertising during the 12 months through April totaled $27.6 billion, a decline of 1.6% in comparison to the year-ago level. The forecast was revised downward due to the worst February-to- March increase on record for the Consumer Magazines component and one of the worst March-to April The Newspaper component is in a recovery trend, offsetting recessions in the Consumer Magazines and Business Magazines components. All components will be in recovery trends during the majority of 218 as the consumer gains strength and Retail Sales accelerate. Media Spending will decline through 219. Print increases on record for the Business Magazines advertising is transitioning to website and streaming 218: -7.3% component. This is due to a larger-than-previouslyexpected drop off in advertising after the presidential advertising. Evaluate your workforce needs as print 219: -1.6% becomes more obsolete through 219. election. Spending will generally decline through at least the end of 219. ITR Economics 9 August 217

12 Market US Durable Goods New Orders (without Aircraft) Segments Annual Trend: $2. trillion Phase: B Year-over-Year: 2.4% Month Moving Total 3. 3 Year-over-Year Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 ' '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-3 Industry Outlook 217: 218: 219: 3.6% 2.% -2.% US Durable Goods New Orders (without Aircraft) totaled $2. trillion during the 12 months through June. This was a 2.4% increase compared to the year prior. Results are within the forecast range, and no changes were made to the forecast. New Orders will rise into late 218 before declining into late 219. North America Light Vehicle Production is expected to grow at an accelerating pace into late 218. This will contribute to rising New Orders as increasing Production will increase the demand for durable goods to keep pace with the inventory needed. The US macroeconomy will endure a mild recession in 219. This will drive the decline in Durable Goods New Orders during that time. The durable goods industry will expand into late 218. NPTA members in related industries should ensure that quality control and capacity keep pace with the increasing volume. ITR Economics 1 August 217

13 Market Segments US Paper Producer Price Index Quarterly Trend: 18.6 Phase: D Year-over-Year: -.7% 21 3-Month Moving Average 21 1 Quarter-over-Quarter Growth Rate '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2 1-1 '8 '9 '1 '11 '12 '13 '14 '1 '16 '17 '18 '19 '2-1 Industry Outlook 217: 218: 219:.1% -.1%.1% The US Paper Producer Price Index (PPI) during the three months through July fell.7% from the same time frame one year ago. A data revision necessitated a revision downward to the forecast. Decline will end imminently, and the PPI will generally rise into mid A steep decline in late 218 will be followed by general mild rise through 219. US Wood Pulp Mills Production is generally rising, suggesting the Paper Producer Price Index will rise into 218. Ensure you have the right price escalator and space out price increases in order to keep profit margins healthy without alienating your client base. ITR Economics 11 August 217

14 INDICATORS US Leading Indicators Indicator ITR Leading Indicator ITR Consumer Activity Leading Indicator US Leading Indicator Purchasing Managers Index US Total Capacity Utilization Rate Direction 3Q17 4Q17 1Q18 N/A What it means for the US economy Leading indicator evidence generally suggests rise in US Industrial Production into early 218 The US Purchasing Managers Index 1/12 reached a cyclical peak in early 217, which corroborates our expectation of slowing growth for the US economy after the first quarter of 218 US Total Capacity Utilization Rate and the ITR Leading Indicator are showing tentative signs of cyclical decline. However, more data is necessary to confirm an inflection point for US Industrial Production Green denotes that the indicator signals cyclical rise for the economy in the given quarter. Red denotes the opposite. The US economy is expanding, which will persist into 218, and consumers will drive the expansion. Focus on segments that are consumer related. *We have upgraded this table to provide a more clear, concise dashboard of important US Leading Indicators ITR Economics 12 August 217

