Winds of Change Alex Chausovsky Senior Consulting Advisor MCAA Summary April 218 Macroeconomic Rise for 218 US Global Global Issues Impacting Businesses Tariffs Leading Indicator Signals are Mixed Know which ones matter to you How to track the leading indicators
MCAA Summary April 218 Beware of Business Cycle Decline in 219 Some industries hit harder than others Consumer is the source of concern Additional Profit Margin Pressure Points Employment Inflation Issues The Long View is Unchanged Severe business cycle decline 23-24 217 Forecast Results If you heard ITR around two years ago 4 Duration Accuracy US GDP 24 99.7% US Ind. Prod. 24 96.8% Europe Ind. Prod. 27 99.9% Canada Ind. Prod. 24 96.7% China Ind. Prod. 3 97.8% Retail Sales 25 98.% Housing 27 99.5% Employment 23 99.5% ITR Economics provides the best economic intelligence to reduce risk and drive practical and profitable business decisions.
General Economic Outlook 2 US Gross Domestic Product SAAR, Chained 29 $ US Gross Domestic Product Quarter-over-Quarter Growth Rate 3-Month Moving Average 3/12 Rate-of-Change 2 9 9 18 18 6 3 6 3 16 16 14 14-3 -6-3 -6 12 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 12-9 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2-9 $17.3 trillion Phase: B Quarter-over-Quarter: 2.6% ITR Outlook 218: 219: 22: 1.6% 1.2% 2.8% Source: BEA 6
US GDP by Consumption Government Spending 17% Business Investment 16% Personal Consumption 67% Percent Sources: BEA, ITR Economics US Industrial Production Index 114 US Industrial Production Index 12-Month Moving Average 114 1 Year-over-Year Growth Rate 12/12 Rate-of-Change 1 19 19 5 5 14 99 94 14 99 94-5 -5 89 89-1 -1 84 84-15 -15 Annual Trend: 14.7 Phase: B Year-over-Year: 2.5% ITR Outlook 218: 2.9% 219: -1.2% 22: 2.3% Source: FRB
US IP 12 8 4 Manage the Business Cycles to Maximize Profits US Industrial Production to Gross Domestic Product Manufacturing ~ 76% of Industrial Production Mining ~ 14% of Industrial Production Utilities ~ 1% of Industrial production 4.1% GDP 12 8 4-4 -8-12 -16-6.9% GDP US IP -2.9% -5.2% -15.5% '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Year-over-Year, Quarter-to-Quarter (3/12) Sources: FRB, BEA -4-8 -12-16 9 Canada Industrial Production ROC MMA 2 47 1 3/12 12/12 5.% 3.5% 44 41-1 -2 3MMA 12MMA 374.1 38 35-3 32-4 29 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of chained 27 Canadian Dollars Source: Statistics Canada 1
Mexico Industrial Production Index R-O-C 15 MMA 18 3/12 12/12.3% -.3% 14-15 3MMA 12MMA 13.6 1-3 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 28 = 1 Source: CEIC 6 11 Tax Reform
Real Gross Domestic Product 16 12 8 4-4 -8 195 196 197 198 199 2 21 22 Republican Democrat GDP 3/12 3/12 Rate-of-Change Source: BEA 13 7% 6% 5% Freed Up Money Likely Not going to Capex US Corporate Tax Rate and Gross Business Investment Corporate Tax Rate % Gross Business Investment (% of GDP) Linear (Gross Business Investment (% of GDP)) 14 7% 6% 5% 4% 4% 3% 3% 2% 2% 1% 1% % '6 '64 '68 '72 '76 '8 '84 '88 '92 '96 ' '4 '8 '12 '16 % Percent Sources: Tax Policy Center, FRED 14
ATLANTA FED IS WATCHING On business investment, roughly two thirds of respondents to our national survey indicated that the reform wouldn't affect their capital expenditures at all. Just 15 percent said they would increase their capital spending by 1 percent or more, and those responses came mostly from smaller firms. ~ Raphael Bostic Atlanta Federal Reserve Chair Rotary Club of Atlanta January 8, 218 US Tax Rates and Real GDP Growth Real GDP Growth Rate 8.% 6.% 4.% 2.% 1.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.%.% 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 22 Real GDP Growth Rate Top Marginal Tax Rate Top Marginal Tax Rate Sources: Tax Foundation, BEA, 16
