Pacific Northwest Association of Rail Shippers September 19, 2013

Transcription

1 Pacific Northwest Association of Rail Shippers September 19, 2013 Dr. Lynn Michaelis President, Strategic Economic Analysis Partner, FEA

2 Key Messages for Today Bubble #2 created a global financial crisis and nearly global depression Aggressive policy actions have stabilized situation, but not strong economic growth Several challenges remain particularly in Europe Expect modest growth through 2014, with accelerating growth in Inflation not a serious issue near term, but. Fed Response to stronger growth?

3 Today s Agenda Brief History Discussion Highlight Global issues U.S. Economy: Policy and Consumer Housing Outlook: recovering? Implications for industrial production/shipping Summary of key messages

4 $000 Froth in Housing Prices: Greenspan Bubble # Median Existing Price Crisis Starts Sept Q1 2001Q1 2003Q1 2005Q1 2007Q1 2009Q1 2011Q1 2013Q1

5 Annual Growth Great Recession and Pathetic Recovery WHY? 8.0% GDP growth 6.0% 4.0% 2.0% 0.0% -2.0% -4.0%

6 % year over year 6 Even bigger cycle in Industrial Production 5.0% GDP vs. Industrial Production 0.0% 2001Q1 2003Q1 2005Q1 2007Q1 2009Q1 2011Q1 2013Q1-5.0% -10.0% GDP Ind Prod Packaging -15.0%

7 Jan 1990 = 1 Cass volume index of freight shipments: similar to industrial production Source: Cass Information Systems

8 Billion bf $/mbf Fundamental Change Every Decade!!! Demand vs. Capacity Price and operating rates I II III IV I II III IV Demand Capacity DF green 2x4 price ytd

9 Today s Agenda Brief History Discussion Highlight Global issues U.S. Economy: Policy and Consumer Housing Outlook: recovering? Implications for industrial production/shipping Summary of key messages

10 World growth fell below 2%, Pathetic rebound 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% World Europe U.S. Asia Ex Japan

11 Massive action by Major Central banks Monthly Central Bank Assets (Dollar Equivalents on Left Scale) June 2006 to December 2014 $ Billions Federal Reserve Bank of England ECB Bank of Japan Swiss National Bank Feb-06 Feb-07 Feb-08 Feb-09 Feb estimate Feb-11 Feb-12 Feb-13 Estimates in USD Total: $11.6 tr Swiss: $1.38 tr BOE: 520 bn ECB: 3 tr BOJ: 2.9 tr US Fed: 3.8 tr

12 Aggressive monetary policy everywhere! Dollar remained stable Broad Trade $ 1997=

13 Serious imbalances in Europe Decline Stagnation Slight growth Strong growth

14 The European Family! 1

15 Unemployment tells the story! Deflation, depression vs. patience 15 Unemployment rate (%) Country Change Germany 8 6 (2) France PIGS: Italy Portugal Spain Greece Euro Zone average

16 Challenge for China: Promoted growth through investment/debt Share of China GDP Investment Net Trade Consumer Government Shares of Investment Construction Capital--Bus Other Inventory

17 Million Units 17 China s Housing Start Cycle, but trend over 5 million/year Commodity Housing Starts* Started Completed

18 Massive high rise projects EVERYWHERE! 18

19 Shanghai: The New city-- Pudang

20 Beijing Traffic in 1987

21 Great Wall 1987 Shorts?

22 Asia key driver of oil demand/prices MB/D Year-on-Year Changes 1, ,020 2, FSU/E. Eur. Africa/Middle East S. America Asia Japan/ANZ Ind. Atl. Basin 1,

23 Recession reset oil prices: Stability unless.. $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 WTI Oil Price Per Barrel Recession Nominal In $

24 24 Summary of key international events Slower world growth Aggressive monetary policy by other major central banks Bottom line: U.S. dollar remains relatively stable Little boost in net exports No upward pressure on commodity prices

25 Today s Agenda Brief History Discussion Highlight Global issues U.S. Economy: Policy and Consumer Housing Outlook: recovering?

26 Looking for Sources of Growth: Usual actors missing in action Category For (In 2009$, Billion) Share of GDP % YA Overall GDP $ % 1.4% Consumer Business Inv. (Equip.) Residential Inv Fed. Government S&L Government Net Exports (-451) (3) negative

27 27 Government Spending Has Been a Major Drag on Real GDP Growth 1.6% Contribution to Real GDP Growth 1.2% 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% -1.6% Non Defense Federal Defense State and Local

28 The Federal Budget Deficit Picture Has Improved Markedly, but policy has NOT! Government Revenues and Outlays as Percent of GDP 26% 24% Outlays 22% 20% 18% 16% 14% 12% Dotted Lines are Averages Revenues Source: Congressional Budget Office

29 Bipartisan Agreements Are Not Easy To Craft 29

30 30 Other QE and massive growth in High Powered Money Federal Reserve Assets Have Exploded 4,000 Billion $US 3,500 3,000 2,500 Other Mortgage-Backed Securities U.S. Treasuries 2,000 1,500 1,

31 In 2009, fear of deflation: No immediate concern, but. 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% FEAR US CPI

32 % Fed policy had two goals: Low short term rates month T-bill 30 year mortgage

