Guidance in Uncertain Times Alex Chausovsky Senior Analyst 1
216 Forecast Results 2 Duration Accuracy US GDP 15 99.1% US Ind. Prod. 1 99.9% Eur Ind. Prod. 15 99.2% CanadaInd Prod 15 99.6% China Ind Prod 18 99.3% Retail Sales 18 99.8% Housing 15 95.6% Employment 14 99.7% ITR Economics provides the best economic intelligence to reduce risk and drive practical and profitable business decisions. 2
US Gross Domestic Product 25 US Gross Domestic Product 3-Month Moving Average 25 9 Quarter-over-Quarter Growth Rate 3/12 Rate-of-Change 9 2 2 6 6 15 15 3 3 1 1-3 -3 5 5-6 -6 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19-9 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19-9 Annual Trend: $16.7 trillion Phase: B Year-over-Year: 1.6% Industry Outlook 217: 218: 219: 3.7% 1.7% -1.9% Source: BEA 3
Real Gross Domestic Product 16 12 8 4-4 -8 195 196 197 198 199 2 21 22 Republican Democrat GDP 3/12 3/12 Rate-of-Change Source: BEA 4
US GDP by Consumption Government Spending 18% Business Investment 16% Personal Consumption 66% Percent Data Source: Bureau of Economic Analysis 5
US Industrial Production Index 114 US Industrial Production Index 12-Month Moving Average 114 1 Year-over-Year Growth Rate 12/12 Rate-of-Change 1 19 19 5 5 14 99 14 99 94 94-5 -5 89 89-1 -1 84 84 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19-15 -15 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 Annual Trend: 13.3 Phase: A Year-over-Year: -.4% Industry Outlook 217: 218: 219: 2.5%.5% -.7% Source: FRB
US IP 12 8 US Industrial Production to Gross Domestic Product Manufacturing ~ 73% of Industrial Production Mining ~ 16% of Industrial Production Utilities ~ 1% of Industrial production GDP 12 8 4.7 4-4 -8-6.8% -2.9% -5.3% -4-8 -12-16 GDP US IP -15.5% '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Year-over-Year, Quarter-to-Quarter (3/12) Sources: FRB, BEA -12-16
Data Preparation Raw May-15 1.5 Jun-15 1.5 Jul-15 1.4 Aug-15 1.5 Sep-15 1.3 Oct-15 1.3 Nov-15 1.6 Dec-15 1.6 Jan-16 1.5 Feb-16 1.7 Mar-16 1.6 Apr-16 1.7 May-16 1.7 Jun-16 1.7 Jul-16 1.6 Aug-16 1.7 Sep-16 1.5 Oct-16 1.5 Nov-16 1.9 Dec-16 1.7 Jan-17 1.7 Feb-17 1.9 Mar-17 1.7 Apr-17 1.7 3MMT 4.4 4.4 4.4 4.2 4.1 4.2 4.5 4.7 4.8 4.8 5. 5. 5.1 5. 5. 4.8 4.7 4.9 5.1 5.3 5.3 5.3 3/12 12MMT 18. 18.2 18.4 18.6 18.8 19. 19.2 19.4 19.7 19.8 2. 2.2 2.3 12/12 DATACAST! 15.9% 13.6% 13.6% 14.3% 14.6% 16.7% 13.3% 12.8% 1.4% 1.4% 26.7% 25.5% 25.2% 22.4% 2.% 18.3% 15.4% 12.7% 3/12 Rate-of-Change =!"#$% '()* +,,-!"#$% '(). +,,- 1 1 = 3.+ 1 1 = 1.4% 5.6 12/12 Rate-of-Change =!"#$% '()* )',,-!"#$% '(). )',,- 1 1 = '(.+ 1 1 = 12.7% )6.(
Business Cycles Phase A - Recovery Annual Sales are BELOW Year-Ago Levels, but the Rate-of-Decline is SLOWING. Phase B Accelerating Growth (Best) Annual Sales are ABOVE Year-Ago Levels, and are GROWING at a RAPID Pace. Phase C Slower Growth (Caution) Annual Sales are ABOVE Year-Ago Levels, BUT the Rate-of-Growth is SLOWING Phase D - Recession Annual Sales are BELOW Year-Ago Levels, and are DECLINING at a RAPID Pace. 9
Step 2 - Leading Indicators Company A 45 March 211 Indicator 21 3 March 21 June 214 June 215 14 15 7-15 -7-3 -45 Company A Indicator - 1/12-21 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 The Indicator has a 12-month lead time to the Company Rates-of-Change -14
