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© 2014 IHS US Outlook ihs.com IHS US Economic Outlook How long will the ride last? Douglas Handler, IHS Chief US Economist, +1 781 301 9283, [email protected] December 2014 ECONOMICS

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Page 1: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

US Outlook

ihs.com

IHS

US Economic OutlookHow long will the ride last?

Douglas Handler, IHS Chief US Economist, +1 781 301 9283, [email protected]

December 2014

ECONOMICS

Page 2: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 2

US Outlook / December 2014

US Economic Overview

Page 3: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Executive Summary - economic growth accelerates a notch from 2.2% in 2014 to 2.7% in 2015.

• Adverse demographics is now an issue

• Labor force growth• Mismatches between available jobs and available people • Household formation

• Gasoline price dividend gets partially absorbed by poorer international trade conditions

• Fiscal policy to remain in “benign neglect” at least through 2016 election; additional defense spending possible

• Fed to take action in mid-2015, but the anticipation will be worse than the impact

3

US Outlook / December 2014

Page 4: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 4

US growth will slow in q4, and into 2015, but a gradual acceleration is expected thereafter.

Real GDP growth (annualized percent change)

© 2014 IHSSource: IHS

-10

-8

-6

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Outlook / December 2014

Page 5: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Since emerging from the recession, the US economy has downshifted. Will it find that next gear?

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-4.0

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2.0

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1995 2000 2005 2010 2015

Real GDP growth

2.2% average2010-2014

Where’s the growth?

• Federal budget deficit reduction

• Consumer retrenchment• Higher taxes• Debt repayment• Poor wage growth

• Fizzled housing recovery

• Business investment rebound did not fully offset the downturn

3.2% average1995-2007

US Outlook / December 2014

Page 6: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 6

Looking forward, we will still be counting on consumer spending to drive the bulk of economic growth.

Contributions to real GDP growth

© 2014 IHSSource: IHS

1.6

2.3 2.2 2.22.7 2.5

-1.5

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2011 2012 2013 2014 2015 2016

Real GDP Consumer spending Fixed investment Housing

Inventories Exports Imports Government

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nu

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tag

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US Outlook / December 2014

Page 7: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 7

Is the labor market getting tight enough to drive wage pressures?

Job creation and the unemployment rate

© 2014 IHSSource: IHS

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%)

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of

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000s)

Employment growth Unemployment rate

US Outlook / December 2014

Page 8: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 8

Growth in the labor force has downshifted.

Employment and labor

© 2014 IHSSource: IHS

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2000 2002 2004 2006 2008 2010 2012 2014

Perc

en

t o

f la

bo

r fo

rce

Lab

or

forc

e (

Mil

lio

ns)

Labor force (Left) Participation rate (Right)

Before the recession: 1.5 million / year pace

After the recession: 0.4 million / year pace

US Outlook / December 2014

Page 9: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 9

We’re aging, and entering cohorts with lower participation rates.

0.0%

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(2013, %

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Lab

or

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ize (

mil

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Age cohort

2004 2005 2006 2007 2008 2009

2010 2011 2012 2013 2014 Particip. %

US Outlook / December 2014

Page 10: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 10

Only the services areas are materially adding jobs.

Employment before and after the recession (millions)

© 2014 IHS*=Recession period: December 2007 through June 2009Source: IHS

-2.5

-2.0

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-1.0

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3.0

3.5

Change during recession * Change since end of recession *

Losses from recession: 7.4 millionChanges since recession end: 9.1 million

Goods Services Government

US Outlook / December 2014

Page 11: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 11

Recent job creation is skewed toward lower-income occupations

$0

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s (

000s)

# of new jobs over past 12 months (bars, 000s, left axis)

Average weekly earnings (squares, right axis)

Recent job growth and average weekly earnings

Overall average weekly earnings

US Outlook / December 2014

Page 12: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 12

Here’s what the Fed is looking at to identify inflation.

Personal consumption price deflators (change versus year-ago)

© 2014 IHSSource: IHS

-2%

-1%

0%

1%

2%

3%

4%

5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

All goods and services Excluding food and energy

Fed 2% threshold

US Outlook / December 2014

Page 13: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 13

Monetary policy status quo maintained through mid-2015, although long-term rates will rise as expansion gathers steam.

