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TRANSCRIPT
ITR Economics’ Outlook
Brian BeaulieuCEO & Chief Economist
Fear Provides OpportunitiesAs Long as You Don’t Give In To It
Focus on:• COVID-19• Retail Sales• S&P 500• Oil• USA, China and Italy
Overview
COVID-19 IS GETTING THE HEADLINES
The economic issues associated with COVID-19 will likely pass into a place of lesser concern before the greater economic threat does…
OIL PRICE ISSUES ARE of EQUAL CONCERN from our perspective
THE FORECASTS: MAKING THE CORRECT VARIABLE AND THE TIMELINE ASSUMPTIONS
Fear Based Events2000 – Y2K2001 – Anthrax 2002 – West Nile Virus 2003 – SARS2005 – BIRD Flu2006 – ECOLI 2008 – The Bad Economy2009 – SWINE Flu 2010 – BP Oil 2012 – The Mayan Calendar 2013 – North Korea 2014 – Ebola Virus 2015 - Disney Measles and ISIS 2016 – Zika Virus 2020 - Corona Virus
From the March ITR Trends ReportA Perspective Pertaining to COVID-19
Outcomes Vary WidelyCoronavirus (COVID-19)
Sources: South China Morning Post, Johns Hopkins University, Multiple media reports
82,862recovered
206,114cases
8,757deaths
Total:
How Contagious & Deadly is It?We don’t fully know yet but it’s in this range
Sources: Centers for Disease control, WHO, New York Times
Flattening the Curve
Source: Economist
Fed Actions
HR 6201 – Families First Coronavirus Response ActPaid Job-Protected Leave Under the Family and Medical Leave Act
• The bill covers any employer with fewer than 500 employees with the right to up to 12 weeks of job-protected leave under the Family and Medical Leave Act (“FMLA”).
• H.R. 6201 requires that ten of these twelve weeks be paid at a rate of no less than two-thirds of the employee’s usual rate of pay.
• Employees must be on payroll for more than 30 days for eligibility and may use FMLA to (1) to comply with a requirement/recommendation to quarantine due to coronavirus exposure or symptoms, and cannot work from home; (2) is caring for an at-risk family member who is quarantining; or (3) is caring for the employee’s child if the child’s school or place of care has been closed due to public health emergency.
• Any individual employed by the covered employer may be eligible for emergency leave for at least 30 days after the first day of leave.
• The bill, in its current form, provides for a series of refundable tax credits for employers providing paid emergency sick leave or paid FMLA.
• Effective date and expiration. These expanded provisions will become effective within 15 days of enactment and remain in effect until December 31, 2020.
Global Economic Perspective
24.2%
15.7%
5.9%4.7%3.3%3.3%
3.2%2.4%
2.2%2.0%
2.0%
2.0%1.7%1.7%1.4%1.2%1.1%0.9%0.9%
0.8%
19.3%
United States
China
Rest of World
JapanGermanyUK
Mexico
Percent of 2018 World GDP by Country
Source: IMF, *24% are IMF Estimated Figures
*Total 2018 World GDP: $84.93 Trillion US$
Cyclical Weakness Before COVID-19 and OilBut Leading Indicators Were Turning Up
US Industrial Production Index
Source: FRB2012 = 100
0.1%0.2%
$109.3
85
95
105
115
125
135
145
155
-25
-20
-15
-10
-5
0
5
10
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24
ROC MMA
12/12
12MMA
Raw
1/12
The First Half of 2020 Will Test China’s Data CredibilityChina Industrial Production Index
Source: CEIC2012 = 100
-13.5%
2.7%
$156.76
0
60
120
180
240
300
360
420
-50
-40
-30
-20
-10
0
10
20
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24
ROC MMA12/12
12MMA
Raw
1/12
Updates Regarding the Economy in China
American Chamber of Commerce in China
1/3 of businesses remain in lockdown1/3 are open1/3 are mixed
CEO of China Beige Book says he expects the number of open firms and related data to improve in 2Q20
There is considerable concern because the Chinese economy is already debt heavy. We think that is more of a longer-term threat associated with the 2030 forecast.
