Global Manufacturing Outlook—12 Trends You Should Know Presentation.pdf · Global Manufacturing Outlook—12 Trends You Should Know June 20, 2016 Presented by: Dan Meckstroth, Ph.D

Global Manufacturing Outlook—12 Trends You Should KnowJune 20, 2016

Presented by: Dan Meckstroth, Ph.D.Vice President and Chief [email protected]

Inventory Levels Rose In the First Quarter

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Inve

ntor

y To

Sal

es R

atio

Manufacturing Inventory to Sales Wholesales Trade Inventory to Sales

Source(s): U.S. Census Bureau

A Short Term Inventory Correction Is Underway

85

90

95

100

105

110

115

120

125

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

2016

Q4

2018

Q2

2019

Q4

Inde

x 20

09=1

00

Major Currency Trade Weighted DollarOther Important Trading Partner

Exchange Rate by Country

Currency per U.S. Dollar

Average Level

2015 2016 (F)

2017 (F)

2018 (F)

Brazil Reals 3.33 3.82 3.97 4.12

Canada Dollar 1.28 1.32 1.26 1.22

ChinaYuan 6.28 6.57 6.74 6.90

Euros 0.90 0.90 0.87 0.82

UK Pound 0.65 0.69 0.63 0.61

Japan Yen 121.03 112.39 115.95 117.02

Mexico Pesos 15.87 17.83 17.25 16.65

The Dollar Will Depreciate Against Major Currencies; Flat v. Emerging

Trade Weighted Currency Index

Source(s): Left – Federal Reserve and MAPI, Right – Global Insight Forecast, June 2016

-40

-30

-20

-10

0

10

20

30

40

50

60

2010

2011

2012

2013

2014

2015

Jun-

15Ju

l-15

Aug

-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16Pe

rcen

t Cha

nge

in a

3-M

onth

Mov

ing

Aver

age

(Yea

r/Yea

r)

Nonferrous Metals Food and Beverages

Prices by Commodity

*U.S., Domestic Hot Rolled CoilSource(s): Left – IMF, Right – Consensus Economics, May 2016

Commodity Prices Will Rebound

Change in Commodity Prices

MetalDollars Per Metric Ton

2016 2017 2018 2019 2020Aluminum 1537 1594 1671 1736 1821

Cooper 4735 4939 5271 5463 5903

Nickel 9118 10595 12405 13871 15110

Lead 1757 1809 1870 1884 1878

Zinc 1795 1971 2077 2190 2222

Steel* 486 486 494 512 514

EnergyBrent Oil (Brl) 41 51 58 61 64

US Gas(MMBtu) 2.25 2.93 3.04 3.14 3.20

50

70

90

110

130

150

170

190

210

2010

Q4

2011

Q2

2011

Q4

2012

Q2

2012

Q4

2013

Q2

2013

Q4

2014

Q2

2014

Q4

2015

Q2

2015

Q4

2016

Q2

2016

Q4

2017

Q2

2017

Q4

2018

Q2

The

Econ

omis

t Bas

e M

etal

s In

dex

Historical Data Jun 2015 survey Oct 2015 survey Feb 2016 survey April 2016 survey

Changes in the Consensus: Base Metals Index

Source(s): Consensus Economics and MAPI Foundation

Commodity Price Forecasters Underestimate Prices, Until Recently

U.S. Mining exploration, shafts, and wells

0

20

40

60

80

100

120

140

160

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(F)

2017

(F)

2018

(F)

2019

(F)

2020

(F)

Bill

ions

of D

olla

rs

Source(s): U.S. Bureau of Economic Analysis and MAPI

The Plunge in Mining and Drilling Exploration Will End This Year

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

Bill

ions

of D

olla

rs

Dollars of Imports per $1 of Exports

Source(s): U.S. International Trade Administration and MAPI

The Huge Trade Deficit In Manufacturing Is Important

HVAC Trade (Net Exports)

2013 2015Electric Lighting 5.8 7.0Household Appliance 5.0 6.0Iron & Steel Products 2.1 2.6Metalworking Machinery 2.4 2.6Motor Vehicle & Parts 2.2 2.5Semiconductor 2.0 2.0Pharmaceutical & Medicine 1.8 2.0Electrical Equipment 1.8 1.9HVAC 1.5 1.8Fabricated Metal Product 1.4 1.5Instruments 1.1 1.4Medical Equipment 1.2 1.2Engine, Turbine, & Power 0.8 1.0Paper 0.9 0.9Basic Chemicals 1.0 0.9Industrial Machinery 0.8 0.8Aerospace 0.4 0.5

