u.s. economy and business outlook: can it take a licking and … · 2019-04-17 · u.s. economy and...
TRANSCRIPT
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U.S. Economy and Business Outlook:Can it Take a Licking and Keep on Ticking?
Jim MeilACT RESEARCH Co., LLC
April 12, 2019Follow @actresearch and @jp_meil
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Who is ACT Research?
ACT Research Co., LLC, Copyright 2019
•Recognized leading publisher of industrial and commercial vehicle data and analysis•Founded in 1986•Columbus, Indiana
Our mission: To improve and expand N.A. analytics in capital goods, industrial, and commercial vehicle markets to promote a better understanding of trends and risks in those businesses
2
Follow on twitter – FREE insights & commentary: @jp_meil & @actresearch
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Why we’re happy and worried at the same time…
• Expansion cycle is mature• 2018 growth solid, 2019 decent start• But it’s not as good as this time last year• Probabilities grow for recession in 2020 (1 in 3 chance)• Fed rate hikes add uncertainty• Global momentum weaker in EU, JA… CH hard to read• Beltway could be worse, but it’s bad enough…
….with 2020 elections on the horizon
ACT Research Co., LLC, Copyright 20193
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Start End GDP Mfg IPFeb-61 Dec-69 106 5.1 6.8Nov-70 Nov-73 36 5.5 9.4Mar-75 Jan-80 58 4.6 6.7Nov-82 Jul-90 92 4.1 4.0Mar-91 Mar-01 120 3.8 5.6Nov-01 Dec-07 73 3.0 2.8
81 4.4 5.9
Jun-09 >Apr-19 118 plus 2.1 1.33.0 2.5
Compound Annual Growth Rate (CAGR)
Average
Duration (months)
Over the last 12 mos
Source: National Bureau of Economic Research, BEA, FRB
U.S. Business Cycles since 1960
Weakest Post-World War II recovery
4ACT Research Co., LLC, Copyright 2019
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Main Street satisfactionAnxieties focus on Washington & Rest of World
• Business/consumer confidence• Job market• Corporate profits growth• Stocks• Credit standards and loan
availability still pretty good
• Trade negotiation risk• Europe possibly in recession plus Brexit• Federal Reserve rate increases, lagged impact• Flat yield curve• 2020 election cycle already underway• Crazy world global risk mix: UK, China, Turkey,
Syria, NKorea, Russia, Iran, Venezuela
Not-so-happyHappy
5ACT Research Co., LLC, Copyright 2019
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Our Favorite Leading Indicators
• Yield curve (long/short interest rate spread)• Purchasing Managers Index (US/NA)• Commodity prices• Stock market trends • Confidence surveys
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-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Perc
ent
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
10-Year Treasury Rate
90-Day T-Bill Rate
U.S. 10-Year Treasury Rates and 90-Day T-bills
7Source: U.S. Federal ReserveData through March 2019 ACT Research Co., LLC, Copyright 2019
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8
Short rates just under 2.50%
10 year yield at 2.38%
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0%
10%
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30%
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90%
100%
30
35
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45
50
55
60
6520
0020
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1120
1220
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1820
19
Index
50 =
Neutr
alISM Purchasing Managers’ Index -- Manufacturing
Source: ISM Manufacturing Report on BusinessMonthly data through March 2019
Below 50 = declining
Above 50 = growing
ACT Research Co., LLC, Copyright 2019
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
80
85
90
95
100
105
11019
9619
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0020
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1020
1120
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1720
1820
19
Inde
x (19
86 =
100)
NFIB Small Business Optimism Index
Source: NFIBMonthly data through February 2019
4 months of decline after 2
years of sustained high
(Fed Gov shutdown)
First big jump in November 2016
ACT Research Co., LLC, Copyright 2019 10