Medical: over half the hospitalized patients in the outbreak province have reportedly been discharged, reducing the number of remaining cases to 35,000
293 clinical trials underway / a vaccine in in trials also with a projected timeline of 6 – 8 months (very fast)
The province of Zhejiang leads the country with 90% of its large industrial firms reopened
President Xi said that it is time for companies to reopen where the virus is no longer a big danger
Port delays/congesting are easing
27%
16%
7%9%
10%
4%2%4%
2%
19% China
Mexico
Canada
Japan
Germany
South Korea
Taiwan
Italy
United Kingdom
Rest of World
US Top Machinery Imports by Country
Source: United States International Trade CommissionPercent
28%
17%
17%
8%
6%
6%4%
2%2%10%
Mexico
Canada
Japan
Germany
China
Korea, Rep.
United Kingdom
Italy
France
Rest of World
US Imports of Transportation by Country
Source: World Integrated Trade Solution (WITS)Percent
US Imports of Chemicals by Country
Source: World Integrated Trade Solution (WITS)Percent
18%
10%
8%
8%
8%4%4%
4%4%
4%4%2%
22% IrelandGermanyCanadaSwitzerlandChinaIndiaUnited KingdomJapanSingaporeFranceItalyNetherlandsRest of World
Economic Fundamentals Were ImprovingWorld Industrial Production Index to G7 Leading Indicator
-6
-4
-2
0
2
4
6
-15
-10
-5
0
5
10
15
'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22
World IP
Indicator
IndicatorWorld IP
1/1212/12
Sources: CPB Netherlands Bureau For Economic Policy Analysis, OECDRates-of-Change
People
Fear
Government Intervention
Retail Sales
What People Are DoingWhat do you plan to do because of the coronavirus?
NOTE Percentages do not add to 100 because multiple answers were possible; SOURCE USA TODAY/Ipsos Poll of 1,005 adults taken online March 10 and 11; credibility interval +/- 3.5
percentage points; GRAPHIC George Petras/USA TODAY
30%
5%
6%
7%
12%
13%
17%
18%
25%
59%
0% 10% 20% 30% 40% 50% 60%
None of the above
Cancel a business trip
Make changes to a 401(k) retirement account
Stop attending religious services
Start a rainy-day fund
Consider delaying a major purchase/spending
Cancel a personal trip
Shift shopping from physical stores to online
Stop attending social events
Wash hands more frequently
Some Economic Fundamentals
U.S. Economic Leading IndicatorsIndicator Trend Comments Lead Time
(months)ITR Consumer Activity Leading Indicator Rise Potential April 2019 low expected to hold 14
ITR Financial Leading Indicator Rise August 2019 low; danger of losing 14JPMorgan Global PMI Decline Jan 2019 1/12 r-o-c; lost the low 12OECD Leading Indicator Rise August 2019 1/12 low holding but data delayed 10G7 Leading Indicator Rise August 2019 low is holding for now 10Purchasing Managers Index (PMI) Rise September 2019 1/12 low holding thru Feb 9ITR Leading Indicator Rise October 2019 low looks likely to hold 8Wilshire Total Market Cap Rise Feb 2019 low holding through Feb but in danger 8US Leading Indicator Rise Dec 2019 low likely will lose the low 8Single-Family Housing Starts Rise 12/12 Aug 2019 low expected to hold 8Total Industry Capacity Utilization Rise Jan 2020 low threatened assume we lose the low 6US Exports – World Rise Jun 2019 3/12 low viability is threatened 4
22Sources: ITR Economics, Institute for Supply Management, OECD, Yahoo Finance, The Conference Board, US Census Bureau, FRB
Retail Sales Typically Provides a BackstopUS Total Retail Sales to US Industrial Production Index
Sources: US Census Bureau, FRB12/12 Rates-of-Change
-15
-10
-5
0
5
10
15
-15
-10
-5
0
5
10
15
'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23
Retail Sales
Index
All indicators are shifted along the horizontal axis to reflect their cyclical relationship to US Total Retail Sales Retail Sales.
