Marine Leadership Alliance Winds of Change Connor Lokar Economist
217 Forecast Results If you heard ITR around two years ago 2 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.
2 US Gross Domestic Product 12-Month Moving Average US Gross Domestic Product SAAR, Chained 29 $ 2 9 Year-over-Year Growth Rate 12/12 Rate-of-Change 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 '21 12-9 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21-9 Annual Trend: $17.3 trillion Phase: B Year-over-Year: 2.5% ITR Outlook 218: 219: 22: 1.6% 1.2% 2.8% Source: BEA 3
State Gross Domestic Product Billions of Dollars, Q2 217 Source: BEA 4
US States Renamed for Countries with Similar GDPs Data Sources: BEA; IMF 5
US Corporate Tax Rate and Gross Business Investment 6 7% 6% 5% Corporate Tax Rate % Corporate Tax Revenue (% of Corp Profits) Gross Business Investment (% of GDP) Linear (Gross Business Investment (% of GDP)) 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 6
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 7
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
Data Preparation Raw Apr-16 1.4 May-16 1.5 Jun-16 1.5 Jul-16 1.4 Aug-16 1.5 Sep-16 1.3 Oct-16 1.3 Nov-16 1.6 Dec-16 1.6 Jan-17 1.5 Feb-17 1.7 Mar-17 1.6 Apr-17 1.7 May-17 1.7 Jun-17 1.7 Jul-17 1.6 Aug-17 1.7 Sep-17 1.5 Oct-17 1.5 Nov-17 1.9 Dec-17 1.7 Jan-18 1.7 Feb-18 1.9 Mar-18 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 15.9% 13.6% 13.6% 14.3% 14.6% 16.7% 13.3% 12.8% 1.4% 1.4% 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 26.7% 25.5% 25.2% 22.4% 2.% 18.3% 15.4% 12.7% 3/12 Rate-of-Change = March 218 3MMT March 217 3MMT 1 1 = 5.3 1 1 = 1.4% 4.8 12/12 Rate-of-Change = March 218 12MMT March 217 12MMT 1 1 = 2.3 1 1 = 12.7% 18.
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 Slowing 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. 1
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 -15 Indicator - Monthly US IP - 12/12 As seen in '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 USIP 12/12 Indicator - Monthly Sources: FRB, ITR Economics -1-15 11
R-O-C 5 US Boat Building Production Index Definition: watercraft not built in shipyards and typically of the type suitable or intended for personal use. Included in this industry are establishments that manufacture heavy-duty inflatable rubber or inflatable plastic boats (RIBs). MMA 5 25 3/12 12/12 13.7% 13.6% 425 35-25 3MMA 12MMA RV Production +1.1% 275-5 2-75 145.4 125-1 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 212 = 1 Source: FRB 5 12
US Industrial Production Index to Leading Indicators US IP, G7 15 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
Applying Leading Indicators at the Company Level Sales 45 Housing Starts, Retail Sales, Leading Indicators etc New Orders 9 3 6 15 3-15 -3 Sales New Orders -45 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 Indicator Snapshot Correlation:.83 Lead Time: 9 Months Direction: UP 7 Month Lead Time to Company 12/12 Rates-of-Change -3-6 -9 14
What does this mean for you? A Great Recession can undermine the best laid plans. What Phase are you in now? What Phase are your key customer segments in? What can you watch for in your business to help you know if you are moving into phase X? If the next six months moves from X to Y, what is your plan? Economic intelligence is the difference between Proactive vs. Reactive decision making
On the positive side Well positioned consumer, robust consumer spending Leading indicators have previewed rise into mid-218 Consistent growth in the single family residential market Year-over-year rise in commodity prices lifting industrials Weaker USD pushing up Exports Nonresidential Construction expansion in 218
US Boat Building Production Index to US Industrial Production Index Index 3 15 Coincident Relationship to Company Correlation:.85 US IP 1 5-15 -5 Index -3 Index Forecast -1 US IP US IP Forecast -45-15 '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 Source: FRB 18
State Population Growth Rates Percent Change from Population Estimates 21 to 216 Source: Census Bureau
US Boat Building Production Index to ITR Leading Indicator TM Index Indicator 45 12 3 Monthly 8 Month Lead Time to Company Correlation:.88 8 15 12/12 4-15 -4-3 Index - 12/12 Indicator - Monthly -8-45 -12 '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 Rates-of-Change Sources: FRB; ITR Economics 2