Interest rate outlook

© 2014 IHSSource: IHS

0%

1%

2%

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6%

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

Fed funds rate 10-year treasury

Fed tapering

Near zero rates endJune 2015

US Outlook / December 2014

Page 14: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 14

Energy and the Economy

US Outlook / December 2014

Page 15: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 15

Savings at the pump have added to consumers’ wallets.

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2000 2005 2010 2015 2020

Per-household spending on gasoline (annual rates)

US Outlook / December 2014

Page 16: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Contributions from unconventional energy sources will continue to add to US GDP.

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US Imports of Petroleum Products (billions of 2009 dollars)

US Mining and Petroleum Structures (billions of 2009 dollars)

US Outlook / December 2014

Page 17: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 17

US Regional and Indiana Outlook

US Outlook / December 2014

Page 18: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

U.S. Regional Outlook

• States in the West and Sunbelt will continue to grow fastest

• These states generally got the worst of housing bust

• Population growth fastest in these regions

• People go where the jobs are, but jobs also go where the people are

• Manufacturing gains, especially from the auto sector supply chain, have been a key to the improving Midwestern economy

• Growth in unconventional oil development makes North Dakota a standout on growth maps

• Supply chain for oil and natural gas boosting construction, manufacturing, transportation, other sectors across countries

18

US Outlook / December 2014

Page 19: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Regional Job GrowthNorthern and Eastern regions lagging rest of United States

19

US Outlook / December 2014

South Atlantic

East North

Central

Pacific

Mid-Atlantic

West South

Central

West North

Central

Mountain

East South Central

New England

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Last3Months

Year on Year

Expanding

Contracting Slipping

Improving

Employment Momentum in October(Percent change, annual rate)

Last

3 m

on

ths

Page 20: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Midwest Job GrowthIndiana leads the pack over the past year

20

Illinois

Ohio

Michigan

Indiana

Wisconsin

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Last

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Year on Year

Employment Momentum in October(Percent change, annual rate)

Expanding

Contracting Slipping

Improving

US Outlook / December 2014

Page 21: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Continued modest job growth in 2014

21

State Employment Growth 2014(Percent change vs. year-ago)

© 2014 IHSSource: IHS

Percent

-0.3 to 0.8

0.8 to 1.2

1.2 to 1.8

1.9 to 4.5

US Outlook / December 2014

Page 22: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Employment growth highest in West, South(and the northern oil region)

22

State Employment Growth 2015(Percent change a year ago)

© 2014 IHSSource: IHS

Percent

0.7 to 1.3

1.3 to 1.6

1.6 to 1.9

2.0 to 3.0

US Outlook / December 2014

Page 23: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

By end of 2015 most states will have recovered lost jobsIndiana got there in 2014

23

Year of Return to Peak Employment

© 2014 IHSSource: IHS

Return To Peak

2010 - 2013

2014

2015

2016 - 2017

2018+

US Outlook / December 2014

Page 24: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Indiana Employment Forecast

24

2,400

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2009 2011 2013 2015 2017 2019

Growth Levels

Perc

entC

hange Y

ear

Ago

Thousands

Indiana Employment

© 2014 IHSSource: IHS

US Outlook / December 2014

Page 25: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Indiana Cars and Houses

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New Car Registrations Total Housing Starts

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Indiana Total Housing Starts vs. New Car Registrations

© 2014 IHSSource: IHS

US Outlook / December 2014

Page 26: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Wage Gains

26

-3.0

-2.0

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2009 2011 2013 2015 2017 2019

Indiana US

Perc

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Indiana Wage Growth Vs. United States(Nominal Total Wages and Salaries)

© 2014 IHSSource: IHS

US Outlook / December 2014

Page 27: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

PCE spending will be dragged down by lower spending for gasoline.

