2016 mid-year economic update - mdm€¦ · the 2016 mid-year economic update: economic headwinds...

2016 Mid-YearEconomic Update

Featuring:

Brian Lewandowski, University of Colorado BoulderJenel Stelton-Holtmeier, Modern Distribution Management

June 14, 2016

Sponsored by:

• Introduction• Macroeconomic Overview• 2016 Economic Benchmarks for Wholesale

Distribution• Q&A

Agenda

Speakers

Brian LewandowskiAssociate Director, Business Research DivisionLeeds School of Business, University of Colorado Boulder

Jenel Stelton-HoltmeierEditorModern Distribution Management

Place cover image here

The 2016 Mid-Year Economic Update: Economic Headwinds or Tailwinds?

Brian LewandowskiAssociate Director, Business Research DivisionJune 14, 2016

Economic Benchmarks for Wholesale Distribution and the Economic OutlookToday’s Discussion• Economic outlook• Sales and inventory trends• Specific industries• Highlights from the 2016 Economic Benchmarks report

About the Economic Benchmarks for Wholesale Distribution report data• Foundational data from U.S. Census Bureau, Bureau of Labor Statistics and

Bureau of Economic Analysis• Based on latest Wholesale Trade Survey and Economic Census• Include revenue growth forecasts

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

YoY Percent Change

Core Wholesale Distribution Revenue Growth1994-2016

Note: Core excludes the agriculture and the oil and gas sectors.

Revisions to Wholesale Trade2015 and 2016 Estimates for the Year 2014

-100,000 -50,000 0 50,000 100,000

$Millions Change in Sales Estimates

-20%-15%-10%-5% 0% 5% 10% 15% 20% 25%

Machinery, Equipment, & Supplies.Computer & Computer Peripheral…

Professional & Commercial Equipment &…Grocery & Related Products

Lumber & Other Construction MaterialsChemicals & Allied Products

Paper & Paper ProductsMiscellaneous Nondurable Goods

Beer, Wine, & Distilled Alcoholic BeveragesHardware, & Plumbing & Heating…

Motor Vehicle & Motor Vehicle Parts &…Apparel, Piece Goods, & Notions

Farm Product Raw MaterialsFurniture & Home Furnishings

Metals & Minerals, Except PetroleumMiscellaneous Durable Goods

Drugs & Druggists' SundriesPetroleum & Petroleum Products

Electrical & Electronic Goods

Percentage Change

Summary of 2015 Performance by Sector

Major Sector (Largest to Smallest Sector Revenues) Actual Revenues (2015)

Real Revenues*

(2015)

Revenue Gap(Actual - Real)

Pharmaceutical Wholesalers 13.2% 8.0% 5.2%Grocery and Foodservice Wholesale Distributors 0.3% 1.3% -1.0%Electrical and Electronics Wholesalers 3.9% 4.3% -0.4%Oil and Gas Products Wholesale Distributors -34.8% 7.3% -42.1%Motor Vehicles and Motor Vehicle Parts Wholesale Distributors 5.2% 4.1% 1.1%Industrial Distributors -2.4% -2.8% 0.4%Other Consumer Products Wholesale Distributors 3.6% 5.8% -2.2%Computer Equipment and Software Wholesale Distributors -1.2% 1.6% -2.8%Agricultural Products Wholesale Distributors -13.5% 1.0% -14.5%Miscellaneous Durable Goods Wholesale Distributors -11.2% -4.4% -6.8%Commercial Equipment and Supplies Wholesale Distributors 1.9% 3.3% -1.3%Apparel and Piece Goods Wholesale Distributors 2.5% 2.2% 0.2%Metal Service Centers -15.4% -2.3% -13.1%Beer, Wine and Liquor Wholesalers 4.0% 3.7% 0.3%Hardware, Plumbing, and Heating Equipment/Supplies Wholesalers 5.2% 4.2% 1.1%Chemicals and Plastics Wholesale Distributors -3.5% 6.1% -9.6%Building Material and Construction Wholesale Distributors 3.4% 5.8% -2.4%Office Product Wholesalers and Paper Merchants 3.1% 4.2% -1.2%Furniture and Home Furnishing Wholesale Distributors 7.5% 6.2% 1.4%Total -0.7% 2.6% -3.3%

Inventory

350,000

400,000

450,000

500,000

550,000

600,000

2009 2010 2011 2012 2013 2014 2015 2016

$Millions Core Wholesale Distribution Nominal Inventory Value

1.2

1.3

1.4

1.5

2009 2010 2011 2012 2013 2014 2015 2016

3-Mo. Moving Ave

Core Wholesale Distribution Inventory-to-Sales Ratio

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Percent

Quarterly GDP

Annualized GDP 1990-1999

Annualized GDP2000-2009

Annualized GDP2010- Present

Sources: Bureau of Economic Analysis and June 2015 NABE Forecast.