Generating the Quantitative Forecast Internal Trends Leading Economic Indicators ITR Long Term Business Cycle Theory News and Market Observations 11
US IP 15 US Industrial Production to ITR Leading Indicator Reported in ITR Trends Report ITR Advisor Indicator 15 1 1 5 5-5 -5-1 Indicator - Monthly US IP - 12/12 As seen in -1-15 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 USIP 12/12 Indicator - Monthly Sources: FRB, ITR Economics -15
Purchasing Managers Index 75 75 5 Leads US Economy by by 9-14 months 5 25 1.6% 25-25 -5 As seen in 1/12-5 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 1/12 Rate-of-Change Data Source: Institute for Supply Management -25
US IP 1 US Industrial Production to US Total Industry Capacity Utilization Rate 12/12 Utilization Rate 2 5 1/12 1-5 -1-1 US IP US IP Forecast Utilization Rate -15 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Rates-of-Change Source: FRB -2-3 14
Canada Industrial Production Index ROC 2 3/12 12/12 217 3.1% 218 1.8% 2.5%.3% MMA 15 125 3MMA 12MMA -2 1.4 1-4 75 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 15 2 = 1 Source: Statistics Canada
Mexico Industrial Production Index R-O-C 15 3/12 217 1.9% 218 2.% MMA 21 12/12 -.3% -.8% 16-15 3MMA 12MMA 17.5 11-3 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 28 = 1 Source: CEIC 6 16
Global Leading Indicators 8 6 4 2 OECD plus 6 major NME up 5 Major Asia up Brazil up Canada up China up India up Japan up 8.9% 6.8% 5.2% 8 6 4 2-2 -4-6 EZ Comp PMI EU Manufacturing PMI JP Morgan Global MFG PMI Gaining traction '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 1/12 Rates-of-Change Source: Markit Economics -2-4 -6
R-O-C Nondefense Capital Goods New Orders w/o Aircraft 217 4.6% MMT 2 3/12 218 1.2% 15 12/12 1.4% -2.6% 125-2 1-4 3MMT 12MMT $761.1 75-6 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 5 Billions of Dollars Source: Census Bureau
15 Aluminum Base Scrap Commodity Price Index to Steel Scrap Producer Price Index to Nickel Commodity Prices to Copper Futures Prices 15 1 5 21.2% Steel 1.% Copper -.4% Aluminum -1.4% Nickel 1 5-5 -5-1 -1 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 12/12 Rates-of-Change Data Sources: WSJ, LME, BLS
Commodity Prices All Others 2 15 1 5 Zinc Tin Lead Aluminum Steel Copper 63.% Zinc 45.6% Steel 3.8% Lead 29.4% Tin 26.6% Copper 22.% Alum Copper & Steel 2 15 1 5-5 -5-1 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 3/12 Rates-of-Change Source: WSJ, London Metal Exchange, Metalprices.com, Steel Market Update -1 2
US Overall Wage Growth 5 4 Three-month moving average of median wage growth in the overall economy of the United States. Wages are pre-tax and exclude overtime, tips and commissions. The following are also excluded: top-coded individuals, individuals whose hourly pay is below the current federal minimum for tipbased workers, and individuals employed in agricultural occupations. 3 2 1 Raw Data '6 '8 '1 '12 '14 '16 '18 '2 Percent Source: FRB Atlanta 21
US Consumer Price Index to US Producer Price Index 1 1 5 3.7% 2.4% 5-5 -5-1 Consumer Price Producer Price '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 1/12 Rate-of-Change Source: BLS -1
Exports 4 US Trade in Goods with World: Exports to Trade Weighted Exchange Rate Index Exchange Rate -15 3 2 1-1 3/12: 6.4% B.1% -1.2% -1-5 5 1-2 -3 Exports Exchange Rate 2 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 12/12 Rates-of-Change Sources: Census Bureau, FRED 15
