Strategic Planning Summit Economic & Market Outlook

Transcription

1 Strategic Planning Summit Economic & Market Outlook Jim Meil September 19, Follow on

2 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

3 Overview Business Environment 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 Weak grade for the economy: 2016 gets a C, 2017 may be a bit better at B minus Updated: September 9,

4 U.S. Business Cycles since 1960 Compound Annual Duration Growth Rate Start End (months) GDP Mfg IP Feb-61 Dec Nov-70 Nov Mar-75 Jan Nov-82 Jul Mar-91 Mar Nov-01 Dec Average Jun-09 >Sep plus Source: National Bureau of Economic Research 4

5 Phases of the Business Cycle U.S. Source: Fidelity Investments 5

6 % Growth SAAR 09'Q1 10'Q1 11'Q1 12'Q1 13'Q1 14'Q1 15'Q1 16'Q1 Real GDP and Mfg Output Growth Real GDP Mfg Industrial Production GDP Avg Growth = 3.4% Mfg IP Avg Growth = 4.0% Source: BEA and Federal Reserve Data through 2016q2 (2 quarter moving average)bureau of the Census Data through 2007q1-10 6

7 Crosscurrents at work Good 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 Not-so-good 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) 7

8 Lead Indicator Review Yield curve (spread between long/short rates) Stock market trends Commodity prices Sentiment surveys Purchasing Managers Indices 8

9 Percent 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 or 2x in Year Treasury Rate Day T-Bill Rate Source: U.S. Federal Reserve Data through August

10 Index, = 100, Linear Scale Index, = 100, Linear Scale 16 Index, = 100, Linear Scale Index, = 100, Linear Scale U.S. Stock Market S & P Oct 2014 Sept 2015 Feb , , ,800 1,600 1,400 1,200 1, S&P near alltime high (just beyond the trading range of the last 7 quarters) Source: U.S. Federal Reserve Data through September 02,

11 Weekly On-Highway Retail Regular Gasoline ($/gallon) WTI Crude Spot Price ($/per barrel) U.S. Oil and Gasoline Prices WTI Crude in a trading range, likely into Year-over-year comps now roughly even for crude oil & refined Price Points WTI ($/bbl) Gas ($/g) Latest Week One Year Ago Retail Gasoline Prices (left) WTI Crude Spot (right) Source: U.S. DOE, Energy Information Agency Weekly data through September 05,

12 Index (1986 = 100) NFIB Small Business Optimism Index 110 Average reading 1992 to 2007 = Average reading since July 2009 trough = Small business confidence isn t back to pre-recession levels Source: NFIB Monthly data through July

13 Index 50 = Neutral ISM Purchasing Managers Index Above 50 = growing Manufacturing 100% 90% 80% 70% % [VALUE] 50% August dips below 50 after Mar-July above 40% 30% Below 50 = declining 20% 10% 0% Source: ISM Manufacturing Report on Business Monthly data through August

14 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 range after pickup 14

15 Consumers Confident and troubled Employed Spending Restored balance sheet post recession trauma Older Best sector performance (lackluster comps) 15

16 Index, 1985 = 100 (SA) Percent 110 U.S. Consumer Attitudes Measures and Unemployment Unemployment Rate (right scale) University of Michigan Consumer Sentiment Index (left scale) Sources: U.S. Bureau of Labor Statistics, University of Michigan Data through January 2016

17 Index 1996 = 100 (SA, 3mma) US Retail Sales (excl Auto, Gasoline) and adjusted for inflation Growth Rates July 2016/July CAGR since June 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%) Sources: US Census Bureau Data through July

18 Millions of units - 3 Month Mov Avg (SAAR) U.S. Light Vehicle Retail Sales Growth Rates % August 2016/August 2015 (1.7) CAGR since July Sources: Ward s Automotive and Motor Intelligence Sales data through August

19 Millions of Units (SAAR / 3 mma) U.S. Housing Starts Total Units Growth Trends Total Source: U.S. Census Bureau Data through July 2016 Single Family July 2016/July CAGR since June Single-Family Units

