Cautious Optimism For a New Era of Global Growthdelivered at the meeting of Steel Founders' Society of America
September 12, 2017 Kris BledowskiSenior Economist and Council Director
• A global overview
• U.S. outlook
• A detailed look at American Manufacturing
• An overview of European industry and SFSA end-markets
• What’s important in China
Today’s Presentation
• Clear signs of coordinated but modest global growth improvement.
• The falling dollar a tailwind for U.S. manufacturing at a time of global economic strengthening.
• A moderate upgrade in U.S. manufacturing growth over the nearly stagnant 2013-2016 period.
• Political/Policy shocks, Brexit uncertainty, and the confrontation with North Korea the principle risks to U.S. manufacturing outlook.
The Outlook From 30,000 Feet
-2
-1
0
1
2
3
4
5
6
Jul-1
1
Jan-
12
Jul-1
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Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
Jul-1
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Jan-
17
Jul-1
7
Perc
ent (
Year
/Yea
r)
Japan Eurozone United Kingdom
Consumer Price Inflation: Japan, the Eurozone, and the UK
Source(s): IHS Global Insight, and United Kingdom Central Statistics Organization (year/year for China and the Eurozone, annual percent rate for the UK)
Central Bankers Breathe Easier: Deflation Risks Abate
-1
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017(F)
2018(F)
Perc
ent
Expectations Grow For An Improved Global Outlook
World GDP Growth
F=ForecastSource(s): International Monetary Fund
0 1 2 3 4 5 6 7
World
United Kingdom
Eurozone
Japan
China
Asia, ex Japan
Brazil
Mexico
Perc
ent
2017 2018
On the Whole, A Mixed But Improving Picture for Global Manufacturing Growth
Select Economies, Forecast of Manufacturing/Industrial Production Growth
Source(s): Consensus Forecasts and MAPI Foundation
-3
-2
-1
0
1
2
3
4
5
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
Perc
ent
U.S. Manufacturing Growth Strengthens as An Improving Global Economy and a Falling Dollar Spur Factory Activity
U.S. Manufacturing Production Growth, Annual Percent Change, Seasonally Adjusted
Source(s): Federal Reserve Board
-4
-3
-2
-1
0
1
2
3
4
5
6
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(F)
2018
(F)
2019
(F)
2020
(F)
Perc
ent
MAPI Foundation Forecast: The Era of Moderate Economic Growth Continues in the U.S.
U.S. GDP Growth, Inflation-Adjusted
F=ForecastSource(s): U.S. Bureau of Economic Analysis and MAPI Foundation
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Basline Pessimistic Optimistic
Perc
ent
Non-U.S. Advanced Country GDP Developing Country GDP U.S. Manufacturng Growth
U.S. Manufacturing Forecast, Alternative Global Growth Scenarios, Projected Average of U.S. Manufacturing Growth for 2017-2020
Source(s): MAPI Foundation
U.S. Political/Policy Risk and Geopolitical Tensions Guide the Pessimistic Growth Scenario. A Strong Coordinated Global Upturn Guides the Optimistic Outcome.