33 Another bubble in the making? S&P 500 QE1 launch QE1 Expanded QE2 Suggested Operation Twist unveiled Operation twist extended 800 QE3 launched 600 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013

34 Million Units Unique housing start cycle: Deep and prolonged Multi Single

35 One hidden inventory created by easy lending standards 70% 69% 68% 67% 66% 65% 64% 63% 62% Homeownership Rate

36 Million Units This time housing starts lag, not lead recovery: inventory correction and household formations Housing Starts Multi's Singles

37 Annual Growth Consumer Spending will rebound with jobs and wealth 5% 4% Consumer Spending Growth FORECAST 3% 2% 1% 0% -1% -2%

38 $000 Price Rebound should help boost remodeling expenditures as well Trillion $ Rebound in home prices Boost in consumer net worth Median Existing Price Home Equity* *SOURCE: FRB flow of funds

39 Real GDP Growth Will Accelerate in % 6% 4% Potential GDP 2% 0% -2% -4% -6% -8%

40 Interest rate outlook: Depends on expectations and Fed actions 40 7% 6% 10-Year Government Bond Yield 5% 4% 3% 2% 1% 0% 3-Month T-Bill Rate

41 US Natural Gas is Dirt Cheap Relative to Gas Other World Regions and big boost for U.S. growth $20 $18 $16 $14 USD per Million BTU Germany Japan US (Henry Hub) $12 $10 $8 $6 $4 $2 $0 Source: IMF, FEA Calculations

42 Today s Agenda Brief History Discussion Highlight Global issues U.S. Economy: Policy and Consumer Housing Outlook: recovering? Implications for industrial production/shipping Summary of key messages

43 %Year over Year Translates to Moderate Growth in Production 10.0% 5.0% Industrial Production FORECAST 0.0% 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1-5.0% -10.0% -15.0% IP Total IP Non-durables -20.0%

44 2013 rail volume growth by commodity Grain All Other Carloads Coal and Coke Metals & Products Grain Mill Products Metallic Ores Pulp, Paper & Allied Products Motor Vehicles & Equipment Total Rail Volume* Chemicals Intermodal Crushed Stone, Sand & Gravel Petroleum Products -20% -10% 0% 10% 20% 30% 40% 50% *carload shipments and intermodal Source: Association of American Railroads, Licensed Material Year to Date / Year to Date % Change

45 BBF Housing and exports push demand back to 70 billion bf US Canada Net Exports

46 46 With Canada capacity limited, U.S. lumber output will fill gap U.S. Production Canada production Other South West Coast Eastern B.C

47 92Q2 93Q1 93Q4 94Q3 95Q2 96Q1 96Q4 97Q3 98Q2 99Q1 99Q4 00Q3 01Q2 02Q1 02Q4 03Q3 04Q2 05Q1 05Q4 06Q3 07Q2 08Q1 08Q4 09Q3 10Q2 11Q1 11Q4 12Q3 13Q2 14Q1 14Q4 Capacity Utilized 105% Active truck capacity utilization: Good news for Rail? 100% Forecast 95% 90% 85% Long Term Average 80% 75% Sources: FTR Associates

48 F Millions of $ s N.A. Railroad capital expenditures $16,500 $15,000 $13,500 $12,000 $10,500 $9,000 $7,500 $6,000 $4,500 $3,000 $1,500 $0 Source: Wolfe Research, TTX

49 Surface freight trends (F) Total Rail Volume -2.1% 40.4mil. Intermodal Volume -1.2% 14.1 mil. 2.4% 41.4 mil. -3.2% 13.7 mil % 35.3 mil % 11.7 mil. 11.9% 39.6 mil. 13.4% 13.3 mil. 4.1% 41.2 mil. 6.2% 14.1 mil. 0.7% 41.1 mil. 4.1% 14.8 mil. 2.9% 42.3 mil. 5.4% 15.5 mil. Container Imports 0.1% 20.2 mil. -6.2% 19.0 mil % 16.1 mil. 13.6% 18.3 mil. 2.8% 18.8 mil. 4.5% 21.4 mil. 5.0% 22.5 mil. Container Exports 16.3% 12.3 mil. Dry Van Truckload Volume -2.5% 274 mil. Railroad Capital Exp. 15.7% $10.8 billion 4.8% 12.9 mil. -3.9% 263 mil. 5.5% $11.4 billion -7.7% 11.9 mil % 234 mil % $10.2 billion 6.9% 12.8 mil. 9.4% 207 mil. 5.8% $10.8 billion 6.7% 14.9 mil. 6.1% 220 mil. 28.0% $13.8 billion -1.4% 14.7 mil. 4.5% 230 mil. 5.9% $14.6 billion 9.0% 16.0 mil. 4.6% 241 mil. 3.6% $15.1 billion Railcar Deliveries -15.5% 63, % 59, % 21, % 16, % 47, % 58, % 47,485 Source: FTR Associates, TTX, AAR, IANA, ACT Associates

50 Key Messages for Today Bubble #2 created a global financial crisis and nearly global depression Aggressive policy actions have stabilized situation, but not strong economic growth Several challenges remain particularly in Europe Expect modest growth through 2014, with accelerating growth in Inflation not a serious issue near term, but. Fed Response to stronger growth?

51 Billion pieces Thankful not in mail or paper business 120 First-Class Mail Volume SOURCE: US Postal service