3

4

5

6

7

8

9

10

11

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Perc

ent

Total Manufacturing

Job Growth Unemployment Rate

Source(s): U.S. Bureau of Labor Statistics and MAPI

Strong Consumer Demand Provides The U.S. A Buffer From Emerging Market Weakness

-3

-2

-1

0

1

2

3

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Perc

ent C

hang

e in

a 1

2-M

onth

Mov

ing

Aver

age(

Year

/Yea

r)

Total Manufacturing

100

110

120

130

140

150

160

170

180

190

200

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,00019

98

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Thousands of HVAC

Employees

Thou

sand

s of

Man

ufac

turin

g Em

ploy

ees

Manufacturing HVAC

Manufacturing Employment Has Fallen, But Has Grown Since 2009

Total Manufacturing and HVAC Employment

Source(s): Bureau of Labor Statistics and MAPI Foundation

0

5

10

15

20

25

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16M

ar-1

6A

pr-1

6M

ay-1

6Ju

n-16Pe

rcen

t Cha

nge

in a

3-M

onth

Mov

ing

Aver

age

(Yea

r/Yea

r)

Building Construction by Type, Inflation Adjusted

*U.S., Domestic Hot Rolled CoilSource(s): Left – IMF, Right – Consensus Economics, May 2016

Strong, But Decelerating, Construction Activity in Buildings

Building Construction, Current Dollars

TypePercent Change

2015 2016 2017 2018Total 21 9 2 3Commercial 12 12 7 3

Industrial 49 5 -9 -5

Other 16 14 4 4

-10

-5

0

5

10

15

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

Aug

-12

Dec

-12

Apr

-13

Aug

-13

Dec

-13

Apr

-14

Aug

-14

Dec

-14

Apr

-15

Aug

-15

Dec

-15

Apr

-16Pe

rcen

t Cha

nge

in a

3-M

onth

Mov

ing

Aver

age

(Yea

r/Yea

r)HVAC Production Declining in 2016

HVAC Industrial Production

Source(s): Federal Reserve and MAPI

Percent Change

North America2016 (F)

2017 (F)

United States -0.5 3.6Canada -4.7 2.1

Business Investment, Inflation-Adjusted

F=ForecastSource: MAPI Foundation and Consensus Economics, June 2016

Percent Change Percent Change

Industry 20152016 (F)

2017 (F)

2018 (F) Industry 2015

2016 (F)

2017 (F)

2018 (F)

Electric Lighting Equipment 1 1 2 3

Metalworking Machinery -3 -5 2 2

Electrical Equipment -5 -2 1 1

Industrial Machinery 9 -4 5 4

Architec. & Structural Metals -2 1 3 3

Heavy Duty Trucks 11 -8 1 1

Construction Machinery 2 -8 2 2

Medical Equip. & Supplies -1 6 3 3

HVAC Equipment 2 -4 6 4Forging & Stamping 2 -2 0 2

Agricultural Equipment -11 -12 -2 0

Aerospace Products & Parts 0 1 3 4

Drilling Equipment -13 -18 4 10

Ship & Boat Building -2 -3 -5 -4

Investment-Related Manufacturing Production

F=ForecastSource: MAPI Foundation, May 2016

1.3

0.8

0.4

2.5 2.

8

-1.6

0.6

1.7

-0.7

0.5

0.2

0.0

3.5

2.2

3.0

4.4

4.0

3.2

1.6

1.4

1.3

-2

-1

0

1

2

3

4

5

6

7

820

14

2015

2016

(F)

2017

(F)

2018

(F)

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

Perc

ent C

hang

eNo Growth Expected In First Half 2016

Manufacturing Industrial Production Growth

Source(s): Federal Reserve Board and MAPI

Global Manufacturing PMI

*Purchasing Managers IndexSource(s): Markit

Global Manufacturing Growth Continues to Slow

48

49

50

51

52

53

54

55

56

57

58

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Gre

ater

Tha

n 50

Per

cent

Equ

als

Gro

wth Country

2016Mar. Apr. May

United States 51.5 50.8 50.7Canada 51.5 52.2 52.1Mexico 53.2 52.4 53.6Brazil 46.0 42.6 41.6UK 50.7 49.4 50.1Euro Zone 51.6 51.7 51.5Japan 49.1 48.2 47.7China 49.7 49.4 49.2India 52.4 50.5 50.7Korea 49.5 50.0 50.1Taiwan 51.1 49.7 48.5Russia 48.3 48.0 49.6

