SEMA INDUSTRY INDICATORS

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1 SEMA INDUSTRY INDICATORS SEPTEMBER 2018 The U.S. economy is looking good as we head into September. August brought another solid month of job gains - adding 201,000 new jobs during the month. The economy has averaged 194,000 new jobs a month for the last year. Most notably, wage growth accelerated in August - something we ve been anticipating in this report in recent months. Average hourly earnings are up 2.9 percent over last year - the fastest pace of wage growth in this expansion. At the same time, total hours CURRENT OUTLOOK FUTURE OUTLOOK NEGATIVE POSITIVE NEGATIVE POSITIVE worked are up 2.1 percent over the last year. Taken together, total cash earnings are up 5.1 percent over the last year. While this is a good sign for consumers, it might also mean businesses will face higher labor costs. Moving forward businesses might not only have to pay higher wages to attract and retain workers but might also have to offer other sources of nonwage compensation like training and other benefits. The ISM Manufacturing index increased in August, led by the new orders component. This marks the 16th straight month that the New Orders Index is at 60 or above, signaling expansionary conditions for manufacturing driven by strong demand. Manufacturers continue to report a backlog of orders. The value of manufacturers unfilled orders for motor vehicles and parts for example is 4.2 percent higher than a year-ago. Industrial production is growing at 4.2 percent on a year-over-year basis the strongest growth since the Spring of Despite strong economic fundamentals, there are downside risks. There continues to be wide concern about the impact that tariffs and reciprocal tariffs will have. President Trump recently threatened additional tariffs on $267 billion of Chinese goods. This is in addition to tariffs on $50 billion of Chinese imports already in place and $200 billion in Chinese imports that may soon be adopted. The U.S. imported $524 billion in goods from China last year, so these tariffs collectively would represent nearly the sum of all imports from China. SEMA INDUSTRY INDICATORS SEPTEMBER

2 ECONOMICS Second quarter GDP was revised up a tick to a 4.2 percent annual growth rate from the previously estimated 4.1 percent. The economy is expected to grow 2.9 percent in each of the next two quarters and to register roughly three percent growth for all of Business investment was revised higher and is up 8.5 percent over the last year - the fastest growth rate since Corporate profits were also revised higher and are at an all-time high - up 7.7 percent over the last year. The Index of Consumer Sentiment dropped 1.7 percent in August to its lowest level since January The decline in consumer sentiment was largely driven by consumer perceptions of less favorable buying conditions due primarily to higher prices and rising interest rates. Undoubtedly, perceptions of higher prices and higher inflation rates are being motivated by the potential for increased tariffs. Consumers continue to cite future income and job security as key support for their positive spending perspective. Personal income is up 4.7 percent in the last year, while disposable personal income (income after taxes) is up 5.3 percent from a year ago. Private-sector wages and salaries are leading the increase in personal income. Strong wage gains coupled with solid household net worth have fueling consumer spending which rose 0.4 percent in July and is up 5.2 percent over the last year. Consumers are extremely well positioned headed into the final months of the year. U.S. ECONOMIC GROWTH 1 8% 2% -2% % % 2% -2% Bureau of Economic Analysis, Avrio Institute CONSUMER SENTIMENT University of Michigan, Avrio Institute CONSUMER SPENDING Real GDP (Q/Q % Change SAAR) 12 per. Mov. Avg. (Real GDP (Q/Q % Change SAAR)) Consumer Sentiment (1966:Q1=100) 12 per. Mov. Avg. (Consumer Sentiment (1966:Q1=100)) 5.2% - Consumer Spending (Y/Y % change) 12 per. Mov. Avg. (Consumer Spending (Y/Y % change)) 2.9% 96.2 Bureau of Economic Analysis, Avrio Institute SEMA INDUSTRY INDICATORS SEPTEMBER