Issues Government Will and Won t Tackle Tax/Exp/Paym $3, $2,625 $2,25 $1,875 $1,5 $1,125 $75 $375 $ Current Tax Receipts Consumption Expenditures Current Transfer Payments Interest Payments Interest $3, $2,625 $2,25 $1,875 $1,5 $1,125 $75 $375 $ Billions of Dollars Source: BEA 17 Total U.S. Public Debt 14 12 1 The Long View 121.3% 14 12 1 8 8 6 6 4 4 2 2 192 193 194 195 196 197 198 199 2 21 22 (% of GDP) Source: Usgovernmentspending.com 18
Trade Imports, bils $ 6 Import Share Pre and Post the Great Recession US Iron and Steel Imports to US Steel Apparent Consumption Production, 212=1 15 45 3 37.7 94.1 12 9 15 6 Steel Imports - 12MMT Steel Production - 12MMA ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 12MMA, 12MMT Sources: US Census Bureau; FRB 3 2
Share of US Steel Imports by Country, 217-4.% 1.% 6.% 11.% 16.% 21.% Canada Brazil Korea Mexico Russia Turkey Japan Germany Taiwan India China Others 5.7% 5.% 4.% 3.3% 2.2% 2.1% 9.9% 9.2% 8.3% 13.5% 16.5% 2.3% Percent of Steel Imports Source: Census Bureau US Trade Balance for Goods and Services -25-25 -35 12MMT -35-45 -45-55 -65 3MMT -566. -55-65 -75-75 -85-85 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of dollars Source: US Census Bureau
US Steel Mill Employment R-O-C 1 MMA 24 5 3/12 12/12 5.5% 2.8% 22 2-5 -1-15 -2 3MMA 12MMA 17.8 Steel Jobs: approx. 169k jobs highest since 1992 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Thousands Source: BLS 18 16 14 12 The Decline of US Manufacturing Apparel Manufacturing Textile Mills Leather and Allied Products Printing and Related Activities Furniture Textile Product Mills Computer and Electronics Electrical Equipment/Appliance Wood Products Apparel Manufacturing Textile Mills Leather and Allied Products Printing and Related Activities Furniture Textile Product Mills Computer and Electronics Electrical Equipment/Appliance Wood Products Paper Paper FIRMS Primary Metals Primary Metals WORKERS Nonmetallic Mineral Products Plastics and Rubber Products Machinery Fabricated Metal Products Miscellaneous Chemicals Transportation Equipment Petroleum and Coal Products Food Manufacturing Beverage and Tobacco Products Nonmetallic Mineral Products Plastics and Rubber Products Machinery Fabricated Metal Products Miscellaneous Chemicals Transportation Equipment Petroleum and Coal Products Food Manufacturing Beverage and Tobacco Products -6% -3% % 3% 6% 9% 12% 15% 18% -1% -5% % 5% Percent Share of Global Manufacturing, by Value Added Source: Harvard Business Review
Manufacturing Increasingly Takes Place in Asia 1% 9% 8% 7% 6% 6 6 6 6 6 6% 7 6 6 6 5 24% 25 26 25 21 2 Rest of World Latin America North America 6% 5% 4% 24% 28 29 33 41 45 South/East Asia 3% 2% 1% 4% 34 33 3 26 24 Europe % 199 1995 2 25 21 215 Percent Share of Global Manufacturing, by Value Added Source: Harvard Business Review China Reacts with Tariffs on US Imports 7 Various Pork Products (out of 8 total) Scrap Aluminum
China Reacts with Tariffs on US Imports 78 Fruit & Nut Products (out of 12 total) Stainless Steel Pipes Wine Ginseng Modified Ethanol $6 Billion in New Tariffs Aimed at China Trade War Ahead? $1 The US is China s Biggest Customer Exports from the US to China stand at $13.1bn, or.7% of US GDP. Exports from China to the US are a record high $436.9bn, or 3.8% of China GDP. Slowing exports to the US will hurt their economy more than ours but it is not risk free. Downstream Potential InflationUS Consequences Production Job & Profit Loss in Export Supply Chain (to China) Industry Exports US $ bn Aerospace $ 16.3 Soybeans $ 12.4 Motor Vehicles $ 1. Semiconductors $ 6.9 Oil & Gas $ 6.9 Waste & Scrap $ 5.6 Ctrl Instruments $ 5.6 Synthetic Rubbers $ 3.9 Pharmaceuticals $ 3.4 Ind l Machines $ 3.3 Source: US Census Bureau
