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

kbledowski@mapi.net

• 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

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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

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017(F)

2018(F)

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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

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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

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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

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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

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Basline Pessimistic Optimistic

Perc

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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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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

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Index March 1973=100

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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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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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European Manufacturing Leapfrogs America’s Performance

Global Manufacturing Output Growth, Year-Over-Year

Source(s): OECD

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European Mining Outlook Subdued

Eurozone and Germany, Mining Output Growth, Year-Over-Year

Source(s): Eurostat

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Truck Production Decelerates in Europe

Eurozone and Germany, Truck Production Growth, Year-Over-Year

Source(s): Eurostat

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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

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Source(s): National Bureau of Statistics of China

China’s Slowdown: It’s Over!

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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

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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