PMI By Country

-8

-6

-4

-2

0

2

4

6

Mar

-14

May

-14

Jul-1

4Se

p-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep-

15N

ov-1

5Ja

n-16

Mar

-16

May

-16

Perc

ent C

hang

e in

a 3

-Mon

th M

ovin

g Av

erag

e (Y

ear/Y

ear)

Country

Million Metric Tones

Percent Change

2015 (F) 2015YTD2016

World 1,591 -3 -3U.S. 79 -11 0EU 166 -2 -7Brazil 33 -2 -14Russian 71 -1 -4China 798 -3 -2Japan 105 -5 -2Korea 70 -3 -2Taiwan 21 -8 -10India 89 2 2Other 159 -6 -2

Global Raw Steel Production

Source(s): World Steel Association and MAPI

Global Steel Production Declines

Raw Steel Production By Country

Credit Cycle: Characteristics and Country Positions

Source(s): International Monetary FundLDR=Loan to Deposit Ratio, NPL=Nonperforming Loans

Emerging Markets Are In the Late Stage of The Credit Cycle; Advance Economies In the Repair and Expansion Phases

I. Expansion• Credit growth ↑• Bad debt recoveries↑• NPLs↓• Asset prices ↑• Bank profitability ↑

II. Peak• Borrower leverage ↑• Bank leverage, ↑

capital stretched• Bank LDRs, ↑

funding constrained

III. Downturn• NPLs ↑• Credit growth ↓

IV. Repair• Provisions ↑• System leverage ↓• Bank capital ↑ Japan

United States

OtherEmergingMarkets

China

India

Euro area

-10

-5

0

5

10

15

Dec

-09

Jun-

10D

ec-1

0Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16Perc

ent C

hang

e in

a 3

-Mon

th M

ovin

g Av

erag

e (Y

ear/Y

ear)

Eurozone UK Germany

Industrial Production by Country

Percent Change

2015 2016 (F)

2017 (F)

2018-20

Germany 0.9 1.2 1.8 1.6

UK 1.0 0.1 1.5 1.3

Euro Zone 1.4 1.7 2.0 1.9

Weak, But Positive, Momentum in European Industrial Production


F=Forecast, May 2016Source(s): Left – World Bank, Right – Consensus Forecasts and MAPI

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Percent Change (Year/Year)

Une

mpl

oym

ent R

ate

(Per

cent

)

Unemployment RateConsumer prices, all items (right)Consumer prices, excluding energy, food, alcohol & tobacco (right)

Source(s): Eurostat and MAPI Foundation

Euro Area Unemployment and Consumer Prices

Below Target Inflation Amid High, But Falling, Unemployment

Western Europe

Percent Change

Eastern Europe

Percent Change

Country2016 (F)

2017 (F) Industry

2016 (F)

2017 (F)

Sweden 6.2 4.2 Romania 5.3 5.4Netherlands 4.7 3.7 Lithuania 4.8 5Spain 4.4 3.8 Poland 4.2 4.9France 4 2.9 Estonia 2.8 4Germany 3.6 3 Slovakia 2.6 4.1Euro Zone 3.1 2.7 Turkey 2.4 3.9Italy 2.1 2.2 Croatia 2.1 3United Kingdom 1.7 4.3 Czech Republic 1.9 3.1Switzerland 1.2 1.7 Bulgaria 1.7 3.3Norway -0.7 1.3 Ukraine 1.5 5.3

Slovenia 0.8 3.2Hungary -0.9 3.4Russia -2.8 1.5



-10

-5

0

5

10

15

20

25

Dec

-09

Jun-

10D

ec-1

0Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16Perc

ent C

hang

e in

a 3

-Mon

th M

ovin

g Av

erag

e (Y

ear/Y

ear)

China India Japan


Percent Change

2015 2016 (F)

2017 (F)

2018-20

China 2.4 3.0 3.5 3.7India 3.2 4.0 4.5 4.7Japan -1.5 -0.3 1.5 1.0Asia ex. Japan 2.2 2.9 3.6 3.8