US Top Goods Export by State Based on annual data, 217 Source: US Census Bureau How Does Manufacturing Contribute to Exports? In 216, about 6 in 1 US Export Dollars came from manufacturers. $847.8 B Manufacturers (58.8%) $329.3 B Wholesalers (22.8%) $264.8 B Other and Unclassified (18.4%) Dollars Source: Census Bureau 3
Caterpillar 996g Wheel Loader US-made 217 Cost: 218 Cost: Difference: 271,428 237,5-33,928 Liebherr L576 Wheel Loader German-made 245, 245, 33 Interest Rates
16 14 12 1? 8 6 4 2 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Source: FRB Yield on 1 Year Treasury Note 6 5 FOMC Member Interest Rate Projections December 217 Fed Open Market Committee March 218 4 3 2 1 218 219 22 Longer Run Source: FRB 36
3 2 1-1 -2 8.9% 7.8% 45 3 15-15 -3 Rate-of-Change & Leading Indicators Tools for Seeing the Future -3 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2-45 Leading Indicators Industry Data 18 May 21 May 211 Leading Indicator 12 12 6-6 December 217 8 4-4 -12-18 -24-3 Industry Data - 12/12 ITR Leading Indicator - Monthly ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 The Indicator has a 12-month lead time to the Industry Data Rates-of-Change Sources: FRB, ITR Economics -8-12 -16-2 38
US IP, G7 15 Leading Indicator System as a Powerful Tool US Industrial Production Index to Leading Indicators PMI, Wilshire, Profits, JP Morgan 6 1 4 5 2-5 US IP - 12/12-2 US IP Forecast G7 Indicator - 1/12-1 PMI - 1/12-4 Wilshire Market Cap - 3/12 Corporate Profits - 12/12-15 JP Morgan Indicator - 3/12-6 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 Rates-of-Change Sources: FRB, OECD, ISM, Yahoo Finance, BEA, IHS Markit US IP 1 Searching for a Recession US Search Interest for "Recession" on Google to US Industrial Production Index Search Interest -8 5 12/12-4 -5 3/12 4-1 -15 US IP 12/12 US IP Forecast Search Interest 3/12 (post-log transformation) '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 8 12 Rates-of-Change (Search Interest has a 16 month lead time) Sources: Google, FRB
Negative Indication for 219 US Personal Savings as a Percentage of Disposable Income Sales 12 Index 9 8 7 4 5 3 4 8 Retail Sales 12/12 Retail Sales Forecast 12/12 1 1 Savings Rate 12MMA 12 3 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21 '22 '23 '24 12/12 Rates-of-Change Sources: Census Bureau, BEA 41 Industry Drivers
R-O-C 2 US Nondefense Capital Goods New Orders w/o Aircraft A positive impact from the tax law will show up here 3/12 12/12 7.1% 6.4% MMT 15 125-2 1-4 3MMT 12MMT $785.1 75-6 5 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of Dollars Source: Census Bureau 43 US Petroleum Refineries Production R-O-C 14 MMA 16 7 3/12 12/12 145-7 -1.2% -1.2% 13 115-14 3MMA 12MMA 15.9 1-21 85-28 7 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 N32411, 22 = 1 Source: FRB 44
U.S. Oil & Gas Extraction Production Index R-O-C 16 8 3/12 12/12 12.3% 7.5% MMA 21 185 16-8 138. 135-16 3MMA 11-24 -32 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 12MMA As seen in 212 = 1 Source: FRB 85 6 45 US Mining Production Index (excluding oil & gas) R-O-C 1 3/12 12/12.2% -3.5% MMA 175 15-1 12MMA 3MMA 125-2 91.7 1-3 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 75 212 = 1 Data Source: FRB 46