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102030405060708090
100110120130140150
90 92 94 96 98 00 02 04 06 08 10 12 14 14 1819
Inde
x, 19
85 =
100 (
SA)
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
Percent
Sources: U.S. Bureau of Labor Statistics and Conference BoardMonthly data through March 2019
Unemployment Rate(right scale, Inverted)
Conference BoardConsumerConfidence(left scale)
U.S. Consumer Confidence & Unemployment
11
March Confidence
coming back after Fed Govt
shutdown
ACT Research Co., LLC, Copyright 2019
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600800
10001200140016001800200022002400260028003000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Inde
x, 1
941-
43 =
100
, Lin
ear S
cale
60080010001200140016001800200022002400260028003000 Index, 1941-43 = 100, Linear Scale
Source: U.S. Federal ReserveData through March 29, 2019
12
S&P flirting with all-time highs after anxieties during Q4 retreat
U.S. Stock Market S & P 500
ACT Research Co., LLC, Copyright 2019
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Stock market as lead indicator
13ACT Research Co., LLC, Copyright 2018
Mark Hulbert, Wall Street Journal, March 4, 2018
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U.S. Industrial Production by NAICS sector
ACT Research Co., LLC, Copyright 2019 14
Rising tide is NOT lifting all sectors
Unusual disparity in industrial growth
US Industrial Sector Performance 2009 to date
NAICS code Sector
%Share of IP Output
Feb 2018 to Feb 2019
CAGR since June
2009Total (Mfg, Mining, Utilities) 100.0 3.9 1.7Manufacturing Total 74.4 2.5 1.4Nondurable manufacturing 34.5 0.4 0.5
311 Food 6.2 -0.3 1.5312 Beverage and tobacco product 1.9 -4.9 0.0313-4 Textiles and products 0.7 -1.5 -0.3315-6 Apparel and leather goods 0.2 -13.9 -4.8322 Paper 2.6 0.2 -0.1323 Printing and related support activities 1.5 -4.5 -0.6324 Petroleum and coal products 2.7 0.6 0.9325 Chemical 12.3 2.7 -0.4326 Plastics and rubber products 3.5 0.7 2.3
Durable manufacturing 39.9 3.8 2.3321 Wood product 1.2 -2.5 4.0327 Nonmetallic mineral product 2.1 -0.6 2.9331 Primary metal 2.3 5.2 0.2332 Fabricated metal product 5.6 4.4 1.3333 Machinery 5.9 6.6 0.7334 Computer and electronic product 5.9 5.0 4.4335 Electrical equipment, appliance, and components 2.0 1.8 1.33361-3 Motor vehicles and parts 5.8 1.6 6.53364-9 Aerospace and miscellaneous transportation eq. 4.6 7.2 1.4337 Furniture and related product 1.3 1.5 1.9339 Miscellaneous 3.2 2.5 -0.3
LEADER - bests class by 100+ bps
Rate of Change
LAGGARD - trails class by 100+ bps
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15Source: SteelBenchmarkerhttp://steelbenchmarker.com/files/history.pdf
SteelBenchmarkerHot Rolled Band at $783 per metric tonne, down from $1,000 peak last summer
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16Source: SteelBenchmarkerhttp://steelbenchmarker.com/files/history.pdf
SteelBenchmarkerCold Rolled Coil at $928 per metric tonne, down from $1,105 peak last summer
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17Source: SteelBenchmarkerhttp://steelbenchmarker.com/files/history.pdf
SteelBenchmarkerScrap prices in $370-400/gross ton range now, stable over 12-18 months
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Steel prices reflect Economics 101
• Demand: Slower growth• Supply: Adjusting to trade and tariffs, though
this can change with policy moves
ACT Research Co., LLC, Copyright 201918
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91011
1213141516
171819
95 97 99 01 03 05 07 09 11 13 15 17 19
Millio
ns of
units
- 3 M
onth
Mov A
vg(SA
AR)
91011
1213141516
171819
Sources: Ward’s Automotive and Motor IntelligenceSales data through March 2019
U.S. Light Vehicle Retail Sales
19
2015-2019 flat trend
17.0-17.5m SAAR
-----------Plateau just
like 1999- 2006
ACT Research Co., LLC, Copyright 2019
Mar 2019/Mar 2018 (1.1)CAGR since July 2009 5.4
Growth Rates %
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
40
45
50
55
60
65
7019
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
19
$Bil -
3 Mo M
ov Av
g (sea
s adj
annu
alized
rate)
Source: U.S. Census BureauData through January 2019
