FISCAL REALITY. Alan Beaulieu, President, ITR Economics

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1 FISCAL REALITY Alan Beaulieu, President, ITR Economics Alan s presentations cover a wide variety of topics including short- and long-term global economic forecasts, regional economic updates, an outlook on inflation, and the relationship of political events and economic growth. He details what economic indicators executives should follow and provides proven strategies for leveraging economic forecasts at the company level. One of the country s most informed economists, Alan Beaulieu is a principal of ITR Economics where he serves as President. He leads the company s European office and serves as chief economist for numerous US and European trade associations. He is co-author of Make Your Move, a book on profiting in business cycle changes, and is a contributing editor for Industry Week magazine. Since 199, Alan Beaulieu has given over 5, presentations to business leaders, corporate executives, and trade association members at meetings and conferences across the globe. He has spoken to thousands of business leaders in sectors such as manufacturing, healthcare, distribution, real estate, construction, and technology. ITR Economics 166 King Street Boscawen, NH 333 Telephone: Fax: erin@itreconomics.com

2 AMT Global Forecasting and Marketing Conference October 213 Make Your Move: Alan Beaulieu ITR Economics 212 Forecast Results 2 Duration Forecast Actuals GDP 12 $ Trillion $ % US Ind. Prod (12MMA) 97.2.% EU Ind. Prod (12MMA) % CA Ind. Prod % Retail Sales 3 $2.186 Trillion $ % Housing Ths Units 78 5.% Employment Million % CPI 9 2.8% 2.1% 1

3 US Industrial Production to Gross Domestic Product % % 7.1% GDP US IP 5.3% 14.6% '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 ' Year over year Quarter to Quarter (3/12) US Industrial Production Index 4 14 US Industrial Production Index 12 Month Moving Average 14 1 Year over Year Growth Rate 12/12 Rate of Change Annual Trend: 98.2 Phase: C Year over Year: 2.4% Industry Outlook 213: 2.6% 214:.6% 2

4 Real Gross Domestic Product '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 12 Trillions of $ Data Preparation 6 Raw Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul MMT / % 13.6% 13.2% 15.1% 13.5% 14.1% 11.3% 11.5% 1.1% 1.5% 12MMT / % 3/12 Rate of Change = 1 1 = %. 12/12 Rate of Change = 1 1 = %. 3

5 US Industrial Production w/o Hi Tech to Metal Working Machinery Production Index Production New Orders 9.3% 12/ % 3/12 Mild decline off a Mar 14 H % Machinery % 12/12 2.1% 3/ Production Machinery -15 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 12/12 Rates of Change -4 US Industrial Production w/o Hi Tech to Metal Working Machine Tool Exports Production 16 8 Export % 12/12.9% 3/ Production Export '2 '4 '6 '8 '1 '12 '14 '16 12/12 Rates of Change Imports.3% 12/12 1.2% 3/

6 US Metal Cutting Machine Tool Consumption R-O-C Two quarters of mild improvement % MMT /12 12/ MMT 12MMT '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Billions of $ US Metal Forming Machine Tool Consumption R-O-C 15 1 MMT 8 1 3/ / MMT -1 3MMT '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Millions of Units 5

7 US Industrial Production to Information Technology New Orders Index 12 Orders % 3/12 at 1.6% Index Orders '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 ' /12 Rates of Change US/Global Recovery Still Some Life Left 12 Leading indicators pointing up Stimulative monetary policy Employment rising (companies right sized) Banks are lending Retail Sales are rising Construction is improving Deficit spending continues 6

8 Delinquency Rates on Consumer Loans Percentage Lenders are increasing the amount of credit available for consumer installment loans. Consumer demand has risen for the second quarter in a row. Percentage Year Average 1 Year Average Consumer Loan Delinquency Rate Consumer Credit Card Delinquency Rate MMA Data Trends Mortgage Rates to Federal Funds Mortgage Rates Federal Funds Raw Data 7

9 One (or many) bright spot(s): the shale gale 15 Source: EIA Annual Energy Outlook, 28 to 211 Commodity Price Index 16 6 Steel Scrap Prices 5 Oil Futures Prices Copper Futures Prices 4 3 Steel: $365 per Gross Ton 2 Oil: $92 per Barrel 1 '5 '6 '7 '8 '9 '1 '11 '12 '13 3MMA Index Dec 29=1 Copper: $3.29 per Pound 8