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-3
-2
-1
0
1
2
3
4
5
2015
2016
2017
(F)
2018
(F)
2019
(F)
2020
(F)
Annu
al P
erce
nt C
hang
e
Exports Business Equipment Investment
MAPI Foundation Forecast: Modest Outlook for the Drivers of Manufacturing Activity
U.S. Manufacturing Production Growth
F=ForecastSource(s): MAPI Foundation
65
70
75
80
85
90
95
100
105
110
115
120
85
90
95
100
105
110
115
120
125
130
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
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Jan-
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Jul-1
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Jan-
17
Jul-1
7
Index March 1973=100
Inde
x: J
anua
ry 1
997=
100
Broad nominal dollar Dollar vs. major currencies
U.S. Broad Nominal Dollar and Dollar Versus Major Currencies
Source(s): Federal Reserve Board
The Resulting Dollar Reversal Grows as an Outlook Issue
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0
2
4
6
8
10
2015
Q1
2015
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2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
Perc
ent
Hints of Stronger U.S. Export Demand From a More Stable World
U.S. Total Export Growth, Annual Rate, Seasonally Adjusted
Source(s): U.S. Bureau of Economic Analysis
GDP Expenditure Categories
Inflation-Adjusted Percent Change
2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)Gross Domestic Product 2.9 1.5 2.1 2.6 2.0 2.0Total Consumption 3.6 2.7 2.6 2.9 2.7 2.4
Durables 7.7 5.5 5.3 4.5 5.3 5.0Nondurables 3.1 2.8 2.2 2.8 2.7 2.2Services 3.2 2.3 2.3 2.6 2.3 2.1
Nonresidential Fixed Investment 2.3 -0.6 4.3 3.4 3.1 3.3Equipment 3.5 -3.4 3.6 4.0 3.8 3.1
Information Processing Equip. 4.3 1.8 6.2 2.3 5.1 4.3Industrial Equipment 1.1 2.3 6.9 3.7 4.5 3.0Transportation Equipment 10.4 -7.3 -1.7 5.9 3.6 1.4
Intellectual Property Products 3.8 6.3 3.6 3.4 2.9 4.2Structures -1.8 -4.1 6.7 2.0 2.0 2.4
Residential Fixed Investment 10.2 5.5 2.3 4.8 2.5 1.2Exports 0.4 -0.3 3.6 3.3 1.7 2.9Imports 5.0 1.3 3.8 4.2 5.1 3.8Federal Government -0.1 0.0 0.2 0.4 -0.8 -0.3State & Local Government 2.3 1.2 0.1 0.4 1.1 0.6
MAPI Foundation Forecast of U.S. Growth of GDP and Components
F=ForecastSource(s): MAPI Foundation, August 2017
Economic Indicators
Percent Change or Level as Specified
2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)Manufacturing 0.1 0.0 1.1 2.2 2.2 1.2Computers & Electronic Products 1.1 1.4 4.6 4.9 2.5 3.0Non-high-tech Manufacturing 0.0 -0.1 1.1 2.3 2.1 1.5
MAPI Foundation Baseline Forecast of U.S. Manufacturing Output Growth
F=ForecastSource(s): MAPI Foundation, August 2017
IndustryInflation-Adjusted Percent Change
2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)Motor Vehicles & Parts 5 4 0 2 0 3Petroleum & Coal Products -2 3 5 3 2 0Plastic Products 2 0 1 4 4 3Logging -1 0 -1 4 2 1Wood Products 3 4 4 3 1 0Furniture & Related Products 5 0 1 2 2 0HVAC Equipment 2 4 2 4 2 2Textile Product Mills 1 3 -1 -2 -2 -2Paints, Soaps, Toiletries & Misc. 2 0 1 2 2 1Food 2 3 3 2 2 2Apparel -1 -11 -10 -6 -1 -1Pharmaceuticals & Medicines 7 0 -1 3 3 2
MAPI Foundation Forecast of Output Growth in Consumer-RelatedIndustries
F=ForecastSource: MAPI Foundation, August 2017
IndustryInflation-Adjusted Percent Change
2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)Electric Lighting Equipment 3 10 3 2 1 3Electrical Equipment -5 -6 -7 0 -1 1Architecture. & Structural Metals 0 -5 0 5 3 0Construction Machinery -10 -12 -1 4 -1 3Engines & Turbines -3 -14 5 4 2 1Agricultural Equipment -17 -5 -5 2 2 -1Drilling Equipment -29 -24 19 11 10 7Metalworking Machinery -1 -6 3 4 2 0Industrial Machinery -2 5 8 3 3 3Heavy Duty Trucks 10 -17 4 11 1 -3Medical Equipment & Supplies -1 3 -4 2 4 1Forging & Stamping -5 -1 3 3 1 0Aerospace Products & Parts 0 -2 -3 2 6 7Ship & Boat Building 0 -6 1 -5 -3 -3
MAPI Foundation Forecast of Output Growth in Investment-RelatedIndustries
F=ForecastSource: MAPI Foundation, August 2017
IndustryInflation-Adjusted Percent Change
2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)Paper -1 -3 0 0 0 0Iron & Steel -10 -2 4 0 -1 -2Alumina & Aluminum 1 -10 0 2 1 2Glass 1 -3 5 3 1 0Resins & Synthetic -8 1 1 7 8 7Organic Chemicals 0 0 3 6 6 8Inorganic Chemicals -5 -2 -4 2 -1 -1Agricultural. Chemicals -5 11 7 7 5 2
MAPI Foundation Forecast of Output Growth in Materials-Related Industries
F=ForecastSource: MAPI Foundation, August 2017
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1
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5
2013
Q1
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2013
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2013
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2014
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2014
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2015
Q1
2015
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2016
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2016
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2016
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2017
Q1
2017
Q2
Perc
entY
/Y
Germany Eurozone U.S.
