U.S. ECONOMIC OUTLOOK & INDUSTRY

RECCOMENDATION

Presented by:Thana Kittisathanon

March 10,2016

STOCK MARKET TREND

S&P 500 closed at 1,999 points last week (3/4/16) Stock market continues to be volatile, especially the last 6 months Does not indicate a recession or economic expansion

SOURCE: BLOOMBERG

GDP REPORT Real GDP rose 1% in the

fourth quarter Consumer spending drove

growth, contributing 1.4% Inventory accumulation &

trade reduced GDP growth The economy is creating

lots of jobs across all pay scales

Household debt growth continues to lag income gains, & debt burdens

Overall, risk of a recession remains low

SOURCE: DISMAL SCIENCE

ECRI WEEKLY LEADING INDEX ECRI WLI gained less than

0.1 point Brings the indicators

value down -3.5%, its lowest in 11 months

Economic data released countervailed the ECRI's negativity

Acceleration in wage and income

Consumption expenditure and prices increased more than expected

Indicates positive economic trends heading into 2016

SOURCE: DISMAL SCIENCE

YIELD CURVE SPREAD

Compared short-term & long-term treasury yield curve rates in 2016 2007 shows an inverted curve indicating a recession 2016 shows no inversion; does not indicate a recession

2007 2016

SOURCE: US TREASURY

CONSUMPTION

January sales up 2.4% Due to discretionary spending

( non-store retailers) Negative wealth effects will

continue unless the stock market rebounds strongly

SOURCE: DISMAL SCIENCE

Dropped 9.2% in January Inventory-to-sales up 0.7 Homeowners are exchanging

homes not buying new ones

CONSUMPTION Fell 5.6 points to 92.2 First drop since

November; lowest confidence index since July

The present situation index fell 4.5 points to 112.1

The expectations index fell 6.4 points to 78.9

Slower GDP growth and weak international demand

Labor utilization: People can generally find work, but it’s not always the work they really want.

SOURCE: DISMAL SCIENCE

ISM INDEX Increased from 48.2 in

January to 49.5 in February

6 of the 18 manufacturing industries reported growth in employment, 8 reported a decline

Manufacturing can support expansion due to under utilize capacity

Manufacturing remains in a late-cycle expansion, not a recession

SOURCE: DISMAL SCIENCE

50 is consider neutral A value >50 indicates an expansion A value <50 signals a recession

TREASURY REPORT Surplus of $55.2B in

January ($26B Social Security benefits that was moved to December 2015)

Federal revenues were $313.6B, a 2.2% increase from January 2015

Long-run outlook remains bleak

Cumulative deficit from 2016 to 2025 by $1.5 trillion

Which political party will control the federal government next year?

SOURCE: DISMAL SCIENCE

TRADE REPORT

U.S. foreign trade deficit increased to $45.7 billion in January

The strength of the dollar is impeding exporters

A decline in the price of energy has lead to a drop in total imports

SOURCE: DISMAL SCIENCE

Defense spending accounts for 14% of the national budget

Projected Defense spending to increase by $12B in 4 years

SOURCE: DEPTMENT OF DEFENSE

INFLATION

CPI rose 0.3% in January Core inflation improved, Feds

may postpone rate hikes until June

Feds are expected to raise interest rates 3 out of 4 times this year

SOURCE: DISMAL SCIENCE

PPI for final demand increased This increase is welcome news Core PPI is expected to raise

1.5%

GLOBAL ECONOMY

Asia:1. China possibly exporting deflation around the world 2. Monetary stimulus policies in Japan, Korea and New Zealand

Europe:1. The ECB has missed its inflation for 3 straight years2. Cut interest rates this week to stimulate economy

SOURCE: BLOOMBERG

FINAL ANALYSIS

Key economic indicators are pointing to slow growth for the U.S this year

ISM Manufacturing Index improved to 49.5 which indicates the sector remains neutral

Fed’s are expected to increase interest rates in June to curve expected inflation while other countries fight deflation

A decline in consumer confidence and new home sales due to volatility in the stock market may lead to a “self fulfilling prophecy” of a recession

Fiscal and monetary policies remains uncertain until after the November general elections

2016 2017 OVERALL TREND

RECCOMENDATION

Precision Castparts should anticipate a “Late Bull” run in 2016 but prepare for a possible contraction cycle in 2017 by:

1. Use cross-training to prepare workforce for recession cutbacks2. Aggressively pursue process improvement pipeline projects in

order to be more efficient and gain a competitive advantage3. Hedge raw material prices by using “financial derivatives” to lock

prices

2016 2017 OVERALL TREND

RECCOMENDATION

4. Reevaluate CAPEX in order to reduce cost in preparation for a recession

5. Tighten credit & collect outstanding account receivable 6. Conduct book-to-bill ratios comparison: If needed, start the process

of reducing raw material, WIP inventory and finish goods inventory

2016 2017 OVERALL TREND