US IPRetail Sales
Trends Are Overall Holding Up WellJohnson Redbook Weekly Indexes for the US
Sources: CEIC, US Census BureauRaw Data
8.5%
-5.3%
14.8%
-15
-10
-5
0
5
10
15
-15
-10
-5
0
5
10
15
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Total
Dept. Stores
Discount Stores
-18
-12
-6
0
6
12
18
-45
-30
-15
0
15
30
45
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Stock Prices - 1/12Retail SalesRetail Sales Forecast
Retail SalesStock Prices
12/12
1/12
Stock Prices Don’t Drive the Retail TrendUS Stock Prices Index to US Total Retail Sales
Sources: Wall Street Journal, US Census BureauRates-of-Change
ITR Leading Indicator Expected to Bend but not BreakUS Total Retail Sales to ITR Consumer Activity Leading IndicatorTM
Sources: US Census Bureau, ITR Economics12/12 Rates-of-Change
-15
-10
-5
0
5
10
15
-15
-10
-5
0
5
10
15
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Retail Sales - 12/12
Retail Sales Forecast - 12/12
Indicator - Monthly
IndicatorSales
Monthly 12/12
Analysis suggests near-term decline in the ITR indicator is not probable
It is normal for Retail Sales to move unfettered relative to oil
Supporting Trend for 2020 and 2021US Total Retail Sales to US Personal Savings as Percentage of Disposable Personal Income
Sources: US Census Bureau, Bureau of Economic Analysis 12/12 Rates-of-Change
0
2
4
6
8
10
12
-15
-10
-5
0
5
10
15
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Retail Sales - 12/12Retail Sales Forecast - 12/12Savings Rate - 12MMA
Savings RateRetail Sales
12MMA 12/12
Financial MarketsDuration shorter and magnitude of
decline less in the USA vs. Overseas
Expectations: this will be a relatively short decline and the
rebound will be normal
Stock Market Cyclical Pressure Remains NegativeUS Stock Prices Index
-15.4%7.6%
2959.2
500
1100
1700
2300
2900
3500
4100
4700
5300
-150
-125
-100
-75
-50
-25
0
25
50
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24
MMAR-O-C1/12
12/12
Raw12MMA
Source: Wall Street Journal1941-43=10
Bear Markets Occur Even When Retail Sales Are RisingUS Stock Prices Index to US Total Retail Sales
Source: Wall Street Journal, US Census BureauData Trend
1
2
3
4
5
6
7
8
9
10
0
400
800
1200
1600
2000
2400
2800
3200
3600
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
S&P 500 - Raw
Retail Sales - 12MMT
Retail SalesS&P 500
1
10
100
1000
10000
1
500
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22
SP5 - Raw
Domestic Profits - 3MMA
ProfitsSP5
Big Question to Resolve is Now or Later for the FundamentalsUS Stock Prices Index to US Domestic Corporate Profits with
Capital Consumption Adjustments
Source: Wall Street Journal, Bureau of Economic AnalysisData Trend
Our analysis suggests the current decline is taking some of the pressure off the potential magnitude of decline associated with the next macro business cycle
Global equity markets have powered through past viral outbreaksMSCI ACWI index levels
Searching for the BottomS&P500 Stock Prices Index
1001980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Raw
Source: Wall Street JournalData Trends
March 18, 2020 close 2,398.1
-15
-10
-5
0
5
10
15
-45
-30
-15
0
15
30
45
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Stock Prices - 1/12
Index - Monthly
IndexStock Prices
Retail Sales Trend is in a Better PlaceUS Stock Prices Index to Johnson Redbook Index
Sources: Wall Street Journal, Redbook Research Inc.Rates-of-Change
Monthly
1/12
-45
-30
-15
0
15
30
45
-45
-30
-15
0
15
30
45
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Stock Prices - 1/12
Assets - 3/12
AssetsStock Prices
