SEMA INDUSTRY INDICATORS

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1 SEMA INDUSTRY INDICATORS FEB 2018 The overall economy clocked growth of 2.6 percent in the final quarter of While this is below growth realized in the prior two quarters of 2017, the year closed out decidedly better than it began. The current underlying pace for economic expansion is around 2.5 percent and Astra Insights expects that pace to continue through CURRENT OUTLOOK FUTURE OUTLOOK NEGATIVE POSITIVE NEGATIVE POSITIVE Consumer spending and business investment on new equipment have both been catalysts for overall economic expansion. After slow growth in 2015 and 2016, capital expenditures recovered in 2017 and incoming data suggests this trend will continue into Several factors are likely supporting renewed capital investment. These factors include a strong global economy, reduced tax and regulatory burdens, a weaker U.S. dollar, and a tightening labor market. Despite historically low labor productivity, companies will likely start investing to make their workforce more productive given the need to satisfy growing demand, while also dealing with tight labor market conditions. Consumers continues to pull the economy higher and consumer sentiment continues its upward trajectory. Consumer spending has shown significant strength in recent months, aided by strong gains in household net worth. Equity prices have reached new highs because of optimism for corporate growth and profits, while house price appreciation continues around six percent nationally. A strong household financial position coupled with rising consumer sentiment helped drive retail sales up 5.4 percent over the prior year in the final few months of While consumer spending growth will temper in 2018, the consumer remains a major impetus for overall economic gains. Consumer spending in 2018 will be driven by a continuation of household net worth gains and a tight labor market that will begin to exert upward pressure on wages. With the unemployment rate hovering around 4.1 percent, expect to see wage pressures mount as we continue to move into SEMA INDUSTRY INDICATORS FEB

2 ECONOMICS The economy grew 2.6 percent in the final quarter of This was shy of consensus forecasts, but inline with the average performance of the economy through the first three quarters of the year. The economy grew 2.3 percent for all of 2017, a significant improvement from the 1.5 percent gain for Though 2.3 percent annual growth is inline with average economic growth since the end of the great recession. We expect the economy to expand by 2.5 percent in Consumer sentiment remained elevated in January and largely unchanged at favorable levels. January sentiment was 1.1 points below the 2017 average, which was the highest annual average since Consumers continue to anticipate strong job and income growth. Strong consumer sentiment signals solid expected gains in consumer spending over the next 12 months. U.S. ECONOMIC GROWTH 1 2.6% - -1 Real GDP (Q/Q % Change SAAR) 12 per. Mov. Avg. (Real GDP (Q/Q % Change SAAR)) Bureau of Economic Analysis, Astra Insights CONSUMER SENTIMENT Consumer Sentiment (1966:Q1=100) 12 per. Mov. Avg. (Consumer Sentiment (1966:Q1=100)) Consumer spending rose in the fourth quarter of 2017 by a robust 3.8 percent annualized rate. This is up significantly from the 2.2 percent pace of the third quarter and the fastest growth in three years. Some of this growth likely reflects replacement spending due to hurricane-related damage. But spending on nondurable goods was also strong. Some growth in consumer spending came at the cost of a lower savings rate. Strong consumer spending together with a reduction in the savings rate likely signals a consumer confident in their job and income prospects. University of Michigan, Astra Insights CONSUMER SPENDING 6% 4% 2.8% 2% -2% -4% Consumer Spending (Y/Y % change) 12 per. Mov. Avg. (Consumer Spending (Y/Y % change)) Bureau of Economic Analysis, Astra Insights SEMA INDUSTRY INDICATORS FEB

3 ECONOMICS Nonfarm payroll grew by 200,000 jobs in January from the prior month. Monthly gains averaged just over 180,000 for 2017 so January s gains were a solid start to the year. The unemployment rate remained at 4.1 percent, consistent with recent months and down from 4.8 percent a year-ago. The January report continues to show solid gains in the goods-producing segments of the economy. Manufacturing and construction accounted for about a quarter of the nonfarm payroll gains in January. U.S. UNEMPLOYMENT 11% 9% 7% 4.1% 3% U.S. Unemployment Rate 12 per. Mov. Avg. (U.S. Unemployment Rate) Bureau of Labor Statistics, Astra Insights The US dollar declined 2.1 percent in January relative to other world currencies. It is now down almost 8 percent on a year-over-year basis. A weaker dollar coupled with strong global economic growth should help drive exports and is likely some of the reason we see strong growth in goods-producing employment. We expect to see the dollar continue to drift lower and as a result import growth should soften. Net exports was a drag on growth in the fourth quarter of Moving forward, net exports should add marginally to overall economic growth in TRADE WEIGHTED U.S. DOLLAR INDEX % -1 Trade Weighted U.S. Dollar Index (Y/Y % change) 12 per. Mov. Avg. (Trade Weighted U.S. Dollar Index (Y/Y % change)) Auto parts production in the United States continues to show considerable strength. Production increased 1.2 percent in the month of December. Overall industrial production was up 0.9 percent in the month. At percent of its 2012 average, the index is up 8.1 percent over the last 12 months. Overall industrial production is up 3.6 percent over the same time horizon. Federal Reserve, Astra Insights INDUSTRIAL PRODUCTION: AUTO PARTS Industrial Production: Auto Parts 12 per. Mov. Avg. (Industrial Production: Auto Parts) 8.1% Federal Reserve, Astra Insights SEMA INDUSTRY INDICATORS FEB