U.S. Non-defense Capital Goods (excluding aircraft)
Shipments
Orders
Capital goods activity may
be rolling over after 2+ year upswing
20ACT Research Co., LLC, Copyright 2019
4.31.6
Shipments Rates of ChangeLatest 12 month trendCAGR since June 2009
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.519
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
19
$Bil -
3 M
o M
ov A
vg (s
eas a
dj a
nnua
lized
rate
)
Source: Census M3 Industry ReportData through January 2019
U.S. Construction Equipment
Shipments
Orders
21
UP YEAR AHEAD
• Infrastructure
• Rental demand
• Aging current equipment stock
• Light comm’lconstruction
• Exports and slower housing sector are the big risks
ACT Research Co., LLC, Copyright 2019
3.41.0
Shipments Rates of ChangeLatest 12 month trendCAGR since June 2009
-
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1.01.21.41.61.82.02.22.42.62.83.03.2
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$Bil -
3 Mo
Mov
Avg
(sea
s adj
annu
alize
d ra
te)
Source: Census M3 Industry ReportData through January 2019
U.S. Material Handling Equipment
Shipments
OrdersUP YEAR AHEAD
• Warehouse, inventory, supply chain
• E-commerce
22
6.72.1
Shipments Rates of ChangeLatest 12 month trendCAGR since June 2009
ACT Research Co., LLC, Copyright 2019
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3.04.05.06.07.08.09.0
10.011.012.013.014.015.016.017.018.0
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Pric
es ($
/bus
hel)
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
Corn (right scale)
Soybeans(left scale)
Source: U.S. Department of Agriculture, Agricultural Prices http://www.nass.usda.gov/Data through February 2019
Corn, soybean, wheat prices
Wheat (left scale)
Ag commodity prices stable for 3+ years though well under early
decade highs
23ACT Research Co., LLC, Copyright 2019
http://www.nass.usda.gov/
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.6
1.0
1.4
1.8
2.2
2.6
3.0
3.4
3.8
4.219
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
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1620
1720
1820
19
$Bil -
3 M
o M
ov A
vg (s
eas a
dj a
nnua
lized
rate
)
Shipments
Source: U.S. Census BureauData through January 2019
U.S. Farm Machinery
24
RISKY YEAR AHEAD
• Row crop prices stable for now
• Inventories close to right sized
• Exports part of trade conflict collateral damage
GROWTH WITH RISK
• Crop prices stable
• Equipment stock aging
• Dec 2017 tax law changes should still benefit
• Exports still key though trade deals present risk
12.31.0
Shipments Rates of ChangeLatest 12 month trendCAGR since June 2009
ACT Research Co., LLC, Copyright 2019
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.519
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
19
$Bil -
3 M
o M
ov A
vg (s
eas a
dj an
nuali
zed
rate
)
Source: U.S. Census BureauData through January 2019
U.S. Industrial Equipment
Orders
Shipments
25
GOING NOWHERE FAST
• Slowing manufacturing sector
• Exports trending down
• Higher interest rates hurt3.4
1.0
Shipments Rates of ChangeLatest 12 month trendCAGR since June 2009
ACT Research Co., LLC, Copyright 2019
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
3.219
9419
9519
9619
9719
9819
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0020
0120
0220
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0420
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0620
0720
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1120
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1620
1720
1820
19
$Bil -
3 M
o M
ov A
vg (s
eas a
dj a
nnua
lized
rate
)
Ship-ments
Orders
Source: U.S. Census BureauData through January 2019
U.S. Mining, Oilfield, Gas Equipment
FLATTISH YEAR AT LOW LEVELS
• Recovery aborted by crude oil price volatility – down Q4, up Q1
• Ever-present fear of OPEC discipline breakdown, return to sub-$45/bblwhere we were 4 months ago
26ACT Research Co., LLC, Copyright 2019
(9.3)(5.0)
Shipments Rates of ChangeLatest 12 month trendCAGR since June 2009
-
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
5
10
15
20
25
30
35
40
45
50
5519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
19
Thou
sands
(SA, 3