US Iron & Steel Products Production Index R-O-C 75 NAICS 3311, 2 Production index for the manufacture of iron and steel products. 3/12 12/12 4.9% 3.4% MMA 22 16 3MMT 12MMT -75 92.5 1-15 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 212 = 1 Source: FRB 4 47 US Industrial Machinery Production Index R-O-C 4 3/12 MMA 335 12/12 3.8% 1.7% 245-4 3MMA 12MMA 155 1.7-8 65 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 212 = 1 Source: FRB 48
R-O-C 8 US Electric Power Generation, Transmission and Distribution Production Index 3/12 7.6% MMA 22 4 12/12.6% 19 16-4 3MMA 13-8 12MMA 12. 1-12 7 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 212 = 1 Source: FRB 49 US Total Power Facilities Construction R-O-C 1 5 3/12 12/12 MMT 185 16-5 -6.6% -7.2% 135 11-1 98.7 85-15 3MMT 12MMT 6-2 35-25 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of Dollars Source: US Census Bureau 1 5
US Public Water and Sewer Facilities Construction R-O-C 3 MMT 1 3/12 15 12/12 5.2% -7.9% 85 7-15 -3 3MMT 12MMT 55 4-45 31. 25-6 1 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Public, Billions of Dollars Source: US Census Bureau 51 US Chemicals & Products Production Index R-O-C 1 3/12 3.5% 2.2% MMA 17 15-1 -2 3MMA 12MMA 12/12 13 11-3 96.4 9-4 7 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 27 = 1 Source: FRB 52
US Food Production Index R-O-C 6 3 3/12 12/12 4.9% 4.7% MMA 14 13 12-3 112.3 11 3MMA 12MMA -6 1-9 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 N311, 27 = 1 Source: FRB 9 53 US Paper & Products Production R-O-C 1 12/12 3/12 MMA 15-1.5-2. 135-1 12 12MMA -2-3 3MMA 96.3 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 22 = 1 Source: FRB 15 9 54
North American Market Sectors 218 Outlook Industry Phase April 218 Forecast 218 US Industrial Production Index B 2.5% 2.9% Nondefense Capital Goods New Orders B 6.4% 4.7% Oil & Gas Extraction Production Index B 7.5% 6.2% Mining Production Index (excl. Oil & Gas) C.2% -1.8% Iron & Steel Products Production Index B 4.9% 3.4% Industrial Machinery Production Index C 3.8% 1.4% Electric Power Generation Production B.6% 2.4% Total Power Facilities Construction D -7.2% 1.1% Water & Sewer Facility Construction A -7.9% 6.2% Chemicals Production Index B 2.2% 2.4% Food Production Index B 4.7% 2.6% Paper Production Index D -1.5% -2.3% Summary
Business Cycles 217 218 219 Phase A - Recovery Phase B Accelerating Growth (Best) Phase C Slowing Growth (Caution) Phase D - Recession Annual Sales are BELOW Year-Ago Levels, but the Rate-of-Decline is SLOWING. Annual Sales are ABOVE Year-Ago Levels, and are GROWING at a RAPID Pace. Annual Sales are ABOVE Year-Ago Levels, BUT the Rate-of-Growth is SLOWING Annual Sales are BELOW Year-Ago Levels, and are DECLINING at a RAPID Pace. 58
Things to Pay Attention to in 218 and Beyond Impact of Tax Reform on US Debt Tariffs and Trade Weakening Dollar and Interest Rates Inflationary Pressures Employee Retention 59 3 Month Complimentary Subscription Email updates@itreconomics.com with the subject line MCAA ALEX IS COOL! ITR Economics Sales Team
ALEX CHAUSOVSKY Alex Chausovsky is an accomplished Speaker and Consultant at ITR Economics. He is a highly experienced market researcher and analyst with more than a decade of expertise in subjects that include macroeconomics, industrial manufacturing, energy efficiency, automation, and advanced technology trends. He has consulted and advised companies throughout the U.S., Europe, Brazil, China and Japan for the last fifteen years. REVIEWS As director of content for The Automation Conference, my main objective is to feature speakers who are both dynamic and relevant. That s why we ve featured Alex Chausovsky twice in the past four years. His presentations are on topic and captivating for the audience, due in large part to