Strategic Planning Summit Economic & Market Outlook...• Consumers OK Manufacturing output flat •...
Transcript of Strategic Planning Summit Economic & Market Outlook...• Consumers OK Manufacturing output flat •...
Strategic Planning Summit
Economic & Market Outlook
Jim Meil September 19, 2016
Email: [email protected] Follow on twitter: @actresearch & @jp_meil
Outline
• Overview
• Business Cycle – where we stand
• Key Lead Indicator Review
• Consumer look
• Industry, investment and inventories
• Fed, inflation, and interest
• Overseas and risk factors
• Summary and wrap up
2 ACT Research Co., LLC, Copyright 2016
• Very slow economic growth
• But no recession
• Sector by sector
• Consumers OK Manufacturing output flat
• Less despair in energy Construction on trend
• Investment weak – confidence low, capacity excess
• No growth catalyst
• Rest of world troubled – Brazil, Brexit, China, Turkey
• Fed rate hike likely in Dec, 2 more in 2017
Overview – Business Environment
Weak grade for the economy:
2016 gets a C, 2017 may be a bit better at B minus
Updated: September 9, 2016
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Source: National Bureau of Economic Research
U.S. Business Cycles since 1960
4
Start End GDP Mfg IP
Feb-61 Dec-69 106 5.1 6.8
Nov-70 Nov-73 36 5.5 9.4
Mar-75 Jan-80 58 4.6 6.7
Nov-82 Jul-90 92 4.1 4.0
Mar-91 Mar-01 120 3.8 5.6
Nov-01 Dec-07 73 3.0 2.8
81 4.4 5.9
Jun-09 >Sep-16 86 plus 2.1 2.1
Compound Annual
Growth Rate
Average
Duration
(months)
ACT Research Co., LLC, Copyright 2016
Source: Fidelity Investments
Phases of the Business Cycle
5
U.S.
-10
-8
-6
-4
-2
0
2
4
6
8
10
09'Q
1
10'Q
1
11'Q
1
12'Q
1
13'Q
1
14'Q
1
15'Q
1
16'Q
1
-10
-8
-6
-4
-2
0
2
4
6
8
10
Real GDP
Mfg Industrial Production
GDP 1983-2007 Avg Growth = 3.4%
Mfg IP 1983-2007 Avg Growth = 4.0%
Real GDP and Mfg Output Growth
Source: BEA and Federal Reserve
Data through 2016q2 (2 quarter moving average)Bureau of the Census
Data through 2007q1
% G
row
th S
AA
R
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Crosscurrents at work
• Consumer confidence
• Jobs (July strong, Aug OK)
• Consumer big ticket buys (but autos flattening)
• Oil prices (users)
• Low inflation, interest rates
• Stock market
• Most construction sectors
• Rest-of-world economies – China, Brazil, UK maybe
• US$ impact on exports
• Gov’t finance-worldwide
• Oil prices (producers)
• Beltway blues, ‘16 election
• Geopolitical risk (Turkey, China)
ACT Research Co., LLC, Copyright 2016
Good Not-so-good
7
Lead Indicator Review
• Yield curve (spread between long/short rates)
• Stock market trends
• Commodity prices
• Sentiment surveys
• Purchasing Managers Indices
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-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
Perc
en
t
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
10-Year Treasury Rate
90-Day T-Bill Rate
U.S. 10-Year Treasury Rates and 90-Day T-bills • Yield curve spread wide = low recession risk
• Rates will stay low into 2017, perhaps after
• Fed’s next tightening Dec 2016 – 1 or 2x in 2017
9 Source: U.S. Federal Reserve Data through August 2016 ACT Research Co., LLC, Copyright 2016
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
Ind
ex
, 19
41
-43
= 1
00
, Lin
ea
r S
ca
le
600
800
1000
1200
1400
1600
1800