Real GDP GrowthQuarterly and Annualized Real GDP 1990-2016

10

12

14

16

18

20

22

2000 2002 2005 2008 2011 2013 2016 2019 2022 2024

Trillions, USD

Rece

ssio

n 18

Mon

ths

Rece

ssio

n 8 M

onth

s

Real GDP

Actual Projected

Source: Congressional Budget Office, Budget and Economic Outlook, Fiscal Years 2015 to 2025.

Real GDP and Potential GDP

Potential GDP

National Employment

Sources: Bureau of Labor Statistics (Seasonally Adjusted), National Bureau of Economic Research, Moody’s Analytics, and the BRD.

-900

-700

-500

-300

-100

100

300

500

2000 2002 2004 2006 2008 2010 2012 2014 2016

Thousands, Month-over-Month

Rece

ssion

18 M

onth

s

Rece

ssion

8 Mo

nths

3-Month Moving Average

Employment RecoveryPre-Recession Peak to April 2016

Source: Bureau of Labor Statistics (Seasonally Adjusted).

Employment Losses and Recovery3-Year Growth

Professional and Business Services

Trade, Transportation, and UtilitiesEducation and Health Services

Leisure and Hospitality

Construction

Financial Activities

ManufacturingOther Services

Government

Information

Mining and Logging

-1,000,000 -500,000 0 500,000 1,000,000 1,500,000 2,000,000

Sources: Bureau of Labor Statistics (Seasonally Adjusted).

Job Gains by Wholesale Distribution SectorJune 2010 – April 2016

Agricultural Products WholesalersPharmaceutical Wholesalers

Computer, Commercial and Medical Equipment Wholesalers and DistributorsOil and Gas Products WholesalersOther Consumer Products (periodicals, tobacco + florist) Wholesalers

Sporting Goods, Toys/Hobby and Jewelry Wholesaler-DistributorsElectrical and Electronics Wholesalers

Chemicals and Plastics Distributors

Computer and Computer Peripheral Equipment and SoftwareGrocery and Foodservice Wholesaler- Distributors

Motor Vehicle Aftermarket Parts and Supplies WholesalersMetal Service Centers

Furniture and Home Furnishings WholesalersIndustrial Distributors

Plumbing and HVAC Wholesalers

Apparel Wholesalers Building Material Wholesalers and Distributors

Beer, Wine and Liquor Wholesaler-Distributors

-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%Percent Change


Office Product Wholesalers and Paper Merchants

Jobs Deficit by Wholesale Distribution SectorFrom Pre-recession Peak

Building Material Wholesalers and DistributorsElectrical and Electronics Wholesalers

Other Consumer Products (periodicals, tobacco + florist) WholesalersOffice Product Wholesalers and Paper Merchants

Pharmaceutical Wholesalers Computer, Commercial and Medical Equipment Wholesalers and Distributors

Computer and Computer Peripheral Equipment and SoftwareSporting Goods, Toys/Hobby and Jewelry Wholesaler-Distributors

Industrial DistributorsMotor Vehicle Aftermarket Parts and Supplies Wholesalers

Furniture and Home Furnishings WholesalersMetal Service Centers

Plumbing and HVAC WholesalersAgricultural Products WholesalersOil and Gas Products WholesalersChemicals and Plastics Distributors

Apparel Wholesalers Grocery and Foodservice Wholesaler- Distributors

Beer, Wine and Liquor Wholesaler-Distributors

-60 -50 -40 -30 -20 -10 0Thousands


Labor Underutilization


0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

U-6

U-5

U-3

Percentage of Labor Force

9.7%

4.7%

5.7%

Average U-6

Average U-3

Initial and Continuing Claims

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2001 2003 2005 2007 2009 2011 2013 2015

Initial ClaimsContinuing Claims

Initial Claims(Right Axis)

Continuing Claims(Left Axis)

Average Initial Claims

Source: Bureau of Labor Statistics.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2002 2004 2006 2008 2010 2012 2014 2016

Percent

10-Year Treasury

Interest Rates2001-2017 (Forecast)

3-Month Treasury

Source: Moody’s Analytics.

