Presented by ITR Alan Beaulieu October 211 alan@itreconomics.com
15 US Industrial Production to Gross Domestic Product Year-over-year Quarter to Quarter (3/12) 2 15 1 1 5 3.4% 5-5 -1-15 -7.1% GDP US IP -3.1% -5.3% -14.6% '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-5 -1-15
Recovery Leading indicators pointing up Liquidity is not an issue Exports are up Simulative monetary policy Employment rising (companies right-sized) Banks are lending Normal seasonal rise in Retail Sales $447 bils stimulus program
Recession in 212 Europe s financial troubles might China s housing/inflation bubble could International banking crisis becomes Oil prices could break through $12 USD could lose all credibility causing
2 Global Industrial Production Indices 12/12 Rates-of-Change 5 2 1 8.4 SE Asia 5.9 Europe 4.9 US 4.8 Mexico 2.9 Brazil -.2 Japan 1-1 -1-2 -2-3 ' '2 '4 '6 '8 '1 '12 '14-3 ITR Trends Report
Example: Revenue 12MMT 6 Monthly Sept Oct Nov Dec 1 1 1 1 3MMT = 4.63 12MMT = 17.54 Jan Feb Mar 11 11 11 3MMT = 5.14 Apr May June 11 11 11 3MMT = 4.98 July Aug Sept 11 11 11 3MMT = 4.22 3MMT = 3.95 3MMT = 4.24 12MMT = 18.7 12MMT = 18.97 8.2%
RATE-OF-CHANGE 7 ACTUAL MONTHLY DATA AS OF 9/11 ACTUAL MONTHLY DATA AS OF 9/1 = 1/12 3-MOS MOVING TOTAL (3MMT) AS OF 9/11 3-MOS MOVING TOTAL (3MMT) AS OF 9/1 = 3/12 ANNUAL MOVING TOTAL (12MMT) AS OF 9/11 ANNUAL MOVING TOTAL (12MMT) AS OF 9/1 = 12/12
8
12 Employment Private Sector Annual Data Trend 9 12 115 115 11 11 15 15 1 1 95 95 9 85 Employment Mils of Jobs '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 9 85 ITR Trends Report
25 2 15 Commercial & Industrial Loans at Commercial Banks Rates-of-Change Don t forget private equity and alternate sources Two to three year period of adjustment 1 25 2 15 1 1 5 5-5 -5-1 -1-15 3/12 12/12-15 -2 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-2
R-O-C 15 M2 Money Supply Trillions of 82$ 11 MMA 6. 1 12/12 Oct '9 5.5 5 1/12 Nov '1 6.2 2.6 5. 4.5-5 Dec '9 4. 4. -1 3.5-15 12MMA Actual 3. -2 2.5-25 Jul '95 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 2. ITR Trends Report
R-O-C 2 Crude Oil Futures Prices Light & Sweet $ per Barrel 12 MMA 36 1 28 3/12 12/12 Sep '1 2.5 14.2 2 Sep '9-1 Sep '8 94. 12-2 12MMA 3MMA Sep '9 4-3 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-4 ITR Trends Report
CPI 5 Consumer Price Index to Crude Oil Futures Prices 12/12 Rates-of-Change 13 OIL 25 4 2 3 15 2 1 1 5-1 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 CPI OIL -5 ITR Trends Report
22 Mortgage Rates to Federal Funds Raw Data 14 22 18 18 14 14 1 1 6 6 2 Mortgage Rates Federal Funds 2-2 1975 198 1985 199 1995 2 25 21 215-2
Managing Inflationary Pressures 15 Phase B raise prices (as justified) Consider real cost of living vs. nominal CPI Highlight quality, content, service ~ competitive advantage Borrow now fixed as long as possible o Inflation favors debtors o Purchase land/property leasing rises with inflation o Build in efficiencies for long-term cost savings Lower fixed costs ~ increase variable costs for increased flexibility Re-assess domestic sources (inflation will be imported) Rigorous cost controls hire the best accountant/cfo R & D ~ substitute products and materials Move liquid assets off shore Hire now and/or lock in labor rates Select price indices that magnify inflation negotiating with customers Select price indices that minimize inflation negotiating with vendors o Get Vendors to agree to longer-term price commitments Sell overseas
25 General Government Gross Debt as a % of GDP (Selected Countries) 16 2 15 1 5 Source: IMF
Total U.S. Public Debt (% of GDP) 17 14 12 12.% 14 12 1 1 8 8 6 6 4 4 2 2 192 193 194 195 196 197 198 199 2 21
Trends 1 18 Medical Wholesale Trade Retail Production New Orders Prices Foreign Financial Soft Landing Nonresidential Construction Housing Hard Landing ITR Trends Report
US Industrial Production to Chemicals & Products Production 12/12 Rates-of-Change 19 US IP 8 Chemicals 8 4 4-4 -4-8 -8-12 -16 US IP Chemicals '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14-12 -16
US Industrial Production to Iron & Steel Products Production 12/12 Rates-of-Change 2 US IP 12 Production 6 6 3-6 -3 US IP Steel Production -12 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-6
US Industrial Production to Paper & Products Production 12/12 Rates-of-Change 21 US IP 8 Production 1 4 5-4 -5-8 -1-12 US IP Paper Production '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-15
US IP 15 US Industrial Production to Foods Production 12/12 Rates-of-Change 22 Production 9 1 6 5 3-5 -3-1 US IP Food Production -15 1975 198 1985 199 1995 2 25 21 215-6 -9 ITR Trends Report
US Industrial Production to Textile Mill Products Production 12/12 Rates-of-Change 23 Production 15 US IP 15 1 1 5 5-5 -5-1 -1-15 -2 Textile Production US IP '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-15 -2