4 AUTOMOTIVE New vehicle sales picked up noticeably in the last four months of This was partly due to hurricane-related replacement and will subside in the coming months. Total light vehicle sales totaled million units in 2017, down from million units in Astra Insights expects new vehicle sales will decline another 1.6 percent in Today roughly 67 percent of all new light vehicles being sold are light truck or SUVs. Gas prices edged slightly higher in January. Gas prices are up 8 cents from the prior month and up roughly 8.5 percent over the last year. Gas prices should continue to move higher in the coming months as we enter spring maintenance season when refineries switch over to more expensive blends. Gas prices are anticipated to average just over $2.60 in 2018 and trend slightly lower in MONTHLY NEW LIGHT VEHICLE SALES 2,050 1,550 1,480 1, Light Vehicle Sales - SA Thousands 12 per. Mov. Avg. (Light Vehicle Sales - SA Thousands) Bureau of Economic Analysis, Astra Insights GAS PRICES $ U.S. All Grades All Formulations Gas Price 12 per. Mov. Avg. (U.S. All Grades All Formulations Gas Price) Travel on all roads and streets in the U.S. increased by 1.1 percent in November 2017, compared with November 2016, the most recent month for which data are available. This is inline with the year-overyear growth rate from the last 12 months Travel for the month was estimated to be billion vehicle miles, up 2.8 billion vehicle miles from a year ago. Seasonally adjusted monthly miles traveled in November 2017 increased 0.4 percent from October U.S. Energy Information Administration, Astra Insights VEHICLE MILES TRAVELED 4% 3% 2% 1.1% 1% -1% -2% -3% Total Vehicle Miles Driven 12 MA (Y/Y % Change) U.S. Federal Highway Administration, Astra Insights SEMA INDUSTRY INDICATORS FEB

5 INSIGHTS FROM SEMA VEHICLES IN OPERATION (VIO) DATA There are approximately 270 million light vehicles in operation in the United States today, of which over 122 million are passenger cars and 147 million are light trucks. Together, mid-range / traditional cars and pickup trucks represent almost half of the vehicles on the road. The specialty equipment market is a $41 billion dollar industry. Customers spend the most money on pickup upgrades, followed by mid-range / traditional and SUV upgrades. Mid-Range / Traditional Pickup CUV SUV Small Car Van Upscale Sports Car Alt Power SPECIALTY EQUIPMENT MARKET SIZE BY VEHICLE SEGMENT Pickup Mid-Range / Traditional SUV CUV Upscale Small Car Sports Car Van Alt Power 1% 4% 7% 6% $4.10 $3.36 $2.85 $2.77 $1.44 $ % Source: 2016 SEMA Consumer Market Data 1 13% $7.42 $ % of Vehicles on Road Source: SEMA Member VIO, Powered by Experian, Data as of September 30, 2017 USD Billions $ % HIGHLIGHTS FROM THE 2017 SEMA MARKET REPORT SPECIALTY EQUIPMENT RETAIL SALES For 2017, specialty equipment retail sales in the U.S. are forecast to grow to $43.17 billion, an increase of approximately $2 billion from DISTRIBUTION OF PURCHASES BY SALES CHANNEL The majority of accessorizers (64%) still make their purchases from physical channels. TOP 5 PART CATEGORIES PURCHASED BY ACCESSORIZERS Chemicals and Wheels / Tires are the most purchased categories by accessorizers. YEAR $ BILLIONS 2014 $ $ $ * $43.17 PURCHASES % ACCESSORIZERS Physical Channels 64% Online Channels 36% CATEGORIES % ACCESSORIZERS Chemicals 56% Wheels / Tires 3 Exterior 26% Suspension / Brakes / Steering 2 Lighting 2 WANT TO FIND OUT MORE? Download the 2017 SEMA Market Report at: SEMA INDUSTRY INDICATORS FEB

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 AstraInsights.com Shawn DuBravac, PhD, CFA Shawn@AstraInsights.com 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. SEMA INDUSTRY INDICATORS FEB