2000
2200
Ind
ex
, 19
41
-43
= 1
00
, Lin
ea
r Sc
ale
Source: U.S. Federal Reserve
Data through September 02, 2016 10
1400
1500
1600
1700
1800
1900
2000
2100
2200
13
14
15
16
Ind
ex
, 1
94
1-4
3 =
10
0, L
ine
ar
Sc
ale
1400
1500
1600
1700
1800
1900
2000
2100
2200
Ind
ex
, 19
41
-43
= 1
00
, Lin
ea
r Sc
ale
U.S. Stock Market S & P 500
Oct 2014
Sept 2015
Feb 2016
S&P near all-time high (just beyond the trading range of the last 7 quarters)
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0.75
1.25
1.75
2.25
2.75
3.25
3.75
4.25
4.75
5.25
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Wee
kly
On
-Hig
hw
ay R
etai
l Reg
ula
r G
aso
line
($/g
allo
n)
10
25
40
55
70
85
100
115
130
145
WT
I Cru
de S
po
t Price ($/p
er barrel)
U.S. Oil and Gasoline Prices
Retail Gasoline Prices (left)
Source: U.S. DOE, Energy Information Agency Weekly data through September 05, 2016
WTI Crude Spot (right)
• WTI Crude in a 40-50 trading range, likely into 2017
• Year-over-year comps now roughly even for crude oil & refined
11 ACT Research Co., LLC, Copyright 2016
WTI ($/bbl) Gas ($/g)
Latest Week 45.11 2.22
One Year Ago 45.16 2.44
Price Points
NFIB Small Business Optimism Index
80
85
90
95
100
105
110
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Ind
ex (
1986 =
100)
80
85
90
95
100
105
110
Source: NFIB
Monthly data through July 2016
Average reading
1992 to 2007 = 100.2
Average reading
since July 2009
trough = 92.5
12
Small business confidence isn’t back to pre-recession levels
ACT Research Co., LLC, Copyright 2016
[VALUE]
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
30
35
40
45
50
55
60
651
99
5
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Ind
ex 5
0 =
Neu
tral
ISM Purchasing Managers’ Index
Manufacturing
Source: ISM Manufacturing Report on Business Monthly data through August 2016
Below 50 = declining
Above 50 = growing
13
• August dips below 50 after Mar-July above
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Lead Indicator Review • Yield curve (long/short rate spread):
• Wide spread, very low rates
• Purchasing Managers’ Index: • Soft August after good Mar-July – problem?
• Commodity prices: • Off bottom, tentative signals of investment interest
• Stock market trends • Beyond high end of ‘trading range’
• Business Sentiment surveys: • Back to the 2010-2013 range after 2014-15 pickup
14 ACT Research Co., LLC, Copyright 2016
Consumers
• Confident and troubled
• Employed
• Spending
• Restored balance sheet post recession trauma
• Older
• Best sector performance (lackluster comps)
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50
60
70
80
90
100
110
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Ind
ex
, 1
98
5 =
10
0 (
SA
)
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
Pe
rce
nt
U.S. Consumer Attitudes Measures and Unemployment
Sources: U.S. Bureau of Labor Statistics, University of Michigan
Data through January 2016
Unemployment Rate
(right scale)
University of Michigan
Consumer Sentiment Index
(left scale)
190
200
210
220
230
240
250
260
270
280
290
300
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Ind
ex 1
99
6 =
10
0 (
SA, 3
mm
a)
190
200
210
220
230
240
250
260
270
280
290
300
Sources: US Census Bureau Data through July 2016
US Retail Sales (excl Auto, Gasoline) and adjusted for inflation