3 ECONOMICS Nonfarm payrolls rose 201,000 in August. Revisions lowered June and July reported employment, but the unemployment rate remained at 3.9 percent. Monthly payrolls gains have averaged 194,000 over the last year. The U-6 unemployment rate, which includes discouraged and marginally-attached workers and individuals working part-time but who want full-time jobs, fell to 7.4 percent in August, the lowest level since Wage gains were up 2.9 percent in August compared to a year ago. The strongest year-overyear growth since May U.S. UNEMPLOYMENT 11% 1 9% 8% 7% 5% 3% U.S. Unemployment Rate 12 per. Mov. Avg. (U.S. Unemployment Rate) 3.9% Bureau of Labor Statistics, Avrio Institute The dollar strengthened again in August and the trade-weighted dollar index is up one percent over the last month and 5.3 percent over the last year. Rising U.S. interest rates and slowing economic growth outside the U.S. will likely keep upward pressure on the dollar. Dollar appreciations tend to hurt U.S. economic growth with a lag. A strong dollar will hurt U.S. exports and help imports, which will in turn deteriorate the trade deficit and hinder economic growth over the next two years. TRADE WEIGHTED U.S. DOLLAR INDEX 2 15% 1 5% -5% -1-15% Trade Weighted U.S. Dollar Index (Y/Y % change) 12 per. Mov. Avg. (Trade Weighted U.S. Dollar Index (Y/Y % change)) 5.3% Federal Reserve, Avrio Institute Auto parts production in the U.S. continues its strong growth but may be showing some signs of leveling off. Auto parts production was flat between July and August but is up 4.2 percent from a year-ago. This is consistent with overall industrial production. The backlog of unfilled orders should continue to be a catalyst for auto parts production. The value of manufacturers unfilled orders for motor vehicles and parts remains 4.2 percent above August INDUSTRIAL PRODUCTION: AUTO PARTS 15% 1 5% -5% 4.2% -1-15% -2-25% Industrial Production: Auto Parts 12 per. Mov. Avg. (Industrial Production: Auto Parts) Federal Reserve, Avrio Institute SEMA INDUSTRY INDICATORS SEPTEMBER

4 AUTOMOTIVE New vehicle sales slipped in August, declining roughly 8,000 from July on a seasonally-adjusted basis. Sales for the month are up just under one percent from last August and remain up just under one percent year-todate. August sales were 16.6 million on a seasonally adjusted annualized basis and total sales for all of 2018 are expected to be 17 million. As noted in the consumer sentiment section, consumers are reporting less favorable buying conditions and that is a headwind for vehicle purchases. Average national gas prices moved down two more cents in August, averaging $2.91/gallon. This is nearly 17 percent higher than a year-ago but down 2.4 percent from the peak from the May 2018 peak of $2.99/ gallon. Gasoline prices likely peaked in May and will ebb slightly lower through the remainder of the year. Oil futures point to slightly receding prices over the next 12 months and U.S. gas prices are currently expected to average around $2.80 for all of 2018 and Travel on all roads and streets in the U.S. increased by 0.3 percent in June 2018, compared to June of last year the most recent month for which data is available. The 12-month moving average increased by 0.6 percent. Seasonally adjusted travel for June 2018 was estimated at billion vehicle miles, up 0.9 billion vehicle miles from a year ago. The South Atlantic saw the biggest increase in traffic - up 1.3 percent from last June. MONTHLY NEW LIGHT VEHICLE SALES 2,050 1,550 1, Light Vehicle Sales - SA Thousands 12 per. Mov. Avg. (Light Vehicle Sales - SA Thousands) Bureau of Economic Analysis, Avrio Institute GAS PRICES U.S. All Grades All Formulations Gas Price 12 per. Mov. Avg. (U.S. All Grades All Formulations Gas Price) U.S. Energy Information Administration, Avrio Institute VEHICLE MILES TRAVELED 1,390 $2.93 3% 2% 1% 0.7% -1% -2% -3% Total Vehicle Miles Driven 12 MA (Y/Y % Change) U.S. Federal Highway Administration, Avrio Institute SEMA INDUSTRY INDICATORS SEPTEMBER

