winds of change - ahtdwinds of change first in forecasts since 1948 itr economics provides the best...

Alex ChausovskySenior Consulting Advisor

Winds of Change

First in Forecasts Since 1948

ITR Economics provides the best economic intelligence to reducerisk and drive practical and profitable business decisions.

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. 30 97.8%

Retail Sales 25 98.0%

Housing 27 99.5%

Employment 23 99.5%

2017 Forecast ResultsIf you heard ITR around two years ago… 2


AHTD Summary September 2018

Economic Rise for 2H18US & Global expansion continues

Leading Indicator Signals are MixedHow to track the leading indicators

Business Cycle Decline in 2019Some industries will be hit harder than others

Global Issues Impacting BusinessesTariffs and TradeInflation


The US Economy


3-Month Moving Average 3/12 Rate-of-ChangeQuarter-over-Quarter Growth Rate

•• Phase: • Quarter-over-Quarter:

ITROutlook

2018:2019:2020:

US Gross Domestic ProductSAAR, Chained 2009 $

12

14

16

18

20

12

14

16

18

20

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21-9

-6

-3

0

3

6

9

-9

-6

-3

0

3

6

9

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

US Gross Domestic Product

$18.5 trillionB

2.8%

2.5%0.5%2.7%

Source: BEA 5


US States GDPs Ranked vs. World Country GDPs

Data Sources: BEA; IMF 6


Personal Consumption

67%

Business Investment

16%

Government Spending

17%

US GDP by Consumption

Sources: BEA, ITR EconomicsPercent


12-Month Moving Average 12/12 Rate-of-ChangeYear-over-Year Growth Rate

• Annual Trend: • Phase: • Year-over-Year:

2018:2019:2020:

ITROutlook

US Industrial Production Index

84

89

94

99

104

109

114

84

89

94

99

104

109

114

-15

-10

-5

0

5

10

-15

-10

-5

0

5

10

US Industrial Production Index

105.6B

2.9%

2.9%-1.2%2.3%

Source: FRB


Manage the Business Cycles to Maximize ProfitsUS Industrial Production to Gross Domestic Product

Sources: FRB, BEAYear-over-Year, Quarter-to-Quarter (3/12)

-6.9%-2.9%

-5.2%

-15.5%

4.1%

-16

-12

-8

-4

0

4

8

12

-16

-12

-8

-4

0

4

8

12

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

GDPUS IP

GDPUS IP

9

Manufacturing ~ 76% of Industrial ProductionMining ~ 14% of Industrial ProductionUtilities ~ 10% of Industrial production


Rate-of-Change& Leading Indicators

Tools for Seeing the Future7.8%8.9%

-45

-30

-15

0

15

30

45

-30

-20

-10

0

10

20

30

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20


RawAug-16 1.5Sep-16 1.5Oct-16 1.4Nov-16 1.5Dec-16 1.3Jan-17 1.3Feb-17 1.6Mar-17 1.6Apr-17 1.5

May-17 1.7Jun-17 1.6Jul-17 1.7

Aug-17 1.7Sep-17 1.7Oct-17 1.6Nov-17 1.7Dec-17 1.5Jan-18 1.5Feb-18 1.9Mar-18 1.7Apr-18 1.7

May-18 1.9Jun-18 1.7Jul-18 1.7

3/12 Rate-of-Change

=

100 100

= ..

100 100 10.4%

3MMT

4.44.44.44.24.14.24.54.74.84.85.05.05.15.05.04.84.74.95.15.35.35.3

12MMT

18.018.218.418.618.819.019.219.419.719.820.020.220.3

12/12

26.7%25.5%25.2%22.4%20.0%18.3%15.4%12.7%

12/12 Rate-of-Change

=

100 100

= ..