15 Appendix Market Definitions US Paper & Products Production Index NAICS 322. Industries in the Paper Manufacturing subsector that make pulp, paper, or converted paper products. Index, 212 = 1, NSA. US Pulp, Paper, & Board Mill Production Index NAICS This industry group comprises establishments primarily engaged in manufacturing pulp, paper, or paperboard. Index, 212 = 1, NSA. US Commercial Printing Production Index NAICS This industry comprises establishments primarily engaged in printing on apparel and textile products, paper, metal, glass, plastics, and other materials, except fabric (grey goods). The printing processes employed include, but are not limited to, lithographic, gravure, screen, flexographic, digital, and letterpress. Establishments in this industry do not manufacture the stock that they print, but may perform post printing activities, such as folding, cutting, or laminating the materials they print, and mailing. Index, 212 = 1, NSA. US Paper Bags & Treated Paper Production Index This industry comprises establishments primarily engaged in one or more of the following: (1) cutting and coating paper and paperboard; (2) cutting and laminating paper, paperboard, and other flexible materials (except plastics film to plastics film); (3) manufacturing bags, multiwall bags, sacks of paper, metal foil, coated paper, laminates, or coated combinations of paper and foil with plastics film; (4) manufacturing laminated aluminum and other converted metal foils from purchased foils; and () surface coating paper or paperboard. Index, 212 = 1, NSA. US Periodical, Book, and Other Publishers Production Index NAICS This industry comprises establishments known either as magazine publishers or periodical publishers. These establishments carry out the operations necessary for producing and distributing magazines and other periodicals, such as gathering, writing, and editing articles, and selling and preparing advertisements. These establishments may publish magazines and other periodicals in print or electronic form. Index, 212 = 1,NSA. US Media Spending on Print Advertising Media spending in the US on print advertising, measured in millions of dollars, NSA. Includes magazine and newspaper advertising. Measured in millions of dollars. US Durable Goods New Orders New orders for durable goods (excluding aircraft) in the US. Trillions of dollars, NSA. US Paper Producer Price Index Cost of production for original manufacturers of paper products. Index, 1982 = 1, NSA. ITR Economics 13 August 217

16 Management Objectives 1 Model positive leadership (culture turns to behavior) Phase 2 Establish tactical goals that lead to strategic achievement 3 Develop a system for measurement and accountability re: objective 2 4 Align compensation plans with objectives 2 and 3 Be keenly aware of the BE (Break Even) point and check it regularly 6 Judiciously expand credit 7 Check distributions systems for readiness to accommodate increased activity 8 Review and uncover competitive advantages 9 Invest in customer market research (know what they value) 1 Improve efficiencies with investment in technology and software 11 Start to phase out marginal opportunities 12 Add sales staff 13 Build inventories (consider lead time and turn rate) A 14 Introduce new product lines 1 Determine capital equipment needs and place orders 16 Begin advertising and sales promotions 17 Hire "top" people 18 Implement plans for facilities expansion 19 Implement training programs ITR Economics 14 August 217

17 Management Objectives 1 Accelerate training 2 Check the process flow for possible future bottlenecks 3 Continue to build inventory 4 Increase prices Consider outside manufacturing sources if internal pressures are becoming tight 6 Find the answer to What is next? 7 Open distribution centers 8 Use improved cash flow to improve corporate governance 9 Use cash to create new competitive advantages 1 Watch your debt-to-equity ratio and ROI 11 Maintain/pursue quality; don t let complacency set in 12 Stay in stock on A items, and be careful with C items 13 Consider selling the business in a climate of maximum goodwill 14 Penetrate new selected accounts 1 Develop plan for lower activity in traditional, mature markets 16 Freeze all expansion plans (unless related to what is next ) 17 Spin off undesirable operations 18 Consider taking on subcontract work if the backside of the cycle looks recessionary 19 Stay realistic beware of linear budgets 2 Begin missionary efforts into new markets 21 Communicate competitive advantages to maintain margins Phase B ITR Economics 1 August 217

18 Management Objectives 1 Begin workforce reductions Phase 2 Set budget reduction goals by department 3 Avoid long-term purchase commitments late in the price cycle 4 Concentrate on cash and balance sheet Reduce advertising and inventories 6 De-emphasize commodity/services in anticipation of diminishing margins 7 Weed out inferior products (lose the losers) 8 Encourage distributors to decrease inventory 9 Identify and overcome any competitive disadvantages 1 Make sure you and the management team are not in denial C 11 Cross train key people 12 Watch Accounts Receivable aging 13 Increase the requirements for justifying capital expenditures 14 Evaluate vendors for strength (don t get caught honoring their warranties with no one to accept returned goods) 1 Manage the backlog through pricing and delivery; try to fill the funnel ITR Economics 16 August 217

19 Management Objectives 1 Continue force reduction 2 Reduce advertising be very selective 3 Continue to avoid long-term purchase commitments 4 Review all lease agreements Increase the requirements for justifying capital equipment 6 Eliminate all overtime 7 Reduce overhead labor 8 Combine departments with like capabilities and reduce management 9 Select targets of opportunity where price will get the business 1 Tighten credit policies increase scrutiny 11 Look for opportunistic purchases 12 Grab market share as your competitor dies 13 Prepare training programs 14 Negotiate union contracts, if possible 1 Develop advertising and marketing programs 16 Enter or renegotiate long-term leases 17 Look for additional vendors 18 Consider capital expenditures and acquisitions in light of market-by-market potential 19 Make acquisitions use pessimism to your advantage 2 Lead with optimism and can do attitude to mitigate employee anxiety Phase D ITR Economics 17 August 217