Household Debt Growth

Source: U.S. Flow of Funds Account, Z.1 data release.

-500

0

500

1,000

1,500

Q12001

Q12002

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012

Q12013

Q12014

Q12015

Q12016

Consumer Credit Debt

$ Billions

Home Mortgage Debt

Household Debt Growth

Source: Federal Reserve Board.

9

10

11

12

13

14

14

15

16

17

18

19

Q1 19

80Q2

1981

Q3 19

82Q4

1983

Q1 19

85Q2

1986

Q3 19

87Q4

1988

Q1 19

90Q2

1991

Q3 19

92Q4

1993

Q1 19

95Q2

1996

Q3 19

97Q4

1998

Q1 20

00Q2

2001

Q3 20

02Q4

2003

Q1 20

05Q2

2006

Q3 20

07Q4

2008

Q1 20

10Q2

2011

Q3 20

12Q4

2013

Q1 20

15

Debt Service Ratio

Debt Service Ratio (Right Axis)

Financial Obligations Ratio

Financial Obligations Ratio (Left Axis)

Percent of Balance 90+ Days Delinquent by Loan Type

0%

2%

4%

6%

8%

10%

12%

14%

16%

2003 Q2 2004 Q3 2005 Q4 2007 Q1 2008 Q2 2009 Q3 2010 Q4 2012 Q1 2013 Q2 2014 Q3 2015 Q4

Percent

Credit Card

Student Loan

All

MortgageHome Equity Line

Auto

Household WealthQ1 2001-Q1 2016

-20

0

20

40

60

80

100

120

Q1 2001 Q1 2004 Q1 2007 Q1 2010 Q1 2013 Q1 2016

$ Trillions

Mutual FundsCorporate EquitiesReal Estate

Other Assets

Total Liabilities

Source: Federal Reserve Board, Balance Sheet of Households and Nonprofit Organizations (B.101) (Not Seasonally Adjusted).

Real Disposable Personal Income

28,000

30,000

32,000

34,000

36,000

38,000

40,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

Q12000

Q12001

Q12002

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012

Q12013

Q12014

Q12015

Q12016

$ Billions, SAAR Per Capita

U.S. Total

Source: Bureau of Economic Analysis, Personal Income and Its Disposition, SAAR (Chained 2009 dollars).

0

20

40

60

80

100

120

140

160

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

1985=100Recession8 months

Index of Consumer Confidence

Recession8 months

Recession18 months

Sources: The Conference Board and National Bureau of Economic Research.

Vehicle Sales and Retail Sales

Sources: Autodata Corp., Motor Intelligence, U.S. Census Bureau (Seasonally Adjusted Annual Rate).

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2002 2004 2006 2008 2010 2012 2014

Retail and Food Services SalesAnnual Percent Change

0

5,000

10,000

15,000

20,000

25,000

2002 2004 2006 2008 2010 2012 2014

Vehicle SalesThousands, SAAR

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2005 2007 2009 2011 2013 2015 2017

Percent Change

Personal Consumption

2.6%2.5%

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2005 2007 2009 2011 2013 2015 2017

Percent Change

Disposable Personal Income

2.6%2.4%

Sources: Bureau of Economic Analysis and Blue Chip Economic Indicators.

U.S. Income and Consumption

National FHFA Home Price GrowthYear-over-Year Q1 2016

Source: Federal Housing Finance Agency Home Price Index, All Transactions Index.

Housing Affordability Index

60

100

140

180

220

1982 1985 1988 1991 1994 1997 2000 2003 2006 2010 2013 2016

Composite

Source: National Association of Realtors, Composite Index.

Houses For Sale and Months' Supply

Source: New Houses Sold and For Sale, U.S. Census Bureau.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Months of SupplyNew SF Home Inventory (thousands)

Housing SupplySF Homes for Sale

U.S. Building Permits

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

500

1,000

1,500

2,000

2,500

2001 2003 2006 2008 2011 2013 2016

Thousands

Single Family

Multifamily MF Share (Right Axis)

Seasonally Adjusted Annual Rate

Source : U.S. Census Bureau, New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places (SAAR).