10 US Manufacturing as a % of GDP (Value Added) Capacity Utilization Rates 1 yr avg Durable Manufacturing 76.2% 73.2% Nondurable Mfg 77.4% 76.9% Machinery Mfg 81.3% 76.2% Mfg Utilization w/o Hi Tec 76.4% 74.8% % MMA 11.% '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 1 3MMA US Carbon Dioxide Emissions Oct 1995: Dec 212: MMT Source: EIA.gov 45 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 Million Metric Tons 45 9

11 Panama Canal 19 Europe Industrial Production to Europe Leading Indicator EU IP 214.8% 215.8% Recession from mid 14 to mid Index 12/12 Indicator 1/

12 Global Leading Indicators OECD Total EU Manufacturing PMI JP Morgan Global MFG PMI '7 '8 '9 '1 '11 '12 '13 ' /12 Rates of Change Not out of the woods yet: Concerns for Stagnant wage growth Ongoing high unemployment Food, fuel and rent inflation Higher payroll and Affordable Care Act taxes Unclear deficit reduction plan Looming bond and stock bubble 11

13 International Comparison of Spending on Health, Costs by Age Categories 24 12

14 Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Single Coverage, $318 $334 $355 $1,878 $2,137* $2,334* $2,196 $2,471* $2,689* Worker Contribution Employer Contribution 22 $466* $2,617* $3,83* 23 $58 $2,875* $3,383* 24 $558 $3,136* $3,695* 25 $61 $3,413* $4,24* 26 $627 $3,615* $4,242* 27 $694* $3,785 $4,479* 28 $721 $3,983 $4,74* 29 $779 $4,45 $4, $899* $4,15 $5,49* 211 $921 $4,58* $5,429* 212 $951 $4,664 $5,615* * Estimate is statistically different from estimate for the previous year shown (p<.5). SOURCE: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, Cost of Healthcare Reform 26 Increase in Total Taxes as a % of GDP Source: Ezra Klein, Washington Post 13

15 Sequestration 27 Shut Down Does it matter? Source: John Taylor, Bloomberg Big Gap 28 14

16 Nondefense Capital Goods New Orders w/o Aircraft 29 R-O-C 4 MMT /12 12/ MMT $ MMT 6-8 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 4 Billions of $ US Industrial Production to ITR Leading Indicator US IP 21 Indicator Indicator - Monthly US IP - 12/12 '8 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 ' USIP 12/12 Indicator Monthly 15

17 Purchasing Managers Index Raw '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 ' Raw Data Ratio of Inventories to New Orders Dec ' RIO Dec '9 '6 '7 '8 '9 '1 '11 '12 '13 '14.8 Raw Data 16

18 Stock Prices Index Raw 12MMA Data Trends Corporate Bond Prices 5 4 Sep ' Aug '11 3/12 12/12 '8 '9 '1 '11 '12 '13 ' Rates of Change 17

19 University of Michigan Consumer Expectations Index /12 12/12 '7 '8 '9 '1 '11 '12 '13 ' /12 Rate of Change Housing Starts 36 R-O-C 6 MMT 5.2 Mar /12 12/ May MMT 12MMT Dec 9 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16.2 Millions of Units 18

20 Housing Affordability Index '81 '84 '87 '9 '93 '96 '99 '2 '5 '8 '11 '14 '17 Monthly Index Source: National Association of Realtors World Countries Industrial Production 38 Canada.2% % 215 World IP Jun 14H Jun 15 L % % Year Over Year Growth Rates % 19

21 Phase Management Objectives TM Preparing for Positive leadership modeling (culture turns to behavior) 2. Invest in customer market research (know what they value) 3. Training programs (people, process, internal metrics) 4. Review and uncover competitive advantages 5. Spend $ on new products, marketing, advertising 6. Improve efficiencies with investment in technology and software 7. Check systems for readiness to accommodate increased activity 8. Add Sales Staff and Hire Top People 9. Lock in costs 1. Judiciously examine credit 11. Work on what s next Complimentary Copy of the ITR Advisor 4 Concise 4 Page Report Excellent Economic Snap Shot" Consists of Current Events, Brief Industry Segments, Snap Shot Indicators, Readers' Questions, Fed Notes, ITR Opportunity Index, and more Delivered Monthly 2