July 2016/July 2015 2.5
CAGR since June 2009 2.5
Growth Rates
2016-July YTD Change From 2015-July YTD
• Nonstore (online) up 10.5%
• Hot sectors: Health, personal care (up 7.1%) Building materials (up 6.4%)
• Cold sectors: Dept stores (down 3.9%) Electronics & appliance (down 3.0%)
9
10
11
12
13
14
15
16
17
18
19
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Mill
ion
s o
f u
nit
s -
3 M
on
th M
ov
Av
g
(SA
AR
)
9
10
11
12
13
14
15
16
17
18
19
Sources: Ward’s Automotive and Motor Intelligence Sales data through August 2016
U.S. Light Vehicle Retail Sales
18
August 2016/August 2015 (1.7)
CAGR since July 2009 8.1
Growth Rates %
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Millio
ns
of
Un
its
(S
AA
R / 3
mm
a)
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
U.S. Housing Starts
Source: U.S. Census Bureau Data through July 2016
Single-Family Units
Total Units
19
Total
Single
Family
July 2016/July 2015 1.2 6.7
CAGR since June 2009 13.3 9.0
Growth Trends
66.6
56.2 58.162.3 63.5
69.6
79.484.2
87.2 86.0 86.5 85.1 87.2 88.1
66.1
0
10
20
30
40
50
60
70
80
90
1002
00
6
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
15
q1
20
15
q2
20
15
q3
20
15
q4
20
16
q1
$ T
rill
ion
U.S. Household Net Worth (at period ending)
Source: U.S. Federal Reserve Board
June 9, 2016 Flow of Funds Release (2016q1)
https://www.federalreserve.gov/releases/z1/current/accessible/summary.htm
Up 32% from
Y/E 2007
20 ACT Research Co., LLC, Copyright 2016
No surprise . . . but effecting
change
21
Older demographics
Source: Shedlock Advisor Perspectives
http://www.advisorperspectives.com/dshor
t/Shedlock-.php
Industry, investment & Inventory
• Manufacturing output flat
• Traditional capital goods falling
• Inventories in excess
22 ACT Research Co., LLC, Copyright 2016
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
75
85
95
105
115
125
1351
99
7
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Ind
ex 2
00
2 =
10
0 (
3 M
o M
ov
Avg
)
Source: U.S. Federal Reserve Bank
through July 2016
Manufacturing Industrial Production Indices Non-durables and Durables Sectors
Durables
Nondurables
Durables Nondurables
Latest 12 Months 0.1 (0.1)
CAGR since June 2009 3.8 0.3
Growth Trends
• Durables flat since mid-2014 after 5 years of pent-up demand fueling growth
• Nondurables flat for 6 years
23 ACT Research Co., LLC, Copyright 2016
U.S. Industrial Production by NAICS sector
ACT Research Co., LLC, Copyright 2016 24
US Industrial Sector Performance 2009 to date
NAICS
code Sector
%Share of
IP Output
July 2015 to
July 2016
CAGR
since June
2009
Total (Mfg, Mining, Utilities) 100.0 -1.4 2.3
Manufacturing Total 74.4 0.0 2.1
Nondurable manufacturing 34.5 -0.1 0.3
311 Food 6.2 2.0 0.6
312 Beverage and tobacco product 1.9 -4.1 0.3
313-4 Textiles and products 0.7 1.6 0.6
315-6 Apparel and leather goods 0.2 -11.6 -3.9
322 Paper 2.6 -1.5 0.1
323 Printing and related support activities 1.5 -3.8 -0.1
324 Petroleum and coal products 2.7 -0.1 1.1
325 Chemical 12.3 0.9 -0.6
326 Plastics and rubber products 3.5 -1.8 3.0
Durable manufacturing 39.9 0.1 3.8
321 Wood product 1.2 -0.3 3.2
327 Nonmetallic mineral product 2.1 2.6 3.7
331 Primary metal 2.3 -1.7 1.3
332 Fabricated metal product 5.6 -2.5 2.7
333 Machinery 5.9 -3.4 2.9
334 Computer and electronic product 5.9 2.9 5.7