National Housing Starts

0.0

0.5

1.0

1.5

2.0

2.5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Millions

Sources: U.S. Census Bureau and Consensus Forecasts.

ISM Indices

Source: Institute for Supply Management (ISM).

30

35

40

45

50

55

60

65

70

2006 2008 2010 2012 2014 2016

ISM Manufacturing Index

30

35

40

45

50

55

60

65

70

2006 2008 2010 2012 2014 2016

ISM Non-Manufacturing Index

The FED

• QE 1

• QE 2

• Fed promises near zero interest rates until mid-2013, 2014,

• 2015?, 2016?

• Operation Twist

• Swaps

• Tapering Ends

• Interest Rate Hike(s) 0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2007 2008 2009 2011 2012 2013 2015 2016

Other Assets

Mortgage Backed Securities

Federal Agency Debt Securities

Treasury Securities

$ Millions

Source: Federal Reserve Balance Sheet.

Commercial Crude Oil Storage

Source: Energy Information Association (EIA), Weekly U.S. Ending Stocks excluding SPR of Crude Oil.

250

300

350

400

450

500

550

1984 1986 1989 1992 1994 1997 2000 2002 2005 2008 2010 2013 2016

Millions of Barrels June 3, 2016:532.5

Average 1982-2015

WTI Oil Price

Source: Energy Information Association (EIA), Cushing, OK WTI Spot Price FOB.

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dollars per Barrel

June 6, 2016:$49.71

June 5, 2015:$59.11

July 3, 2008:$145.31

June 6, 2014:$103.32

Average 2005-2016

WTI Oil Price Forecast

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

2014 2015 2016 2017 2018 2019 2020

Historical PriceEIA ForecastLower CIUpper CIMoody's Baseline Forecast

Dollars per Barrel

June 2016

Source: Energy Information Association (EIA), SPEO, Cushing, OK WTI; Moody’s Analytics.

Henry Hub Natural Gas Spot Price

Source: Energy Information Association (EIA), Weekly Henry Hub Natural Gas Spot Price (Dollars per Million Btu).

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dollars per Million BTU

June 6, 2016:$2.32

June 5, 2015:$2.60

July 4, 2008:$13.20

June 6, 2014:$4.66

Average 2005-2016

Average 2009-2016

Business Cycles

Business Cycle

Sources: National Bureau of Economic Research and the Business Research Division.

1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016

Financial

Tech

Savings and Loan

Oil Embargo

Interest Rates

OPECEnd of WWII

Peace Time

End of Korean War

Steel StrikeMonetary Policy

Monetary Policy

Employment Losses and Recovery

0 20 40 60 80

Peak to Trough Months to Recovery

Sources: Bureau of Labor Statistics (Seasonally Adjusted), National Bureau of Economic Research, and the Business Research Division.

1948-1949

1953-1954

1957-1958

1960-1961

1969-1970

1973-1975

1980

1981-1982

1990-1991

2001

2007-2009

-8% -6% -4% -2% 0%Percentage Change Number of Months

S&P 500

Sources: Bloomberg and the National Bureau of Economic Research.

0

500

1,000

1,500

2,000

2,500

1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016

S&P

500

Financial Tech Savings

and Loan Oil

EmbargoInterest

RatesOPECEnd of

WWIIPeace Time

End of Korean War

Steel StrikeMonetary Policy Monetary Policy

Economic Growth and Recessions

Sources: Bureau of Economic Analysis, the National Bureau of Economic Research, and the Business Research Division.

-6

-4

-2

0

2

4

6

8

2000 Q1 2004 Q1 2008 Q1 2012 Q1 2016 Q1

Percent Change Personal Consumption Expenditures

SAAR

Year-over-Year

-25-20-15-10

-505

101520

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Goods Exports

-10-8-6-4-202468

10

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Government Spending

SAAR

Year-over-Year

-30-25-20-15-10

-505

10152025

2000 Q1 2004 Q1 2008 Q1 2012 Q1 2016 Q1

Percent Change Fixed Business Investment

SAAR

Year-over-Year

The Underlying Cause???

