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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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
The US Economy
First in Forecasts Since 1948
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
First in Forecasts Since 1948
US States GDPs Ranked vs. World Country GDPs
Data Sources: BEA; IMF 6
First in Forecasts Since 1948
Personal Consumption
67%
Business Investment
16%
Government Spending
17%
US GDP by Consumption
Sources: BEA, ITR EconomicsPercent
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
Tax Reform
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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…
First in Forecasts Since 1948
Trade & Tariffs
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
Ease of Doing Business
Source: The World Bank
NZ 1Singapore 2Denmark 3Korea 4Hong Kong 5US 6UK 8Germany 21Japan 35Russia 36China 75India 100Brazil 125
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
$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
First in Forecasts Since 1948
US Top Goods Export by State
Source: US Census BureauBased on annual data, 2017
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
Interest Rates
First in Forecasts Since 1948
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
?
First in Forecasts Since 1948
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
First in Forecasts Since 1948
Industry Drivers
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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%
First in Forecasts Since 1948
Summary
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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
First in Forecasts Since 1948
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