100 100 12.7%

3/12

15.9%13.6%13.6%14.3%14.6%16.7%13.3%12.8%10.4%10.4%

A Powerful Management ToolRate-of-Change


50

70

90

110

130

150

‐150

‐125

‐100

‐75

‐50

‐25

0

25

50

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Data TrendROC

Rate-of-Change – A Management Tool

12

12


Leading Indicators

Rates-of-Change13Sources: FRB, ITR Economics

-20

-16

-12

-8

-4

0

4

8

12

-30

-24

-18

-12

-6

0

6

12

18

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Leading IndicatorIndustry Data

Industry Data - 12/12ITR Leading Indicator - Monthly

The Indicator has a 12-month lead time to the Industry Data

December 2017

May 2011May 2010


Leading Indicator System as a Powerful ToolUS Industrial Production Index to Leading Indicators

Sources: FRB, OECD, ISM, Yahoo Finance, IHS MarkitRates-of-Change

-60

-40

-20

0

20

40

60

-15

-10

-5

0

5

10

15

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

US IP - 12/12US IP ForecastG7 Indicator - 1/12PMI - 1/12Wilshire Market Cap - 3/12JP Morgan Indicator - 3/12

PMI, Wilshire, G7US IP, JP Morgan


Tax Reform


Real Gross Domestic Product

Source: BEA3/12 Rate-of-Change

-8

-4

0

4

8

12

16

1950 1960 1970 1980 1990 2000 2010 2020Republican Democrat GDP 3/12

16


0%

10%

20%

30%

40%

50%

60%

70%

0%

10%

20%

30%

40%

50%

60%

70%

'60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16

Corporate Tax Rate %

Gross Business Investment (% of GDP)

Linear (Gross Business Investment (% of GDP))

Is Freed Up Money Going to Capex?

Sources: Tax Policy Center, FREDPercent

17

US Corporate Tax Rate and Gross Business Investment17

Atlanta Federal Reserve Survey


Favorable CAPEX Trend

Source: Census BureauBillions of Dollars

7.9%8.0%

$805.7

500

750

1000

1250

1500

-60

-40

-20

0

20

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/12 12/12

3MMT 12MMT

18

US Nondefense Capital Goods New Orders w/o AircraftA positive impact from the tax law will show up here


US Nondefense Capital Goods New Orders (excl. Aircraft) to US Manufacturing Capacity Utilization

Sources: Census Bureau, FRBRates-of-Change

19

-30

-20

-10

0

10

20

30

-30

-20

-10

0

10

20

30

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

New Orders - 12/12New Orders ForecastUtilization Rate - 1/12

Utilization RateNew Orders

1/12 12/12


US Tax Rates and Real GDP Growth

Sources: Tax Foundation, BEA, 20

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Real GDP Growth Rate Top Marginal Tax Rate

Rea

l GD

P G

row

th R

ate Top M

arginal Tax Rate


Issues Government Will and Won’t Tackle

Source: BEABillions of Dollars

$0

$375

$750

$1,125

$1,500

$1,875

$2,250

$2,625

$3,000

$0

$375

$750

$1,125

$1,500

$1,875

$2,250

$2,625

$3,000Tax/Exp/Paym

Current Tax Receipts

Consumption Expenditures

Current Transfer Payments

Interest Payments

Interest

21


Total U.S. Public Debt

Source: Usgovernmentspending.com(% of GDP)

0

20

40

60

80

100

120

140

0

20

40

60

80

100

120

140

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

120.5%

22

The Long View…


Trade & Tariffs


US Trade Balance for Goods and Services

Source: US Census BureauBillions of dollars

-553.5-574.3

-850

-750

-650

-550

-450

-350

-250

-850

-750

-650

-550

-450

-350

-250

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

3MMT

12MMT


Manufacturing Increasingly Takes Place in Asia

Source: Harvard Business ReviewPercent Share of Global Manufacturing, by Value Added

40% 34 33 30 26 24

24%28 29 33 41 45

24% 25 26 25 21 20

6% 7 6 6 6 56% 6 6 6 6 6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1995 2000 2005 2010 2015

Rest of WorldLatin America

North America

South/East Asia

Europe


Leveling the Manufacturing Field Around the Globe

Years of 15% to 20% per annum labor cost increases in China without corresponding productivity increases

Cheap and readily available energy in North AmericaAggressive reengineering and automation

The China Advantage?The China Advantage?