Euros per US Dollars R-O-C 3 MMA 1.2 15 1/12 12/12 7.3% 1.4% 1.1 1. -15 Actual.919.9 12MMA -3.8-45.7-6 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19.6 Source: Wall Street Journal 24
Global Oil Market Balance Summary (IEA) Source: IEA
Crude Oil Futures Prices to Crude Oil Inventories Cushing, OK Price 12 Inventories 15 8 1 4 5-4 Price Inventories -8 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19-5 -1 12/12 Rates-of-Change Sources: WSJ, EIA
US Crude Oil Futures Commodity Prices 14 12 3MMA 3MMA Forecast 14 12 1 1 8 8 6 6 4 4 2 2 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Dollars per Barrel Source: Wall Street Journal 27
US Petroleum Refineries Production R-O-C 14 3/12 217 1.3% 218.1% MMA 16 7 12/12 3.5% 3.4% 145 13-7 115-14 3MMA 12MMA 13.1 1-21 85-28 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 7 N32411, 22 = 1 Source: FRB 28
Production in Mining Industry Sectors Year-over-Year % Change through March 217 Gold & Silver Ore Production C 9.4% 12MMA Rising Mining (excluding oil/gas) A -2.2% 12MMA Rising Mining Support Activities Prod A -22.6% 12MMA Rising Copper, Nickel & Zinc Production D -2.6% 12MMA Declining Nonmetallic Minerals Production C 1.8% 12MMA Rising Coal Production A -9.1% 12MMA Rising Oil & Gas Extraction Production A -4.1% 12MMA Declining Crude Oil Production A -5.4% 12MMA Declining Iron Ore Prod (through July 216) A -5.4% 12MMA Rising Metal Ore Production B 1.% 12MMA Rising Oil & Gas Well Drilling A -27.8% 12MMA Rising Natural Gas Extraction D -2.7% 12MMA Declining Natural Gas Liquid Extraction C 3.4% 12MMA Declining 29
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 12/12 217 6.7% 218-2.% 6.1%.6% MMA 22 16 3MMA 12MMA -75 91.6 1-15 ' 98 ' ' 2 ' 4 ' 6 ' 8 ' 1 ' 12 ' 14 ' 16 4 ' ' 18 2 212 = 1 Source: FRB 3
US Industrial Machinery Production Index R-O-C 4 3/12 217 6.3% 218 4.2% MMA 335 12/12 16.2% 9.6% 245-4 3MMA 12MMA 155 16.7-8 65 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 212 = 1 Source: FRB 31
R-O-C 14 US Industrial Machinery New Orders 217 13.3% 218 5.7% MMT 125 7 3/12 12/12 1 4.3% -1.2% 75-7 3MMT 12MMT 5-14 28.1 25-21 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Billions of $ Source: US Census Bureau 32
US Paper & Products Production R-O-C 1 3/12 12/12 217.1% 218-2.3% MMA 15.5-1.5 135-1 12-2 -3 3MMA 12MMA 95.9 15 9-4 75 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 22 = 1 Source: FRB 33
Production in Paper Industry Sectors Year-over-Year % Change through March 217 (12MMA basis) Pulp Mills Production (February data) C.5% 12MMA Declining Paper Mills Production A -3.9% 12MMA Declining Paperboard Mills Production (February data) B.2% 12MMA Rising Paperboard Container Production (February data) A -12.7% 12MMA Declining Paper Bag, Coated & Treated Paper Production B 1.8% 12MMA Rising Converted Paper Products A -1.4% 12MMA Rising 34
US Public Water and Sewer Facilities Construction R-O-C 3 15 3/12 12/12 217-2.8% 218 7.3% MMT 1 85 7-15 -11.9% -18.3% 55-3 -45 3MMT 12MMT 32.4 4 25-6 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 1 Public, Billions of Dollars Source: US Census Bureau 35
US Total Power Facilities Construction R-O-C 1 3/12 217 1.6% 218 11.8% MMT 185 5 12/12 3.1% 2.6% 16 135-5 -1 96.3 11 85-15 3MMT 12MMT 6-2 35-25 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Billions of Dollars Source: US Census Bureau 1 36