27

-15.0

-10.0

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2009 2011 2013 2015 2017 2019

Total Durable Goods Non-Durable Goods Services

Perc

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ear

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Personal Consumption Expenditure Growth for Indiana

© 2014 IHSSource: IHS

US Outlook / December 2014

Page 28: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Services earning more and more of consumers’ dollars

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2009 2011 2013 2015 2017 2019

Durable Goods Non-Durable Goods Services

Bill

ions o

fD

olla

rs

Personal Consumption Expenditure for Indiana(Levels by Sector)

© 2014 IHSSource: IHS

US Outlook / December 2014

Page 29: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Indiana Forecast Summary

29

2013 2014 2015 2016

Total Employment 1.2 1.8 1.7 1.3

Unemployment Rate 7.5 5.8 5.5 5.7

Personal Income 1.8 2.1 4.0 4.5

Housing Starts (000s) 16.8 17.3 19.5 21.4

Retail Sales 4.2 1.9 2.3 4.0

Real Gross State Product 2.1 1.9 2.3 2.2

US Outlook / December 2014

(Percent unless otherwise noted)

Page 30: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Professional and Business Services will continue to drive economic growth

30

US Outlook/ October 2014

2013 2014 2015 2016

Total Employment 1.2 1.8 1.7 1.3

Manufacturing 2.1 3.5 2.2 1.3

Construction and Natural Resources -1.0 2.1 3.6 3.5

Trade, Transportation and Utilities 1.3 0.6 1.4 0.8

Information 0.0 -1.1 -1.0 3.0

Finance -0.3 1.5 -0.2 -0.4

Professional and Business Services 2.8 3.2 3.4 3.8

Education and Health Services 1.7 0.8 1.8 1.2

Leisure and Hospitality Services 1.8 2.8 1.9 0.7

Other Services 1.1 2.8 1.5 0.7

Government -0.9 0.5 0.3 0.3

Page 31: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Manufacturing growth will continue to be Indiana’s strength vs. overall US trends.

31

US Outlook/ October 2014

-2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0

Total Employment

Manufacturing

Construction and Natural Resources

Trade, Transportation and Utilities

Information

Finance

Professional and Business Services

Education and Health Services

Leisure and Hospitality Services

Other Services

Government

Indiana US

Employment growth by major sector in 2015

Page 32: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Forecast Track Record

32

US GDP Indiana Employment Indiana Income

Forecast Date

2013 2014 2013 2014 2013 2014

Percent change

Dec 2012 1.9 2.7 1.6 1.6 3.3 4.4

Dec 2013 1.8 2.4 1.5 1.6 3.0 4.4

Apr 2014 1.9 2.4 1.2 1.6 2.3 2.8

Dec 2014 2.2 2.2 1.2 1.8 1.8 2.1

US Outlook / December 2014

Page 33: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Bottom Line for Indiana

• Indiana’s economic growth continues to be higher than neighbors

• Midwest growth generally lagging other parts of the United States

• Payrolls regained pre-recession peak in 2014

• Resurgent auto sector a big key to Indiana’s growth

• Indiana’s manufacturers a big part of auto supply chain

• Location as “crossroads of America” also makes it a logistical hub

• Near-term growth should continue to be favorable

• In longer term, lack of population/labor force growth a concern

• This is a common theme among northern and eastern states

33

US Outlook / December 2014

Page 34: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS 34

An Economist’s wishes for 2015

US Outlook / December 2014

Page 35: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

© 2014 IHS

Santa wish list for 2015 – Just one: Improve productivity!

35

• Education, education and

education

• Infrastructure investment

• Technology investment –improve internet speed, cost and security

• Remove impediments to labor force participation

• Reduce risk of doing business

• Increase economic awareness

US Outlook / December 2014

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2000 2002 2004 2006 2008 2010 2012 2014(est.)

Productivity growth(output / hour, year-over-year change)

Page 36: US Economic Outlook - Indiana Economic Outlook ... ECONOMICS © 2014 IHS 2 US Outlook / December 2014 ... Unemployment Rate 7.5 5.8 5.5 5.7 Personal Income 1.8 2.1 4.0 4.5

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© 2014 IHS. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS.Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are theopinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage or expense incurred by reliance on information or any statement contained herein. For moreinformation, please contact IHS at Customer Care (see phone numbers and email addresses above). All products, company names or other marks appearing in this publication are the trademarks and property of IHS or their respective owners.

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