Index 45 3 15 1/12 US Boat Building Production Index to US Total Industry Capacity Utilization Rate 12/12 6 Month Lead Time to Company Correlation:.73 Utilization Rate 15 1 5-15 Index - 12/12-5 Utilization Rate - 1/12-3 Utilization Rate Forecast - -1 1/12-45 -15 '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 Rates-of-Change Sources: FRB 21
US Boat Building Production Index to US Total Retail Sales Index 45 3 Coincident Relationship to Company Correlation:.85 Retail Sales 12 8 15 4-15 Index -4-3 Retail Sales Retail Sales Forecast -45-12 '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: FRB; US Census Bureau -8 22
US Total Retail Sales R-O-C 12 3/12 12/12 MMT 11 6 4.8% 4.4% 1 8-6 -12 3MMT 5.818 7 5-18 12MMT 4-24 2 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Trillions of Dollars Source: Census Bureau 23
US Boat Building Production Index to US Personal Consumption Expenditures for Pleasure Boats Index 45 3 Coincident Relationship to Company Correlation:.64 Boat Expenditures 3 2 15 1-15 -3 Index Boat Expenditures -1-2 -45-3 '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: FRB; US Dept of Commerce BEA 24
R-O-C 5 25 3/12 US Motorcycles, Boats and Other Motor Vehicle Dealers Retail Sales 12/12 Definition: This industry comprises establishments primarily engaged in retailing new and used motorcycles, boats, and other vehicles (except automobiles, light trucks, and recreational vehicles). 14.% 7.2% MMT 2 16 12-25 3MMT 12MMT 77.5 8-5 4-75 25 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of Dollars Source: US Census Bureau
Sales 3 US Motorcycles, Boats and Other Motor Vehicle Dealers Retail Sales to US Total Retail Sales Retail Sales 18 2 12 1 6-1 -2-3 Sales Retail Sales Retail Sales Forecast '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21-6 -12-18 Rates-of-Change Source: US Census Bureau, 26
Retail Sales 12 US Total Retail Sales (includes food services) to ITR US Consumer Activity Leading Indicator Indicator 12 8 4 4.4% 3.7% 8 4-4 -4-8 Total Retail - 12/12 2H18 slower growth risk -8-12 Indicator - Monthly ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24-12 Retail - 12/12, Indicator - Monthly Sources: US Census Bureau, ITR Economics 27
US Personal Consumption Expenditures for Pleasure Boats ROC 5 MMA 5 3/12 25 12/12 14.1% 6.2% 4 3-25 3MMA 12MMA $2.4 2-5 1-75 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of Dollars Source: BEA 28
US Consumer Price Index to US Producer Price Index 1 1 5 3.% 2.4% 5-5 -5-1 Consumer Price Producer Price ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 1/12 Rate-of-Change Source: FRB -1
Rig Count 175 United States Overview Weekly Oil Price & Rig Count USD/bbl $12 15 $1 125 1 75 5 $63.1 815 $8 $6 $4 25 Oil Rigs WTI Price - Shifted 13 Weeks $2 Jan 214 Aug 214 Mar 215 Oct 215 May 216 Dec 216 Jul 217 Feb 218 Sep 218 Rigs: Weekly Count WTI: Average Weekly Price Sources: EIA, Baker Hughes $ 3
US Private Sector Employment 125 128 115 118 15 95 Private Sector Employment Growth Job Openings Quit Rate Rising 1.8% B 5.6% B 18 98 85 Employment Mils of Jobs '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Annual Data Trend Source: BLS 88 31
US Median Weekly Earnings (deflated) 36 36 35 34 $347. 35 34 33 33 32 32 31 Median Earnings - Raw Data 31 3 1979 1984 1989 1994 1999 24 29 214 219 224 Constant (1982-84) Dollars Source: BLS 3 32
Net Migration Between States, July 216-July 217-191,367 +27,155 Does not include immigration into the US Source: Census Bureau 33
US Nonfarm, Total Private, and Manufacturing Quit Rates 3 3 2 2.4% 2.2% 1.6% 2 1 1 Private Nonfarm Manufacturing '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Data Trends Source: BLS
Labor Market Transparency and Liquidity 28: 75% expected to have between 2-5 employers in their lifetime, just 1% thought 6+ 216 Study (Deloitte): ~66% of millennials plan to change job in next 5 years Now: just 54% think 2-5, more than 25% say 6 or more Add in: historically low home ownership, marriage rates Data Source: Pew Research Center/Social Trends