R-O-C 8 4-4 US Electric Power Generation, Transmission and Distribution Production Index 217-1.6% 3/12 218 2.4% 12/12.8% -1.7% MMA 22 19 16 13-8 3MMA 12MMA 11.8 1-12 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 212 = 1 Source: FRB 7 37
US Chemicals & Products Production Index R-O-C 1 3/12 12/12 217 2.% 218 2.1% MMA 15.1% -.9% 13-1 3MMA 12MMA 97.8 11-2 9-3 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 27 = 1 Source: FRB 7 38
US Pharmaceutical & Medicine Production Index R-O-C 16 3/12 12/12 217 -.3% 218 2.6% MMA 17 8 155-8 -16 12MMA -.8% -2.7% 14 125 11-24 3MMA 96.6 95-32 8-4 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 65 N3254, 27=1 Source: FRB 39
Chemical Industry Segments Year-over-Year % Change through February 217 (12MMA basis) Organic Chemical Production C.2% 12MMA mild rising Inorganic Chemical Production A -.7% 12MMA flat Industrial Gas Production D -1.7% 12MMA mild declining Chemicals Dyes C 1.2% 12MMA flat Synthetic Chemicals Production C.3% 12MMA flat Resin & Synthetic Rubber Production C.1% 12MMA flat Pharmaceutical & Medicine Production D -1.1% 12MMA declining Paints, Soaps, Toiletries & Other Chemicals C.2% 12MMA mild declining Agricultural Chemical Production B 5.9% 12MMA rising 4
US Food Production Index R-O-C 8 217 2.1% 218 1.2% MMA 15 4 3/12 12/12 2.9% 2.8% 135 12-4 3MMA 12MMA 18.4 15-8 9-12 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 N311, 27 = 1 Source: FRB 75 41
US Food Production Industry Sectors Year-over-Year % Change through February 217 (12MMA basis) Animal Food D -6.8% 12MMA declining Dairy Production B.9% 12MMA rising Cheese (January data) B 1.9% 12MMA rising Sugar A -4.1% 12MMA flat Grain and Oilseed B 5.9% 12MMA rising Beverage Production A -.2% 12MMA mild rising Soda D -7.5% 12MMA decline Breweries (August data) B.% 12MMA mild rising Coffee & Tea B 8.8% 12MMA rising Distillery Production C 5.4% 12MMA rising 42
North American Market Sectors 217/18 Outlook Industry Phase 12/12 F217 F218 US Industrial Production Index A -.4% 2.2% 1.1% Mining Production Index (excl. Oil & Gas) A -2.2% 1.7%.2% Iron & Steel Products Production Index B.6% 6.7% -2.% Industrial Machinery Production Index B 9.6% 6.3% 4.2% Oil & Gas Extraction Production Index A -4.1% 1.% 3.1% Electric Power Generation Production B.8% -1.6% 2.4% Water & Sewer Facility Construction D -11.9% -2.8% 7.3% Energy & Power Facility Construction C 2.6% 1.6% 11.8% Chemicals Production Index C.1% 2.% 2.1% Paper Production Index A -1.5%.1% -2.3% Canada Industrial Production Index B.1% 3.1% 1.8% Mexico Industrial Production Index D -.3% 1.9% 2.% 12/12 Rates-of-Change Sources: FRB, Census Bureau, Statistics Canada, Mexico National Institute of Statistics and Geography 43
6 FOMC Member Interest Rate Projections December 216 Fed Open Market Committee March 217 5 4 3 2 1 Source: FRB 44
ITR Management Objectives Actionable Takeaways 1. Budget for continued economic growth through 218 2. Be willing to take risks have to be in it to win it 3. Consider opportunistic business and capital acquisitions 4. Add new products new ventures buck the business cycle 5. Make sure your training and retention programs are top notch 6. Budget for higher wages and input costs Raise your prices! 45
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