2016: Only 1 Percent Point Difference2016: Only 1 Percent Point Difference

2004: 15 Percentage Point Advantage2004: 15 Percentage Point Advantage


Leveling the Manufacturing Field Around the Globe

Years of 15% to 20% per annum labor cost increases in China without corresponding productivity increases

Cheap and readily available energy in North America

The China Advantage?The China Advantage?

2016: Only 1 Percent Point Difference2016: Only 1 Percent Point Difference

2004: 15 Percentage Point Advantage2004: 15 Percentage Point AdvantageMoving ForwardRobotics Protectionism Politics & Economic Stability

HBR H03IWO Supply Chain by Rose and Reeves


Ease of Doing Business

Source: The World Bank

NZ 1Singapore 2Denmark 3Korea 4Hong Kong 5US 6UK 8Germany 21Japan 35Russia 36China 75India 100Brazil 125


Tariffs

Washing Machines, 1.8Solar Panels, 8.5

Steel, 29

Aluminum, 17.4Chinese Imports Round 1, 50

Chinese Imports Round 2, 200

Proposed Chinese Imports, 267

Proposed Auto Imports, 350

China Round 1, 52.4China Round 2, 60

Canada, 12.8Mexico, 2.9Europe, 3.2Turkey, 1.8Proposed India, 1.4

Proposed Japan, 1.9Proposed Russia, 3.2

0

100

200

300

400

500

600

700

800

900

1000

US Tariffs Reciprocal Tariffs

$ Va

lue

25%

10% Tariff Sep 24th

25% Tariff Jan 1, 2019


Commodity Prices

Source: WSJ, London Metal Exchange, Steel Market Update3/12 Rates-of-Change

30

23.4% Steel

-2.9% Copper

-60

-30

0

30

60

90

120

150

-60

-30

0

30

60

90

120

150

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24


US Consumer Price Index to US Producer Price Index

Source: BLS1/12 Rate-of-Change

31

2.7%3.6%

-10

-5

0

5

10

-10

-5

0

5

10

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Consumer PriceProducer Price


Brands That Have or Will Be Increasing Prices Due to Tariffs

Source: Business Insider, “These popular brands say Trump's tariffs will force them to raise prices” 32

COCA-COLA WINNEBAGO POLARIS INDUSTRIES WHIRLPOOL GENERAL MOTORS TOYOTA LG ELECTRONICS MILLER COORS SAMUEL ADAMS CAMPBELL SOUP NEWELL BRANDS (CROCK-POT, RUBBERMAID, YANKEE CANDLE, & SHARPIE)

KLEENEX & HUGGIES

“I can't just go to the shareholders and say, 'You're just going to have to

accept my profit's going to be $40 million less. It doesn't work that

way…”

- Gavin Hattersley, CEO MillerCoors


$60 Billion of Goods Subject to Tariffs Aimed at China

Source: US Census Bureau

Exports from the US to China stand at $130.1bn, or 0.7% of US GDP.Exports from China to the US are a record high $436.9bn, or 3.8% of China GDP.

The US is China’s Biggest Customer

Slowing exports to the US will hurt their economy more than ours but it is not risk free.

Potential US ConsequencesInflationInflation DownstreamProduction

DownstreamProduction

Job & Profit Loss in Export Supply Chain

Job & Profit Loss in Export Supply Chain

(to China)Industry Exports US $ bnAerospace $ 16.3 Soybeans $ 12.4 Motor Vehicles $ 10.0 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

$250


US Top Goods Export by State

Source: US Census BureauBased on annual data, 2017


US Machinery Exports by State

Source: US Census BureauMillions of Dollars

Top 10 StateExports Value

Bils$1 Texas $41.72 California $26.63 Illinois $12.54 Ohio $9.05 Florida $8.86 Michigan $7.97 New York $6.68 Tennessee $6.69 Georgia $5.510 Wisconsin $5.4


US Vehicle Exports by State

Source: US Census BureauMillions of Dollars

Top 10 StateExports Value

Bils$1 Michigan $24.82 California $11.43 S. Carolina $10.64 Texas $9.85 Indiana $9.46 Alabama $8.47 Ohio $7.68 Illinois $6.69 Kentucky $5.610 Tennessee $4.4


Interest Rates


0

2

4

6

8

10

12

14

16

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Yield on 10 Year Treasury NoteSource: FRB

?