Asia Manufacturing Will Be Less of A Growth Driver Than In The Past



-20

-10

0

10

20

30

40

50

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16

Perc

ent C

hang

e (Y

ear/Y

ear)

Power ProductionIndustrial Value-addedSteel Production

35

40

45

50

55

60

65

70

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16

Perc

ent

PMI, CFLP PMI, HSBC

Manufacturing PMI

Source(s): Left – China’s Bureau of Statistics Right - China Federation of Logistics and Purchasing and HSBC

China Manufacturing Production Weaker Than Reported

Power and Steel Production and Industrial Value-added

AsiaPercent Change

Country2016 (F)

2017 (F)

Philippines 10.7 7.5China 10.4 9.4India 6 7.3Indonesia 5.8 6.6New Zealand 3.8 3.4Thailand 3.8 4.7Malaysia 3.5 4.1Korea 3.0 3.1Taiwan 1.1 2.2Singapore 0.4 2.5Hong Kong -0.8 1.7Australia -10.3 -2.9



-15

-10

-5

0

5

10

15

Dec

-09

Jun-

10D

ec-1

0Ju

n-11

Dec

-11

Jun-

12D

ec-1

2Ju

n-13

Dec

-13

Jun-

14D

ec-1

4Ju

n-15

Dec

-15

Jun-

16Perc

ent C

hang

e in

a 3

-Mon

th M

ovin

g Av

erag

e (Y

ear/Y

ear)

Brazil Mexico


Percent Change

2015 2016 (F)

2017 (F)

2018-20

Brazil -8.3 -5.5 1.0 2.6

Mexico 1.0 2.0 2.8 3.0

Latin America -3.0 -1.2 2.0 3.0

Another Year of Recession Before Modest Recovery In Latin America



Latin AmericaPercent Change

Country2016 (F)

2017 (F)

Mexico 2.8 4.3Peru 2.3 4.2Colombia 1.8 3.4Argentina 1.4 9Chile 1.1 1.9Brazil -12.1 1.4Venezuela -14.2 0.6



World Industrial Production

F=Forecast, May 2016Source(s): World Bank and MAPI Foundation

Global Manufacturing To Accelerate From Slow To Modest Growth Next Year and Beyond

0

1

2

3

4

5

6

7

8

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Jun-

16

Perc

ent

Cha

nge

in a

3-M

onth

Mov

ing

Aver

age

(Y

ear /

Year

)

CountryPercent Change

2015 2016(F)

2017(F)

2018(F)

World 1.0 1.4 2.6 2.9N America 0.2 0.4 2.5 2.8L America -3.0 -1.2 2.0 2.9N. Europe 2.4 0.7 1.9 2.1S. Europe 2.0 2.0 2.1 2.1W. Europe 0.7 1.4 1.8 1.9E. Europe -0.2 1.4 2.6 3.4E. Asia 1.2 2.0 2.9 3.1S. Asia 3.5 4.1 4.6 4.5SE Asia 2.8 3.3 4.1 4.5MENA 3.3 1.8 2.2 2.3

Industrial Production by Country/Region

-2

-1

0

1

2

3

4

5

6

7

8

United States European Union Japan Asia Pacific China

Aver

age

Perc

ent C

hang

e

Potential Labor Force Growth Productivity

The New Normal Is Modest Growth

Potential Inflation-Adjusted GDP Growth, 2016-2020

Source(s): IHS Global Link Model

• The Dollar Will Depreciate Against Major Currencies• Foreign Trade Continues To Depress U.S. Economic Growth• Commodity Prices Will Rebound• The Plunge In Mining and Drilling Exploration Will End This Year• Strong Domestic Demand Buffers U.S. From the Rest of the World• Emerging Markets Are In The Late Stage of the Credit Cycle• Weak, But Positive, Momentum in European Industrial Production• Asia Will Be Less of A Growth Driver Than In The Past• Another Year of Recession Before Modest Recovery In Latin America• Global Manufacturing To Accelerate From Slow To Modest Growth• The New Normal Is Modest Growth• More Downside and Upside Risk to the Outlook

Conclusions

Documents

Global Manufacturing Outlook—12 Trends You Should Know Presentation.pdf · Global Manufacturing Outlook—12 Trends You Should Know June 20, 2016 Presented by: Dan Meckstroth, Ph.D