The Generations Defined The Millennial Generation Born: After 198 Age of adults in 214: 18 to 33* Share of adult population: 27% Share non-hispanic white: 57% Ind 5%; Dem 27%; Rep 17% The Baby Boom Generation Born:1946 to 1964 Age in 214: 5 to 68 Share of adult population: 32% Share non-hispanic white: 72% Ind 37%; Dem 32%; Rep 25% Generation X Born:1965 to 198 Age in 214: 34 to 49 Share of adult population: 27% Share non-hispanic white: 61% Ind 39%; Dem 32%; Rep 21% The Silent Generation Born:1928 to 1945 Age in 214: 69 to 86 Share of adult population: 12% Share non-hispanic white: 79% Ind 34%; Dem 32%; Rep 29% *The youngest Millennials are in their teens. No chronological end point has been set for this group. Note: The Greatest Generation, which includes those born before 1928, is not included in the analysis due to the small sample size. Share of total population and share non-hispanic white are based on adults only in 213; 85-year-old Silents are not included due to data limitations. Source: March 213 Current Population Survey (IPUMS) and Pew Research surveys, January and February 214 Data Source: Pew Research Center
US Labor Force by Generation Millions Data Source: Pew Research Center
Negative Risk Factors Inflation, International Trade and NAFTA US Stock Market correction or more? Declining savings - denting consumer cushion Rising interest rates consumer debt, housing US Debt
US Trade Balance for Goods and Services -25-25 -35 12MMT -35-45 -45-55 -65 3MMT -566. -55-65 -75-75 -85 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 Billions of dollars Source: US Census Bureau -85
US Top Goods Export by State Based on annual data, 217 Source: US Census Bureau
All Others 15 12 9 6 3 Commodity Prices Aluminum: Import tariffs + sanctions on Russian Rusal pushed Prices ~$24/ton Likely to moderate toward $2/ton during 218 26.4% Zinc 22.% Alum 2.8% Copper 3.3% Steel Copper & Steel 15 12 9 6 3-3 -3-6 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 '22 '24 3/12 Rates-of-Change Source: WSJ, London Metal Exchange, Steel Market Update -6 41
S&P5 Stock Prices Index 3 3 25 25 2 2 15 15 1 5 Raw 12MMA 1 5 198 1985 199 1995 2 25 21 215 22 Data Trends Source: Wall Street Journal 42
Sales 3 US Motorcycles, Boats and Other Motor Vehicle Dealers Retail Sales to US Stock Prices Index Prices 45 2 3 1 15-1 -15-2 -3 Sales - 12/12 Prices - 3/12 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21-3 -45 Rates-of-Change Sources: US Census Bureau; Wall Street Journal 43
S&P5 Stock Prices Index to US Personal Savings (inverted) Stock Prices 3 Savings (inverted) -4 15-2 -15 2-3 Stock Prices Index Personal Savings 4-45 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 12/12 Rates-of-Change Sources: Wall Street Journal, BEA 6 44
Sales 3 US Motorcycles, Boats and Other Motor Vehicle Dealers Retail Sales to US Personal Savings Index -9 2-6 1-3 -1 3-2 -3 Sales Index '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 '21 Rates-of-Change Sources: US Census Bureau; Bureau of Economic Analysis 6 9 45
US Treasury 1-Year Bond 2.9 2.8 2.7 1-Year Bond 2.6 2.5 2.4 2.3 2.2 2.1 2 1.9 1.8 1.7 1.6 1.5 1.4 1.3 Oct-'16 Dec-'16 Feb-'17 Apr-'17 Jun-'17 Aug-'17 Oct-'17 Dec-'17 Feb-'18 Apr-'18 Daily Treasury Yield Curve Rates Source: US Dept of the Treasury 46
Mortgage Rates to Federal Funds 22 22 18 18 14 14 1 1 6 6 2 Mortgage Rates Federal Funds -2 1975 198 1985 199 1995 2 25 21 215 22 225 Raw Data Sources: Federal Reserve Board, WSJ 2-2 47
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 48
6 FOMC Member Interest Rate Projections December 217 Fed Open Market Committee March 218 5 4 3 2 1 218 219 22 Longer Run Source: FRB 49
217-1H18 Business Cycles 2H18 22 219 Phase A - Recovery Phase B Accelerating Growth (Best) DATACAST 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.
ITR Management Objectives Actionable Takeaways 1. Plan for continued overall expansion during 218 2. Invest in operational efficiency productivity has to match wage increases 3. Be willing to take risks! 4. Sell the business in climate of maximum goodwill or be ready to hold on through 219 5. Budget for higher wages and input costs Raise your prices! 6. Follow the Must Watch Leading Indicators PMI, ITRLI, Housing Starts, etc. 7. Know where you and your markets are in the business cycle
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