5 INSIGHTS FROM SEMA There are approximately 274 million light vehicles in operation in the United States today, of which nearly 122 million are passenger cars and 152 million are light trucks. Together, mid range cars and pickup trucks represent almost half of the vehicles on the road. The specialty-equipment market is a $43 billion dollar industry. Customers spend the most money on pickup upgrades, followed by mid range car and SUV upgrades. VEHICLES IN OPERATION (VIO) DATA Mid Range Car Pickup CUV SUV Small Car Van Upscale Car Sports Car Alternative Power Pickup Mid Range Car SUV Upscale Car Sports Car CUV Small Car Van Classic Alternative Power 1% $1.62 $1.09 $0.50 $2.54 $4.54 $3.96 $ % Source: 2018 Experian, Data as of June 30, 2018 SPECIALTY EQUIPMENT MARKET SIZE BY VEHICLE SEGMENT Source: 2017 SEMA Market Data $5.64 HIGHLIGHTS FROM THE SEMA INDUSTRY PERSPECTIVES REPORT (FALL 2018) $ % 1 2 USD Billions $ % % of Vehicles on Road CHANGE IN MARKETING SPEND IN PAST 12 MONTHS. Most specialty-equipment companies only devote 1 or less of their revenue to advertising and marketing. However, many manufacturers have increased their spending over the last year. TOP MARKETING METHODS USED. Social media is rapidly growing in importance and, alongside trade/ auto event exhibits, is among the top methods used for marketing by the industry. MANUFACTURER DISTRIBUTOR RETAILER Increased 42% 22% 22% Stayed the same 39% 69% 6 Decreased 11% 9% 1 Note: Values may not sum to 10 due to don t know responses. MANUFACTURER DISTRIBUTOR RETAILER Exhibits at Trade Events 99% 7 47% Social media 89% 7 9 Exhibits at Auto Events 82% 58% 61% Sponsorships % Magazines 7 42% 19% Banner ads on websites 72% 39% 4 Want to find out more? Download the SEMA Industry Perspectives Report (Fall 2018) at: sema.org/research. SEMA INDUSTRY INDICATORS SEPTEMBER

6 APPENDIX U.S. ECONOMIC GROWTH: Gross Domestic Product, or GDP, is a measure of a country s total economic activity. It represents the value of all goods and services produced within a country. More simply, it s the sum of a country s consumption, government expenditures, investments, and net exports. This graph shows the percent change per quarter at a seasonally adjusted annualized rate. CONSUMER SENTIMENT: The Index of Consumer Sentiment comes from the University of Michigan s Survey of Consumers. The index captures consumers opinions on a variety of factors, such as how their current financial situation compares to a year ago, how they expect their financial situation to change and whether the next 12 months are a good time to buy a new vehicle. CONSUMER SPENDING: Personal consumption expenditures (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy. The index is adjusted for inflation and seasonality. CIVILIAN UNEMPLOYMENT RATE: The unemployment rate is the number of unemployed individuals as a percent of the total labor force. The Labor force includes all individuals 16 years of age and older who reside in 1 of the 50 states or the District of Columbia. Unemployed individuals are individuals who have actively sought work within the past four weeks. TRADE-WEIGHTED U.S. DOLLAR INDEX: The trade-weighted U.S. dollar index provides a measure of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners. It provides a gauge for how the U.S. dollar is performing against global currencies. A weaker dollar vis-à-vis other world currencies will make U.S. produced goods more attractive to foreign buyers. It can also mean a higher relative price for imported goods. INDUSTRIAL PRODUCTION - AUTO PARTS: Industrial production of auto parts is a measure of real output for all facilities located in the United States manufacturing auto parts and allied goods. Growth in the production index from month to month is an indicator of growth in the industry. TOTAL LIGHT VEHICLE SALES (THOUSANDS OF UNITS): Total U.S. cars and light trucks sold per month, including both domestic and foreign brands. CONTACT INFO sema.org Kyle Cheng kylec@sema.org AvrioInstitute.com Shawn DuBravac, PhD, CFA Shawn@AvrioInstitute.org AVERAGE U.S. GAS PRICE (PER GALLON): Weekly average U.S. retail gasoline prices per gallon. This includes all grades and formulations. VEHICLE MILES TRAVELED: The Federal Highway Administration s Traffic Volume Trends is a monthly report based on traffic count data. These data are collected at approximately 4,000 continuous traffic counting locations nationwide. Estimates are re-adjusted annually to match the vehicle miles of travel from the Highway Performance Monitoring System and are continually updated with additional data. Copyright 2018 SEMA and Avrio Institute. All Rights Reserved. SEMA INDUSTRY INDICATORS SEPTEMBER