European Manufacturing Leapfrogs America’s Performance
Global Manufacturing Output Growth, Year-Over-Year
Source(s): OECD
-25
-20
-15
-10
-5
0
5
10
2013
Q1
2013
Q2
2013
Q3
2013
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2014
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2014
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2015
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2016
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2016
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2017
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2017
Q2
Perc
ent
Germany Eurozone
European Mining Outlook Subdued
Eurozone and Germany, Mining Output Growth, Year-Over-Year
Source(s): Eurostat
-8
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0
2
4
6
8
10
12
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
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2014
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2015
Q1
2015
Q2
2015
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2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
Perc
ent
Germany Eurozone
Truck Production Decelerates in Europe
Eurozone and Germany, Truck Production Growth, Year-Over-Year
Source(s): Eurostat
-8
-6
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0
2
4
6
8
10
12
2013
Q1
2013
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2013
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2013
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2015
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2015
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2016
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2016
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2017
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2017
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Perc
ent
Germany Eurozone
European Rolling Stock in the Doldrums but Recovery Not Far Away
Eurozone and Germany, Locomotives and Rolling Stock, Production Growth, Year-Over-Year
Source(s): Eurostat
China’s Annual GDP Growth
4
6
8
10
12
14
16
2003
2005
2007
2009
2011
2013
2015
Perc
ent
Source(s): National Bureau of Statistics of China
China’s Slowdown: It’s Over!
0
5
10
15
20
25
Jul-1
1
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2
Jan-
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Jul-1
3
Jan-
14
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Jul-1
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Jul-1
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Jan-
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Jul-1
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Year
to D
ate
Perc
ent C
hang
e (Y
ear/Y
ear)
China’s Fixed Asset Investment, Purchase of Equipment and Tools
Source(s): National Bureau of Statistics of China
Dodging the Bullet on a China Investment Contraction
0
5
10
15
20
25
30
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
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Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
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Jul-1
5
Jan-
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Jul-1
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Jan-
17
Jul-1
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Perc
ent (
Year
/Yea
r)
China’s Growth of Industrial Value-Added
Source(s): National Bureau of Statistics of China
The Chinese Manufacturing Slowdown Has Reached a Bottom
• Growing signs of a coordinated but modest global growth improvement.
• The falling dollar adds a tailwind for U.S. manufacturing at a time of global economic strengthening.
• MAPI Foundation baseline forecast calls for an average of 1.7% U.S. manufacturing growth 2017-2020.
• While modest, this is a meaningful acceleration from the nearly stagnant 2013-2016 period.
• U.S. political/policy shocks, Brexit uncertainty, and the confrontation with North Korea are the principle risks to the U.S. manufacturing outlook. The impact of the hurricane Harvey will take some time to assess but will vary by subsector.
Key Takeaways