North American Wholesale Lumber Association Winds of Change

Transcription

1 Alex Chausovsky Senior Consulting Advisor North American Wholesale Lumber Association Winds of Change

2 217 Forecast Results If you heard ITR around two years ago 2 Duration Accuracy US GDP % US Ind. Prod % Europe Ind. Prod % Canada Ind. Prod % China Ind. Prod % Retail Sales % Housing % Employment % ITR Economics provides the best economic intelligence to reduce risk and drive practical and profitable business decisions.

3 Summary November 218 Economic Rise Through the End of 218 US & Global expansion Leading Indicator Signals are Mixed How to track the leading indicators Business Cycle Decline in 219 Some industries hit harder than others Global Issues Impacting Businesses Tariffs and Trade Inflation

4 Macroeconomic Trends

5 Percent of 217 World GDP by Region Total 217 World GDP: $ Trillion US$ Source: IMF 5

6 Where the People Are Percent of Global Population by Region 6 6% 14% 11% 6% 8% Europe with Russia North America Latin America & Carib Asia & Pacific Middle East & N Africa Sub-Saharan African 55% Percent Source: World Bank 6

7 Population Growth Percent change is population World Bank

8 US States GDPs Ranked vs. World Country GDPs Data Sources: BEA; IMF 8

9 2 US Economy Stalls in 219 and Into 22 US Gross Domestic Product, SAAR, Chained 29 $ US Gross Domestic Product 3-Month Moving Average 2 9 Quarter-over-Quarter Growth Rate 3/12 Rate-of-Change '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 ' '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21-9. $18.7 trillion Phase: B Quarter-over-Quarter: 3.% ITR Outlook 218: 219: 22: 2.5%.5% 2.7% Source: BEA 9

10 US GDP by Consumption Government Spending 17% Business Investment 16% Personal Consumption 67% Percent Sources: BEA, ITR Economics

11 114 US Industrial Production Index 12-Month Moving Average Slowing Growth for 219 US Industrial Production Index Year-over-Year Growth Rate 12/12 Rate-of-Change Annual Trend: 16.8 Phase: B Year-over-Year: 3.8% ITR Outlook 218: 219: 22: 3.9%.5%.7% Source: FRB

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13 The Cyclical Peak in Canada Has Already Occurred ROC 2 Canada Industrial Production 218: 3.6% MMA /12 12/12 4.% 3.3% $ MMA MMA 32-4 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of chained 27 Canadian Dollars Source: Statistics Canada 29 13

14 6 Canada Sliding Down Canadian Leading Indicator 6 3 1/12 12/ ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24-6 Rates-of-Change Source: OECD 14

15 Improving Economic Conditions in Mexico R-O-C 1 3/12 12/12 Mexico Industrial Production Index 218: 1.7% MMA 14.6% -.1% MMA 12MMA ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 ' = 1 Source: CEIC 15

16 12/12 6 Mexico On the Upside But it is smaller than Canada; it is 73.6% the size of Canada 1/ /12 12/ % -1.3% -2-4 Mexico LI 12/12 Mexico LI 1/ ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 1/12 Rate-of-Change Source: OECD -6 16

17 % 7.8% Rate-of-Change & Leading Indicators Tools for Seeing the Future -3 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2-45

18 Raw Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct MMT A Powerful Management Tool Rate-of-Change 3/ % 13.6% 13.6% 14.3% 14.6% 16.7% 13.3% 12.8% 1.4% 1.4% 12MMT / % 25.5% 25.2% 22.4% 2.% 18.3% 15.4% 12.7% 3/12 Rate-of-Change = October 218 3MMT October 217 3MMT 1 1 = = 1.4% /12 Rate-of-Change = October MMT October MMT 1 1 = = 12.7% 18.

19 Rate-of-Change A Management Tool 19 5ROC Data Trend '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '

20 Leading Indicators Industry Data 18 May 21 May 211 Leading Indicator December 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

21 Leading Indicator System as a Powerful Tool US Industrial Production Index to Leading Indicators US IP, JP Morgan 15 PMI, Wilshire, G US IP - 12/ US IP Forecast G7 Indicator - 1/12 PMI - 1/12 DATACAST! -4 Wilshire Market Cap - 3/12-15 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, IHS Markit

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23 Tax Reform

24 Real Gross Domestic Product Republican Democrat GDP 3/12 3/12 Rate-of-Change Source: BEA 24

25 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)) 7% 6% 5% 25 4% 4% 3% 2% Atlanta Federal Reserve Survey 3% 2% 1% 1% % '6 '64 '68 '72 '76 '8 '84 '88 '92 '96 ' '4 '8 '12 '16 % Percent Sources: Tax Policy Center, FRED 25

26 8 Perhaps Not the Most Productive Use of Free Cash S&P 5 Buybacks '13 '14 '15 '16 '17 '18-4 1/12 Rate-of-Change Source: WSJ 26