20 q1 2015q2 2015q3 2015q4 2016q1 $ Trillion U.S. Household Net Worth (at period ending) Up 32% from Y/E Source: U.S. Federal Reserve Board June 9, 2016 Flow of Funds Release (2016q1) 20

21 Older demographics No surprise... but effecting change Source: Shedlock Advisor Perspectives t/shedlock-.php 21

22 Industry, investment & Inventory Manufacturing output flat Traditional capital goods falling Inventories in excess 22

23 Index 2002 = 100 (3 Mo Mov Avg) Manufacturing Industrial Production Indices Non-durables and Durables Sectors Durables flat since mid-2014 after 5 years of pent-up demand fueling growth Nondurables flat for 6 years Durables 100% 90% 80% % 60% Nondurables 50% 40% 30% 85 Growth Trends Durables Nondurables Latest 12 Months 0.1 (0.1) CAGR since June % 10% 75 0% Source: U.S. Federal Reserve Bank through July

24 U.S. Industrial Production by NAICS sector US Industrial Sector Performance 2009 to date NAICS code %Share of IP Output Rate of Change July 2015 to July 2016 CAGR since June 2009 Sector Total (Mfg, Mining, Utilities) Manufacturing Total Nondurable manufacturing Food Beverage and tobacco product Textiles and products Apparel and leather goods Paper Printing and related support activities Petroleum and coal products Chemical Plastics and rubber products Durable manufacturing Wood product Nonmetallic mineral product Primary metal Fabricated metal product Machinery Computer and electronic product Electrical equipment, appliance, and components Motor vehicles and parts Aerospace and miscellaneous transportation eq Furniture and related product Miscellaneous

25 $Bil - 3 Mo Mov Avg (seas adj annualized rate) U.S. Non-defense Cap Goods (excluding aircraft) Orders 100% 90% 80% % Shipments 60% 50% 40% % Shipments Rates of Change Latest 1 2 month trend (6.7) CAGR since June % 10% 0% Source: U.S. Census Bureau Data through August 2016

26 Inventory/Sales Ratio (seas adj data) Inventory-to-Sales Ratios Total Business (Mfg+Wholesale+Retail) & Retail % % 80% % 1.5 Retail 60% 50% % 30% % 1.2 Total Business 10% 0% Sources: U.S. Census Bureau Data through June

27 Units - Thousands NA Class 8 Inventories (new) 100% Total Trucks Tractors 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Inventory trimming likely to take to 17Q1 Need to get below 45K total, 28K tractors Source: ACT Research Data through July

28 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

29 Deflators- Personal Consump. Exp. Year/Year Percentage Change Consumer Spending Deflator Total and Core excluding food & energy Total PCE Deflator 100% 90% 80% Excl Energy & Food 70% 60% 50% 40% 30% 20% 10% 0% Source: U.S. Bureau of Economic Analysis Data through July

30 No Commodity Price Pressure Sources: Nasdaq & Quandl 30

31 % Change Year/Year 10'Q1 11'Q1 12'Q1 13'Q1 14'Q1 15'Q1 16'Q1 6 Unit Labor Costs (compensation less productivity) Source: Bureau of Labor Statistics Data through 2016q2 Data through 2007q1 Manufacturing Unit Labor Costs Nonfarm (total business) Unit Labor Costs 31

32 Percent 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 or 2x in Year Treasury Rate Day T-Bill Rate Source: U.S. Federal Reserve Data through August

33 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

34 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

35 Manufacturers Purchasing Managers Indexes 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 United States Canada Mexico Eurozone Germany France Italy Spain UK Russia Japan China India Brazil Source: Markit Economics > <45 Above Trend Trend Flat Recession

36 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,

37 U.S. Macroeconomic Outlook Actual Actual Actual Forecast Forecast Real GDP Consumer Spending Capital Spending Equipment Structures Intellectual Property Residential Investment Government Consumption Net Exports (2009 $B) Mfg Industrial Production Housing Starts (M) US Light Vehicle Sls (M) NA Lt Veh Production (M) Unemployment Rate (%) Day Treasury Yield Year Treasury Yield GDP Deflator Percent Changes except where indicated Updated: September 08,

38 ACT Research Company, LLC 4400 Ray Boll Boulevard Columbus, IN Phone: (812) Fax: (812)