Managing in anUncertain Economy

Alex ChausovskyDirector, ITR Economics

ITR Economics provides the best economic intelligence to reduce

risk and drive practical and profitable business decisions.

2018 Forecast ResultsIf you heard ITR around two years prior… 2

Duration Accuracy

US GDP 24 99.9%

US Ind. Production 34 99.4%

Europe Ind. Production 24 99.2%

Canada Ind. Production 27 97.1%

China Ind. Production 30 99.9%

Retail Sales 28 99.6%

Housing (Single Family Units) 26 99.2%

Employment (Private Sector) 30 99.4%

Macroeconomic Trends

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

• .

• Phase:

• Quarter-over-Quarter:

2019:

2020:

2021:

ITR

Outlook

US Economy Stalls in 2019 and Into 2020

US Gross Domestic Product, SAAR, Chained 2012 $

US Gross Domestic Product

Annual Trend $19.0 trillion

C

2.3%

1.7%

1.9%

2.1%

Source: BEA

-9

-6

-3

0

3

6

9

-9

-6

-3

0

3

6

9

12

14

16

18

20

12

14

16

18

20

It’s About the Business Cycle, not PoliticsReal Gross Domestic Product

-8

-4

0

4

8

12

16

1950 1960 1970 1980 1990 2000 2010 2020

Republican Democrat GDP 3/12

Source: BEA

3/12 Rate-of-Change

5

Personal Consumption

67%Business

Investment16%

Government Spending

17%

US GDP by Consumption

Sources: BEA, ITR Economics

Percent

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

• Annual Trend:

• Phase:

• Year-over-Year:

2019:

2020:

2021:

ITR

Outlook

Slowing Growth in 2019; Mild Recession in 2020US Industrial Production Index

US Industrial Production Index

109.6

C

1.9%

0.5%

0.7%

2.0%

Source: FRB

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

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22

Riding the Business Cycle

Reduce Risk Exposure

and Increase Liquidity

Reduce Risk Exposure

and Increase Liquidity

Increase Risk Exposure

and Decrease Liquidity

Leading Indicators System Approach

How do Leading Indicators Work?

-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 - 12/12

ITR Leading Indicator - Monthly

Sources: FRB, ITR Economics

Rates-of-Change

10

The Indicator has a 12-month

lead time to the Industry Data

December 2018

May 2011May 2010

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

Sources: FRB, OECD, ISM, Yahoo Finance, IHS Markit

Rates-of-Change

-60

-40

-20

0

20

40

60

-15

-10

-5

0

5

10

15

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

PMI, WMC, JP MorganUS IP, G7

US IP - 12/12

US IP Forecast - 12/12

G7 Indicator - 1/12

PMI - 1/12

Wilshire Market Cap - 3/12

JP Morgan Indicator - 1/12

Slowing Rate of Rise in CAPEX TrendUS Nondefense Capital Goods New Orders w/o Aircraft

Source: Census Bureau

Billions of Dollars

12

-0.6%

1.9%

$826.8

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

3MMT12MMT

Leading Indicators Signal Business Cycle Decline for CAPEXUS Nondefense Capital Goods New Orders to Leading Indicators

Sources: US Census Bureau, NFIB, Institute for Supply Management, FRB, WSJ

Rates-of-Change

-60

-40

-20

0

20

40

60

-30

-20

-10

0

10

20

30

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

New Orders - 12/12New Orders - ForecastSmall Business Optimism - 12/12Util. Rate - 1/12PMI New Orders - 12/12US Copper Futures - 12/12

New Orders, Business Optimism, Utl. Rate PMI New Orders, Copper Futures

Tariffs and Interest Rates

Is the Current Trade Policy Having the Desired Effect?US Trade Balance for Goods and Services