335 Electrical equipment, appliance, and components 2.0 0.2 2.0
3361-3 Motor vehicles and parts 5.8 1.8 9.1
3364-9 Aerospace and miscellaneous transportation eq. 4.6 -1.1 3.4
337 Furniture and related product 1.3 -1.6 2.4
339 Miscellaneous 3.2 6.4 0.4
Rate of Change
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.01
99
4
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
$B
il -
3 M
o M
ov
Avg
(se
as a
dj a
nn
ual
ized
rat
e)
Source: U.S. Census Bureau
Data through August 2016
U.S. Non-defense Cap Goods (excluding aircraft)
Shipments
Orders
Latest 12 month trend (6.7)
CAGR since June 2009 3.1
Shipments Rates of Change
26 ACT Research Co., LLC, Copyright 2016
Sources: U.S. Census Bureau Data through June 2016
Inventory-to-Sales Ratios Total Business (Mfg+Wholesale+Retail) & Retail
Total Business
Retail
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1.2
1.3
1.4
1.5
1.6
1.7
1.81
99
3
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Inve
nto
ry/S
ales
Rat
io (
seas
ad
j dat
a)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15
20
25
30
35
40
45
50
55
60
65
70
75
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Un
its
- Th
ou
san
ds
NA Class 8 Inventories (new)
Source: ACT Research
Data through July 2016 27
Total Trucks
Tractors
• Inventory trimming likely to take to 17Q1
• Need to get below 45K total, 28K tractors
ACT Research Co., LLC, Copyright 2016
Fed, inflation, and interest rates
• Inflation benign
• Commodity prices likely weak for some time
• Labor costs could be rising, some risk here
• Interest rates likely to remain low
• Federal reserve under scrutiny – Easy target (recent WSJ Hilsenrath, Warsh op-ed)
– Political scrutiny
– Over-optimistic forecasts
– Expectations too high
28 ACT Research Co., LLC, Copyright 2016
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.51
99
6
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Def
lato
rs-
Pers
on
al C
on
sum
p. E
xp.
Year
/Yea
r Pe
rcen
tage
Ch
ange
Consumer Spending Deflator
Total and “Core” excluding food & energy
Source: U.S. Bureau of Economic Analysis
Data through July 2016
Total PCE Deflator
Excl Energy & Food
29
No Commodity Price Pressure
ACT Research Co., LLC, Copyright 2016
Sources: Nasdaq & Quandl
30
-10
-8
-6
-4
-2
0
2
4
610
'Q1
11'Q
1
12'Q
1
13'Q
1
14'Q
1
15'Q
1
16'Q
1
Manufacturing Unit Labor Costs
Nonfarm (total business) Unit Labor Costs
Unit Labor Costs (compensation less productivity)
Source: Bureau of Labor Statistics
Data through 2016q2 Data through 2007q1
% C
han
ge Y
ear/
Year
31 ACT Research Co., LLC, Copyright 2016
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
Perc
en
t
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
10-Year Treasury Rate
90-Day T-Bill Rate
U.S. 10-Year Treasury Rates and 90-Day T-bills • Yield curve spread wide = low recession risk
• Rates will stay low into 2017, perhaps after
• Fed’s next tightening Dec 2016 – 1 or 2x in 2017
32 Source: U.S. Federal Reserve Data through August 2016 ACT Research Co., LLC, Copyright 2016
Federal Reserve Under Scrutiny
o Easy target
Recent WSJ Hilsenrath article before Jackson Hole
Kevin Warsh op-ed
o Political lightning rod
o Criticism on ZIRP (rates too low too long), QE
o Over-optimistic forecasts
o What’s in the toolkit for the next recession?