mo m
ov av
g)
Build Actual &
Build Plan
Orders
Source: ACT Research; Orders and Build data through February 2019 Build Plan data through August 2019
NA Class 8 Trucks - Orders and Build
27
Class 8 orders falling
because 2019 build slots filled
ACT Research Co., LLC, Copyright 2019
Latest 12 month trend 22.3CAGR since June 2009 7.3
Class 8 Build Rates of Change
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
5
10
15
20
25
3020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Thou
sand
s (SA
, 3 m
o mov
avg)
Build Actual &Build Plan
Orders
Source: ACT Research; Orders and Build data through February 2019Build Plan data through August 2019
NA Class 5-7 Trucks, Buses, RVs - Orders and Build
28
Medium duty tied to
consumer, services,
construction –marked by
stability, slow growth
ACT Research Co., LLC, Copyright 2019
2.79.9
Latest 12 month trendCAGR since June 2009
Class 5-7 Build Rates of Change
-
Manufacturers’ Purchasing Managers Indexes
Source: Markit Economics 29
>54
Above Trend
51-54
Trend
45-51
Flat
54
Above Trend
51-54
Trend
45-51
Flat
-
European UnionIndustrial
ProductionY/Y growth
30
Year
-on-
Year
(YoY
) Gro
wth
Year
-on-
Year
(YoY
) Gro
wth Last 12 Months
5 Years
Source: Trading Economics https://tradingeconomics.com/european-union/industrial-productionData through January 2019
https://tradingeconomics.com/european-union/industrial-production
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ChinaIndustrial
ProductionY/Y growth
31
Year
-on-
Year
(YoY
) Gro
wth
Year
-on-
Year
(YoY
) Gro
wth
Last 12 Months
10 Years
Source: Trading Economics http://www.tradingeconomics.com/china/industrial-productionData through February 2019
http://www.tradingeconomics.com/china/industrial-production
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32
Year
-on-
Year
(YoY
) Gro
wth
Last 12 Months
10 Years
IndiaIndustrial
ProductionY/Y growth
Source: Trading Economics http://www.tradingeconomics.com/india/industrial-productionData through January 2019
Year
-on-
Year
(YoY
) Gro
wth
http://www.tradingeconomics.com/india/industrial-production
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U.S. Macroeconomic Outlook
33
2016 2017 2018 2019 2020Actual Actual Actual Forecast Forecast
Real GDP 1.6 2.2 2.9 2.0 1.9Consumer Spending 2.7 2.5 2.8 2.7 2.2Capital Spending 0.5 5.3 4.7 4.1 2.8 Equipment -1.5 6.1 4.8 3.1 2.2 Structures -5.0 4.6 5.6 5.5 1.2 Intellectual Property 7.5 4.6 3.9 5.0 4.0Residential Investment 6.5 3.3 1.8 0.0 0.7Government Consumption 1.4 -0.1 0.1 0.4 0.8Net Exports (2009 $B) -786 -859 -912 -1002 -1068Mfg Industrial Production -0.7 1.5 2.7 2.0 2.0Housing Starts (M) 1.18 1.21 1.24 1.26 1.29US Light Vehicle Sls (M) 17.5 17.1 17.2 16.5 16.1NA Lt Veh Production (M) 17.5 16.9 17.0 16.4 16.0Unemployment Rate (%) 4.9 4.4 3.9 3.7 3.8
90 Day Treasury Yield 0.3 0.9 1.9 2.4 2.410 Year Treasury Yield 1.8 2.3 2.9 2.8 2.7GDP Deflator 1.1 1.3 1.8 1.9 2.1
Percent Changes except where indicated Updated April 03, 2019
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2016 2017 2018 2019 2020Actual Actual Actual Fcst Fcst
NA Lt Veh Production (M) 17.5 16.9 16.8 16.3 16.0NA Cl 5-7 Truck Prod (K) 171 183 208 202 202NA Class 8 Truck Prod (K) 228 256 324 335 243US Farm Machinery Eq Shp -22.5 10.9 17.7 8 8US Construction Eq Shp -8.5 14.4 9.8 5 2US Mining & Oilfield Eq Shp -31.3 22.4 -0.3 0 0US Industrial Machinery Shp -0.4 1.2 0.7 0 -2US Metalworking Eq Shipmnts -4.6 5.5 3.4 3 0US Material Handling Shipmnts 1.8 4.1 8.5 7 6Housing Starts (M) 1.18 1.21 1.24 1.24 1.26Mfg. Capacity Utilization % 75.0 75.2 76.3 76.0 75.5Oil Prices (WTI $/bbl) 43.1 50.9 66.0 55 55
Percent Change (except where indicated)
N.A./U.S. Industrial Markets/Production Outlook
Updated: March 29, 2019ACT Research Co., LLC, Copyright 2019 34
Sheet1
20162017201820192020
ActualActualActualFcstFcst
NA Lt Veh Production (M)17.516.916.816.316.0
NA Cl 5-7 Truck Prod (K)171183208202202
NA Class 8 Truck Prod (K)228256324335243
US Farm Machinery Eq Shp-22.510.917.788
US Construction Eq Shp-8.514.49.852
US Mining & Oilfield Eq Shp-31.322.4-0.300
US Industrial Machinery Shp-0.41.20.70-2
US Metalworking Eq Shipmnts-4.65.53.430