Corporate Liquid Assets Were in Cyclical AscentUS Stock Prices Index to US Nonfinancial Corporate Business Liquid Assets
Sources: Wall Street Journal, Federal Reserve BoardRates-of-Change
3/12
1/12
Downward pressure on profits certainly a concern
Cash is king; plan accordingly
Fed’s $1.5 trils intervention and QE5 are very timely
In the Aftermath of the 7 Pertinent Precedents:
1. Market rebounds for a duration of 11 to 26 months or slightly longer
2. Market rebounds 56.5% to 85.5%
3. Length of rebound not a determining factor in magnitude of the rise
4. Median gain all cases is 60.8%
Note the Lower Troughs for the EU 3/12US S&P 500 Stock Prices Index to Europe (EU27) Stock Market Index
Sources: Wall Street Journal, Yahoo Finance3/12 Rates-of-Change
-50
-25
0
25
50
-50
-25
0
25
50
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
SP 500 - 3/12Europe - 3/12
EuropeSP 500
Note the Lower Troughs for China’s 3/12…US S&P 500 Stock Prices Index to China Stock Market Index
Sources: Wall Street Journal, The Economist3/12 Rates-of-Change
-100
-50
0
50
100
-50
-25
0
25
50
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
SP 500 - 3/12China - 3/12
ChinaSP 500
More Stable Relationship on More OccasionsUS S&P 500 Stock Prices Index to Canada Stock Market Index
Sources: Wall Street Journal, The Economist3/12 Rates-of-Change
-50
-25
0
25
50
-50
-25
0
25
50
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23
SP 500 - 3/12
Canada - 3/12
CanadaSP 500
Oil Prices
Saudis and Russia Flooding the MarketUS Crude Oil Futures Prices to OPEC Crude Oil Production
Sources: Wall Street Journal, EIA3/12 Rates-of-Change
-30
-20
-10
0
10
20
30
-90
-60
-30
0
30
60
90
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24
Oil Price - 12/12
Production - 3/12
ProductionOil Price
Inventory Trend Favorable for a Future Price RiseUS Crude Oil Futures Prices to Crude Oil Inventories Cushing OK
Sources: Wall Street Journal, EIA 3/12 Rates-of-Change
-120
-90
-60
-30
0
30
60
90
120-90
-60
-30
0
30
60
90
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24
Oil Price - 12/12
Inventories - 3/12
InventoriesOil Price
“When” Is a Key Issue to Our ForecastsUS Crude Oil Futures Prices to
JP Morgan Global Manufacturing Purchasing Managers Index
Sources: Wall Street Journal, Markit EconomicsRates-of-Change
-30
-20
-10
0
10
20
30
-90
-60
-30
0
30
60
90
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24
Oil Price - 12/12
JP Morgan - 1/12
JP MorganOil Price
- 3/12
1/123/12
The Metal With a PhD Is Not PanickingUS Crude Oil Futures Prices to US Copper Futures Prices
Source: Wall Street Journal3/12 Rates-of-Change
-90
-60
-30
0
30
60
90
-90
-60
-30
0
30
60
90
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24
Oil Price - 12/12Copper Price - 3/12Copper Price Forecast - 3/12
Copper PriceOil Price
The Turnaround Will Provide a Great OpportunityUS Crude Oil Futures Prices to Energy Sector ETF
Sources: Wall Street Journal, Yahoo FinanceRates-of-Change
-90
-60
-30
0
30
60
90
-90
-60
-30
0
30
60
90
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24
Oil Price - 12/12
Energy ETF - 1/12
Energy ETFOil Price
1/12
3/12
- 3/12
Forecast: Price Ultimately Comes Back When the Economy DoesUS Crude Oil Futures Prices
Source: Wall Street JournalQuarterly Data Trends in Dollars per Barrel
0102030405060708090100110120130140
0102030405060708090
100110120130140
'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23
Crude Oil Future Prices
Forecast
Stays below $50 until approx3Q-2021
Track the Leading Indicators With ITR
Any Questions?