o Expectations too high
33 ACT Research Co., LLC, Copyright 2016
Overseas & risk factors
• Global lack of growth (Europe, Brazil, China)
• Risks
– Expansion geriatrics
– USA political dysfunction
– European banks (Greece, Italy)
– Middle East disorder
– Russia and China aggression
– International trade under fire
34 ACT Research Co., LLC, Copyright 2016
Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16
Global 50.6 51.4 51.2 50.7 50.9 50.0 50.5 50.1 50.0 50.4 51.0 50.8
United States 53.1 54.1 52.8 51.2 52.4 51.3 51.5 50.8 50.7 51.3 52.9 52.0
Canada 48.6 48.0 48.6 47.5 49.3 49.4 51.5 52.2 52.1 51.8 51.9 51.1
Mexico 52.1 53.0 53.0 52.4 52.2 53.1 53.2 52.4 53.6 51.1 50.6 50.9
Eurozone 52.0 52.3 52.8 53.2 52.3 51.2 51.6 51.7 51.5 52.8 52.0 51.7
Germany 52.3 52.1 52.9 53.2 52.3 50.5 50.7 51.8 52.1 54.4 53.8 53.6
France 50.6 50.6 50.6 51.4 50.0 50.2 49.6 48.0 48.4 48.3 48.6 48.3
Italy 52.7 54.1 54.9 55.6 53.2 52.2 53.5 53.9 52.4 53.5 51.2 49.8
Spain 51.7 51.3 53.1 53.0 55.4 54.1 53.4 53.5 51.8 52.2 51.0 51.0
UK 51.5 55.2 52.7 51.9 52.9 50.8 50.7 49.2 50.1 52.1 48.2 53.3
Russia 49.1 50.2 50.1 48.7 49.8 49.3 48.3 48.0 49.6 51.5 49.5 50.8
Japan 51.0 52.4 52.6 52.6 52.3 50.1 49.1 48.2 47.7 48.1 49.3 49.5
China 47.2 48.3 48.6 48.2 48.4 48.0 49.7 49.4 49.2 48.6 50.6 50.0
India 51.2 50.7 50.3 49.1 51.1 51.1 52.4 50.5 50.7 51.7 51.8 52.6
Brazil 47.0 44.1 43.8 45.6 47.4 44.5 46.0 42.6 41.6 43.2 46.0 45.7
Manufacturers’ Purchasing Managers Indexes
>54 51-54 45-51 <45
Above
TrendTrend Flat Recession
Source: Markit Economics
Key takeaways • Business picture
• Sluggish economy but no recession
• Solid consumer, construction OK, weak mfg
• Esp machinery/capital goods and energy
• Financial mkts steady after start of year volatility
• Consumer is the place to be
• 2017 and beyond
• Auto sales may be on a plateau
• Hard to see a catalyst for growth
• Maybe election in the rear view
• Extended duration expansion
• But perhaps slow growth gives long legs
• History suggests inverted yield curve + shock
Updated: September 08, 2016
36 ACT Research Co., LLC, Copyright 2016
U.S. Macroeconomic Outlook 2013 2014 2015 2016 2017
Actual Actual Actual Forecast Forecast
Real GDP 1.7 2.4 2.6 1.5 2.4
Consumer Spending 1.5 2.9 3.2 2.6 2.4
Capital Spending 3.5 6.0 2.1 -0.8 3.1
Equipment 4.6 5.4 3.5 -1.5 3.4
Structures 1.4 10.3 -4.4 -5.0 2.5
Intellectual Property 3.4 3.9 4.8 3.5 3.0
Residential Investment 11.9 3.5 11.7 4.9 3.3
Government Consumption -2.9 -0.9 1.8 0.8 0.9
Net Exports (2009 $B) -405 -426 -540 -580 -630
Mfg Industrial Production 1.1 1.3 1.1 0.2 2.5
Housing Starts (M) 0.92 1.00 1.11 1.20 1.33
US Light Vehicle Sls (M) 15.5 16.4 17.4 17.2 17.1
NA Lt Veh Production (M) 16.1 17.0 17.4 17.4 17.3
Unemployment Rate (%) 7.4 6.2 5.3 4.9 4.6
90 Day Treasury Yield 0.1 0.0 0.1 0.3 0.8
10 Year Treasury Yield 2.4 2.5 2.2 1.7 1.8
GDP Deflator 1.6 1.6 1.0 1.3 2.0
Percent Changes except where indicated
37
Updated: September 08, 2016
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