9095

100105110115120125130135

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Broad Dollar Index

0

2

4

6

8

10

12

14

16

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR China Real GDP2000 2002 2004 2006 2008 2010 2012 2014 2016

0

500

1,000

1,500

2,000

2,500Rig Count Baker Hughes Rig Count

Gas Wells

Sources: Bureau of Economic Analysis, International Monetary Fund, Baker-Hughes, BofA Merrill Lynch, BofA Merrill Lynch US High Yield Option-Adjusted Spread, National Bureau of Economic Research.

0.01.02.03.04.05.06.07.08.09.0

10.0Percent Interest Rates

30-Year Fixed Mortgage

10-Year Treasury3-Month Treasury

Oil Wells

Thank You

© 2016 Gale Media, Inc. All Rights Reserved.

Source: 2016 Economic Benchmarks for Wholesale Distribution

Misc. Durable Goods Subsectors (defined by primary products)

Metal Scrap Diamonds, Jewelry, and Precious Stones/Metals Sporting and Recreational Goods and Supplies Toy and Hobby Goods and Supplies Pre-recorded Media (CDs, DVDs, & Videotapes) Misc. Other Durable Goods Misc. Home Furnishings and Wood Millwork Non-Lumber Forest Products Musical Instruments and Supplies



Industrial Subsectors (defined by primary products)General Purpose Industrial Machinery and Equipment

Farm and Garden Machinery and Equipment

Aircraft and Aeronautical Equipment and Supplies

Other Industrial Machinery and Equipment

General Line Industrial MRO Supplies

Oil Well, Refinery, and Pipeline Equipment and Supplies

Fluid Power Machinery, Equipment, and Parts

Mechanical Power Transmission (Bearings) Supplies

Industrial Valves and Fittings (except Fluid Power)

Custodial and Janitorial Equipment and Supplies

Welding Supplies

Construction Machinery and Equipment

Materials Handling Machinery, Equipment, and Parts

Service Establishment Equipment and Supplies

Metalworking Machinery, Equipment, and Parts

Industrial Containers and Supplies

Food Processing Machinery, Equipment, and Parts

Other Transportation Equipment and Supplies

Marine Machinery, Equipment, and Supplies



Industrial Subsectors (defined by primary products) – Average Revenue per EmployeeGeneral Purpose Industrial Machinery and Equipment $515,300

Farm and Garden Machinery and Equipment $631,300

Aircraft and Aeronautical Equipment and Supplies $1,404,200

Other Industrial Machinery and Equipment $651,600

General Line Industrial MRO Supplies $727,700

Oil Well, Refinery, and Pipeline Equipment and Supplies $737,700

Fluid Power Machinery, Equipment, and Parts $439,800

Mechanical Power Transmission (Bearings) Supplies $793,000

Industrial Valves and Fittings (except Fluid Power) $609,700

Custodial and Janitorial Equipment and Supplies $313,300

Welding Supplies $474,500

Weighted Average (all 19 subsectors) $604,800

8

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• Publicly-traded on NYSE – ‘N’

• More than 4,700 employees• $741.1M revenue in FY15

• Grown by 30%+ in each of the last 14 consecutive quarters

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• Accumulated best practice reduces time to value

• 40+ recent IPOs run NetSuite

NETSUITE#1 CLOUD ERP

9

WHY TODAY’S BUSINESSES CHOOSE NETSUITE ERP

Built In Platform Enables

FlexibilityDesigned for

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CommerceOmnichannel

Built for Your Industry

10

21st Century ChoiceSpecific Functionality

• Inventory Management

• Order Management

• Procurement

• Warehousing

• Demand Planning

• Shipping

• Fulfillment

• Lead-to-Cash

• Ecommerce

• Reporting/Analytics

Vertical Focus

• Thousands of Distribution Customers

• Dedicated Distribution Experts In:- Implementation- Account Management- Support- Product Management- Executive Team

Commitment to the Wholesale Distribution Industry

10

12

Transformative Results from Distributors

12

Actionable Insights

+56%

-30%

Gross Margin

+1-5%Inventory Costs

-75%IT Support Costs

SL Associates

Results as Measured in Comprehensive Study of NetSuite Customers Conducted By:

2016 Mid-YearEconomic Update

Questions?

June 14, 2016

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2016 mid-year economic update - mdm€¦ · the 2016 mid-year economic update: economic headwinds...

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