27 R-O-C 2 Favorable CAPEX Trend US Nondefense Capital Goods New Orders w/o Aircraft A positive impact from the tax law will show up here 3/12 12/12 7.4% 6.3% MMT MMT 12MMT $ ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 5 Billions of Dollars Source: Census Bureau 27

28 S&P 5: % of Companies Issuing Negative EPS Guidance Percent Source: FactSet

29 Real GDP Growth Rate US Tax Rates and Real GDP Growth 8.% 1.% 9.% 6.% 4.% 2.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% Top Marginal Tax Rate 1.%.%.% Real GDP Growth Rate Top Marginal Tax Rate Sources: Tax Foundation, BEA, 29

30 Issues Government Will and Won t Tackle $3, $3, $2,625 $2,25 $1,875 $1,5 Current Tax Receipts Consumption Expenditures Current Transfer Payments Interest Payments $2,625 $2,25 $1,875 $1,5 $1,125 $1,125 $75 $75 $375 $375 $ $ Billions of Dollars Source: BEA 3

31 Total U.S. Public Debt The Long View 12.5% (% of GDP) Source: Usgovernmentspending.com 31

32 Tariffs & Inflation

33 US Trade Balance for Goods and Services MMT MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24-85 Billions of dollars Source: US Census Bureau

34 $ Value 1 Tariffs Proposed Auto Imports, Proposed Chinese Imports, % Tariff Sep 24th Proposed Russia, 3.2 Chinese Imports Round 2, Proposed Japan, Proposed India, % Tariff Jan 1, % Chinese Imports Round 1, 5 Aluminum, 17.4 Solar Panels, 8.5 Steel, 29 Washing Machines, 1.8 US Tariffs China Round 2, 6 China Round 1, 52.4 Reciprocal Tariffs Turkey, 1.8 Europe, 3.2 Mexico, 2.9 Canada, 12.8

35 $25 Billion of Goods Subject to Tariffs Aimed at China 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

36 US Top Goods Export by State Based on annual data, 217 Source: US Census Bureau

37 Prices & Inflation

38 15 12 Tariffed Versus Non-Tariffed Commodities Commodity Prices Copper & Steel % Steel -11.1% Copper ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24-6 3/12 Rates-of-Change Source: WSJ, London Metal Exchange, Steel Market Update 38

39 1 Inflationary Pressure Continues to Build US Consumer Price Index to US Producer Price Index % 2.3% Consumer Price Producer Price ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 1/12 Rate-of-Change Source: BLS -1 39

40 Brands That Have or Will Be Increasing Prices Due to Tariffs CATERPILLAR I can't just go to the shareholders and say, 'You're TOYOTA just going to have to accept my profit's going to be WHIRLPOOL $4 million less. It doesn't work that way COCA-COLA WINNEBAGO - Gavin Hattersley, CEO MillerCoors MILLER COORS SAMUEL ADAMS CAMPBELL SOUP LG ELECTRONICS GENERAL MOTORS KLEENEX & HUGGIES POLARIS INDUSTRIES NEWELL BRANDS (Crock-pot, Rubbermaid, Sharpie) Source: Business Insider, These popular brands say Trump's tariffs will force them to raise prices 4

41 Industry Drivers

42 US Nonresidential Construction Starts Billions of Dollars Source: CMD Group 42

43 US Private Nonresidential to ITR Leading Indicator Construction 45 3 Indicator ITRLI Leads by 2 months Construction Construction Forecast Indicator '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 '24 218: 6.3% Rates-of-Change Sources: US Census Bureau, ITR Economics -1

44 R-O-C 5 General Rise with No Great Recession Cliff for Now US Single Unit Housing Starts As seen in MMT /12 12/12 6.2% 2.4% MMT 12MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Million of Units Source: US Census Bureau 44

45 Housing Affordability Index '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 Monthly Index Source: National Association of Realtors 45

46 Remodeling Activity is Signaling Expansion US Remodeling Market Index 62. West 59.9 South 55.6 Northeast 54.7 Midwest Northeast Midwest South West 3 15 '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 3MMA Data Trends Source: National Association of Home Builders 15 46

47 Housing Starts 9 Negative Leading Indicator Signal for Multi-Family US Multi Unit Housing Starts to US Apartment Vacancy Rate Vacancy Rate Housing Starts Vacancy Rate '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 Rates-of-Change Source: Census Bureau

48 United States Permits R-O-C 4 MMT 6 2 3/12 12/12 5.9% 2.3% MMT MMT ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Millions of Units Source: Census Bureau 48

49 16 14 Protectionism & Future US Bond Yields 12 1? '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 49

50 6 FOMC Member Interest Rate Projections Fed Open Market Committee September Longer Run Source: FRB

51 Summary

52 Business Cycles 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.

53 Things to Pay Attention to as we Head Into 219 Tariffs and Trade Rising Interest Rates Inflationary Pressures Right-sizing the business for 219 and beyond 53

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