0

1

2

3

4

5

6

2018 2019 2020 Longer Run

FOMC Member Interest Rate Projections

Source: FRB 39

Fed Open Market CommitteeJune 2018


Industry Drivers


US Total Manufacturing Production Index NSA

Source: FRB2012=100

2.9%2.3%

104.3

85

110

135

160

-30

-15

0

15

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMAROC

12/123/12

3MMA 12MMA


US Machinery Manufacturing Capacity Utilization

Source: FRBPercent

6.2%7.6%

75.7

55

85

115

145

-40

-20

0

20

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMAR-O-C

3/12 12/12

3MMA 12MMA


US Industrial Machinery New Orders

Source: Census BureauBillions of $

-0.6%

1.8%

31.0

0

20

40

60

80

100

120

140

-200

-150

-100

-50

0

50

100

150

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3MMT12MMT

3/1212/12


US Refrigeration & HVAC Equipment New Orders

US Census BureauBillions of Dollars

10.4%5.5%

46.5

24

36

48

60

72

84

96

108

-60

-48

-36

-24

-12

0

12

24

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/12 12/12

3MMT12MMT


US Engines, Turbines, Generators and other Power Generation Equipment New Orders

Source: US Census BureauBillions of dollars

45

2.9%7.2%

48.5

20

40

60

80

100

120

140

160

-100

-75

-50

-25

0

25

50

75

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/1212/12

3MMT 12MMT


US Electrical Equipment New Orders

Source: US Census BureauBillions of Dollars

46

9.2%1.6%

36.337

25

50

75

100

-60

-30

0

30

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/1212/12

3MMT12MMT


US Material Handling Equipment New Orders

Source: Census BureauBillions of Dollars

47

11.6%7.4%

33.1

10

25

40

55

70

85

-120

-80

-40

0

40

80

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/12 12/12

3MMT 12MMT


US Metal Cutting and Forming Machine Tool New Orders

Source: Association for Manufacturing TechnologyBillions of $

17.3%13.3%

5.0

0

5

10

15

20

-150

-75

0

75

150

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/12

12/12

3MMT 12MMT


North America Robotics New Orders (billions of dollars)

Source: Robotic Industries AssociationBillions of Dollars

49

-1.7%-6.3%1.9

0

1

2

3

4

5

-150

-100

-50

0

50

100

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

MMTR-O-C

3/1212/12

3MMT

12MMT


US Market Sectors 2019 OutlookIndustry Phase Latest 2018 YE2019F

Manufacturing Production Index B 2.3%Machinery Manufacturing Capacity Utilization B 7.6%Industrial Machinery New Orders B 1.8%Refrigeration and HVAC Equipment New Orders B 5.5%Power Generation Equipment New Orders C 7.2%Electrical Equipment New Orders B 1.6%Material Handling Equipment New Orders B 7.4%Machine Tool New Orders B 13.3%North America Value of Robotics New Orders D -6.3%


Summary


Phase A - Recovery

Annual Sales are BELOWYear-Ago Levels, but the Rate-of-Decline is SLOWING.

Phase B –Accelerating Growth (Best)

Annual Sales are ABOVEYear-Ago Levels, and are GROWING at a RAPIDPace.

Phase C – Slowing Growth (Caution)

Annual Sales are ABOVEYear-Ago Levels, BUT the Rate-of-Growth is SLOWING

Phase D -Recession

Annual Sales are BELOWYear-Ago Levels, and are DECLINING at a RAPIDPace.

Business Cycles

2017 2018

2019


Things to Pay Attention to in 2019 and Beyond

53

Expect slowdown, then mild negativity in 2019

Leverage 2019 Lull to Prepare for Rise in 2020

Tariffs and Protectionist Policies: Uncertainty

Inflationary Pressures


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winds of change - ahtdwinds of change first in forecasts since 1948 itr economics provides the best...

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