Source: US Census Bureau

Billions of Dollars

-657.8-653.0

-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

Washing Machines, 1.8Solar Panels, 8.5

Steel, 29

Aluminum, 17.4Chinese Imports Round 1, 50

Chinese Imports Round 2, 200

Chinese Imports Round 3, 145

Proposed Chinese Imports (Consumer Electronics),

155

Proposed Auto Imports, 350

China Round 1, 52.4

China Round 2, 60Canada, 12.8

Mexico, 2.9Europe, 3.2Turkey, 1.8China Round 3, 60

China Round 4, 75

Proposed India, 1.4Proposed Japan, 1.9Proposed Russia, 3.2

0

100

200

300

400

500

600

700

800

900

1000

US Tariffs Reciprocal Tariffs

$ V

alu

e

25%

+5%? Oct 15th

25% Tariff Jan 1, 2019

Actual

Proposed

Potential

15% Tariff Dec 15, 2019

15% Tariff Sept 1, 2019

Proposed

Tariffs: There Will Be Winners and Losers

“Fair trade”

Specialization is a good thing

Competition is a good thing

Economics is not a zero sum game

Potential disruption to supply chains

Price increases

Retaliation

FOMC Member Interest Rate Projections

Source: FRB

0

1

2

3

4

5

6

2019 2020 2021 Longer Run

17

Fed Open Market Committee

September 2019

Financial Indicators

Perilous Heights? S&P500 Stock Prices Index

0

500

1000

1500

2000

2500

3000

3500

0

500

1000

1500

2000

2500

3000

3500

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Raw

12MMA

Source: Wall Street Journal

Data Trends

10

100

1000

10000

10

100

1000

10000

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Raw

12MMA

Perilous Height Is Not the Issue

S&P500 Stock Prices Index

Source: Wall Street Journal

Data Trends

20

Valuations Matter

Analysis prepared by: Baird Family Wealth Group August 2019

Source: Robert Shiller – Yale University

Cyclical Pressure Remains NegativeUS Stock Prices Index

2.9%3.2%

2818.7

500

1100

1700

2300

2900

3500

4100

4700

-125

-100

-75

-50

-25

0

25

50

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

MMAR-O-C

3/1212/12

3MMA12MMA

Source: Wall Street Journal

1941-43=10

22

Bellwether – Clark Bellin

Construction Markets

General Rise with No Great Recession Cliff for NowUS Single Unit Housing Starts

3.7%

-3.0%

0.863

0

1

2

3

4

5

6

-100

-75

-50

-25

0

25

50

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

MMTR-O-C

3/1212/12

3MMT12MMT

Source: Census Bureau

Millions of Units

24

As seen in

Leading the Traditional Leading IndicatorUS Single-Unit Housing Starts to US Housing Unit Building Permits

-60

-40

-20

0

20

40

60

-45

-30

-15

0

15

30

45

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Starts - 12/12

Starts Forecast - 12/12

Permits - 3/12

PermitsStarts

12/123/12

Sources: US Census Bureau

Rates-of-Change

ITR’s Leading Indicator Says Cyclical Decline in 2020US Private Nonresidential Construction to ITR Leading Indicator

-20

-10

0

10

20

-30

-15

0

15

30

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26

Construction - 12/12

Indicator - Monthly

IndicatorConstruction

Sources: US Census Bureau, ITR Economics

Rates-of-Change

ITRLI Leads by 20 months

Summary

First in Forecasts Since 1948

The Road AheadIt is important to know where you are relative to the general economic trend

2019 Decelerating growth through the rest of the year

2020 1H20 low point in the business cycle, growth in 2H20

2021 Growth

2022 Backside of the Business Cycle

5 Pieces of Actionable Advice for Phase C

29

1. Develop your rates-of-change so you will know when the trough is near

(Use the ITR Checking Points™)

2. Focus on the segments of the business that are the most profitable in Phase C

3. Trumpet your Phase C competitive advantages and start developing your

message for the next phase (B or D, depending on your industry)

4. Cash Management for proper allocation and Inventory Control if applicable

5. Ask yourself what you shouldn’t be doing? (resource management and

diversion to more profitable parts of the company)

@achausovsky