his clear and concise delivery of information. David Greenfield, Director of Content/Editor-in-Chief, PMMI Media Group/Automation World Alex is a consummate professional, whose presenting skills are both engaging and enjoyable. He is able to put across a great deal of detailed information in an enthusiastic, yet structured fashion. He is an eloquent speaker, whom I have had the pleasure in booking for several industry based conferences that I have staged. He brings authority and gravitas to any speaking engagement, and I would have no hesitation in recommending him to others. Andrew Castle, Managing Director, Touchwave Media SPEAKER PROFILE www.itreconomics.com p. 63.796.25 e. itr@itreconomics.com tweet. @itroutlook ABOUT ALEX Alex regularly delivers keynote addresses at leading industry events to rave reviews. His charisma, engaging personality and refreshing demeanor on stage always surpass the audience s expectations. His extensive consulting expertise is greatly valued by management teams of companies both large and small. ITR Economics clients rely on his input when developing strategic plans for the future, as he helps them plan for risk conditions and find areas of opportunity. ALEX S PRESENTATION Alex s presentation covers a wide variety of topics including short-and long-term global economics forecasts, regional economic updates, and outlook on inflation, and the relationship of political events and economics growth. He details the economics indicators executives should follow and provides proven strategies for leveraging economic forecasts at the company level. BOOKING INFORMATION To book a speaker from ITR Economics, please call 63.796.25 or email itr@itreconomics.com. Visit www.itreconomics.com and stay in touch with us through our blog and social media. ABOUT ITR ECONOMICS Founded in 1948, ITR Economics is the oldest, privately-held, continuously operating economic research & consulting firm in the United States. With a long-term 94.7% accuracy rating, ITR Economics has forecast major economic events, such as the 28 recession, well in advance and provides reliable industry and company forecasts tailored to client s needs. ITR Economics also offers economic webinars, subscription periodicals, consultative reports, and data collection services.
FIRST IN FORECASTS SINCE 1948 Want to reduce risk when deciding where and when to allocate resources? Join the thousands of businesses who are doing just that by using ITR s forecasting tools. ITR has a 94.7%Forecast Accuracy. Our unmatched 94.7% forecast accuracy at four quarters out allows us to help business executives make strategic movements with confidence. Driving practical and profitable business decisions. We are here to make you even more successful. We work to increase your foresight of the economic trends that will directly impact your business and help you plan for the future. Initiative Understanding events impacting business activity Resource Allocation Marketing Initiatives Sales Forecasting Setting Sales Goals Benchmarking for gauging internal success Budget Setting Increasing internal forecasting accuracy/ability EVP Series Available Solutions from ITR Economics TrendCast Trends Report DataCast Company Forecast Advisor Because I listened to you and trended our business as you suggested, we have been able to weather the automotive crisis thus far. Monique Ullom President, CVWN Autopark ITR Economics Sales Team Receive a complimentary preliminary analysis! Contact us to learn how our Leading Indicator Programs can help you steer your success! www.itreconomics.com // itr@itreconomics.com // 63.796.25 // @itroutlook