US Material Handling Shipmnts1.84.18.576
Housing Starts (M)1.181.211.241.241.26
Mfg. Capacity Utilization %75.075.276.376.075.5
Oil Prices (WTI $/bbl)43.150.966.05555
Percent Change (except where indicated)
Sheet2
Sheet3
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Recession?Steps triggering a business cycle decline
1. Central bank increases interest rates2. Short term borrowing rates rise, matching or topping longer-
term borrowing rates3. Bank margin erosion forces rising credit standards4. Overextended sectors get hurt by credit squeeze5. Shock hits vulnerable economy hard (oil prices, housing, tech
sector correction, financial collapse)6. Recession ensues
ACT Research Co., LLC, Copyright 2019 35
-
36
Short rates just under 2.50%
10 year yield at 2.38%
USA Yield Curve
-
Source: Federal Reserve Board, January 2019 releasehttps://www.federalreserve.gov/data/documents/sloos-201901-charts.pdf
Problem?Not soMuch (yet)
37ACT Research Co., LLC, Copyright 2019
Fed survey shows credit still pretty easy(in contrast to recessions, circled below)
https://www.federalreserve.gov/data/documents/sloos-201901-charts.pdf
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Recession checklist
ACT Research Co., LLC, Copyright 2019
Checklist Checkthe box
Central bank begins a series of interest rate increases (1988, 1994, 1999, 2004, 2015)
Yield curve flat
Banks raise credit standards
Overextended sectors pinched by credit squeeze
Shock hits vulnerable, overextended sectors hard (Gulf War 1990; Tech Meltdown 2001; housing, oil, IB’s 2008)
Recession ensues
38
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• Danger signals for the economy
– Trump administration trade policy– Federal Reserve Board starts hiking rates again
Policy rate goes above 10 Year Treasury – “inverted yield curve”– Stock market nosedive – a new 15-20% dropoff– Banks tighten credit standards– Sudden change in oil prices – (mainly upward)– Imbalances, overheating, “irrational exuberance”
• Housing in 2005• Tech sector in 1999-2000
ACT Research Co., LLC, Copyright 201939
When does the expansion come to an end?
-
Wrap-up and Summary
• Expansion – long duration but slow growth• Main street is OK – problems in Beltway, rest of world• 2019 – feels 2018 tailwinds, but a diminishing force• Watch stock market and bank credit closely
…. used equipment market & prices too• BIG IF – if we dodge 2020 recession (30% chance)
…. expansion can go to 2023 or 2024Grading the years: 2018 gets an “A”
2019 can score a B+, 2020 should be a B- but with some risk
Updated: April 05, 201940ACT Research Co., LLC, Copyright 2019
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ACT Research Company, LLC4440 Middle Road
Columbus, IN 47203
Phone: (812) 379-2085Fax: (812) 378-5997
Email: [email protected]
U.S. Economy and Business Outlook:�Can it Take a Licking and Keep on Ticking?Who is ACT Research?Why we’re happy and worried at the same time…U.S. Business Cycles since 1960Main Street satisfaction�Anxieties focus on Washington & Rest of WorldOur Favorite Leading IndicatorsSlide Number 7Slide Number 8ISM Purchasing Managers’ Index -- ManufacturingNFIB Small Business Optimism IndexSlide Number 11Slide Number 12Stock market as lead indicatorU.S. Industrial Production by NAICS sectorSlide Number 15Slide Number 16Slide Number 17Steel prices reflect Economics 101Slide Number 19U.S. Non-defense Capital Goods (excluding aircraft)U.S. Construction EquipmentU.S. Material Handling EquipmentCorn, soybean, wheat pricesU.S. Farm MachineryU.S. Industrial EquipmentU.S. Mining, Oilfield, Gas EquipmentNA Class 8 Trucks - Orders and BuildNA Class 5-7 Trucks, Buses, RVs - Orders and BuildSlide Number 29European Union�Industrial Production�Y/Y growth�China�Industrial Production�Y/Y growth� U.S. Macroeconomic Outlook N.A./U.S. Industrial Markets/Production OutlookRecession?�Steps triggering a business cycle declineSlide Number 36Slide Number 37Recession checklist�When does the expansion come to an end?Wrap-up and Summary �ACT Research Company, LLC�4440 Middle Road�Columbus, IN 47203��Phone: (812) 379-2085�Fax: (812) 378-5997�Email: [email protected]�www.actresearch.net� � � � �