Nondefense Capital Goods New Orders w/o Aircraft Billions of $ 24 R-O-C 4 MMT 16 2 3/12 12/12 Feb '11 14.9 1.2 14 12-2 Oct '9 1 Jul '8-4 12MMT $77.7 8-6 3MMT Nov '9 6-8 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 4 ITR Trends Report
8 Purchasing Managers Index ISM Dec '9 25 8 6 6 4 4 2 2-2 1/12 12/12 Dec '8-4 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-2 -4 ITR Trends Report
US Leading Indicator 1996 = 1 26 R-O-C 12 MMA 155 1/12 Oct '1 6 12/12 6.2 5.2 14 125-6 Aug '7 Apr '9 113.3 11-12 Jun '9 95-18 12MMA Actual 8-24 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 65 ITR Trends Report
Velocity of Money Rates-of-Change 27 1 1 5 Jul '1 5.3-5 -5.3-5 -1-1 -15 1/12 Jun '9-15 12/12-2 '6 '8 '1 '12 '14-2
R-O-C 6 Stock Prices Index S&P 5, 1941-43 = 1 28 MMA 42 1/12 12/12 3 34 15.5 -.9 26-3 18-6 12MMA 3MMA 1269.4 1-9 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 2 ITR Trends Report
R-O-C Retail Sales Excluding Automobiles Trillions of 82-84$ 29 MMT 14 4.75 7 12/12 3/12 Feb '11 4. 2.8 1.2 3.25 Jul '9-7 Nov '7 $2.94 2.5-14 3MMT 12MMT Jan '1 1.75-21 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 1. ITR Trends Report
Housing Starts Millions of Units 3 R-O-C MMT 3 3/12 12/12 4.2 15 Nov '1 3.7 5. -3.2 3.2-15 May 11 2.7-3 3MMT 12MMT Mar '6 2.2-45 1.7-6 1.2-75 -9 Dec '9.571 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14.7.2 ITR Trends Report
US Industrial Production to Private Non-Residential Construction 12/12 Rates of Change Construction 3 31 US IP 21 2 14 1 7-1 -7-2 -3 Private Construction US IP '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-14 -21 ITR Trends Report
National Defense Expenditures to Defense Capital Goods N.O. 12/12 Rates-of-Change 32 Expenditures 2 Orders 75 16 Expenditures Orders 6 12 45 8 3 4 15-4 -15-8 Carter Reagan Bush Clinton Bush Obama -3-12 1975 198 1985 199 1995 2 25 21 215-45
US IP 15 Company W to US Industrial Production 12/12 Rates-of-Change 33 Company W 75 1 5 5 25-5 -25-1 -15 US IP Company '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14-5 -75
Four Phases 34 Expansion B C B C A D A D Bankrupt ITR Trends Report
Phase Management Objectives TM : Phase Late A Recovery 35 1. Positive leadership modeling (culture turns to behavior) 2. Establish goals: tactical goals which lead to strategic achievement 3. Develop a system for measurement and accountability re:#2 4. Align compensation plans with #2 and #3 5. 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 ITR Trends Report
Phase Management Objectives TM : Phase Late A Recovery Part 2 36 11. Start to phase out marginal opportunities 12. Add sales staff 13. Build inventories (consider lead time and turn rate) 14. Introduce new product lines 15. 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 Trends Report
Phase Management Objectives TM : Phase Early B Growth 37 1. Emphasis on Customer Service 2. Check the process flow for possible future bottlenecks 3. Continue to build inventory 4. Increase prices 5. Consider outside manufacturing sources if internal pressures becoming tight 6. Find the answer to What 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 ITR Trends Report
Phase Management Objectives TM : Phase Late B Early C Prosperity 38 1. Stay in stock on A items, be careful with C items 2. Consider selling the business in a climate of maximum goodwill 3. Penetrate new selected accounts 4. Develop plan for lower activity in traditional, mature markets 5. Freeze all expansion plans (unless related to what is next ) 6. Spin off undesirable operations 7. Consider taking on subcontract work if the backside of the cycle looks recessionary 8. Stay realistic beware of linear budgets 9. Begin missionary efforts into new markets 1. Communicate competitive advantages to maintain margins ITR Trends Report
Net Migration Top 15 39 Thousands 23 21 TX 19 17 15 13 NC 11 9 7 5 3 UT AL CA VA NV OR TN CO SC WA FL GA AZ 1-1 US Census Bureau, Annual Population Estimates, Net Migration 1 July 28-1 July 29
Net Migration Bottom 15 4 Thousands 1-1 -2 ID NJ MD RI AK VT ND NE WI MS NH HI -3-4 OH -5-6 -7 NY -8-9 -1 MI US Census Bureau, Annual Population Estimates, Net Migration 1 July 28-1 July 29
Find a way to business in the countercyclical or largely unaffected areas: 41 Energy Green Water Canada/Exports Higher Education Health Care Practices Food Pets Funeral Services Alcohol Security Legal Services (Diversified)
7 Must Watch Items 42 Money Supply Corporate Bonds Rate-of-Change US Leading Indicator Purchasing Managers Index Retail Sales Employment Nondefense Capital Goods New Orders Available from ITR via ITR Trends Report, the ITR Advisor, or on the web
The Road Ahead (actual results may vary stay tuned!) 43 211 Slower rate of recovery 212 Ongoing recovery 213 Flattens out; recession begins 214 Recession 215 Growth 216 Growth 217 Growth
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