january 2017 published quarterly by itr economics...
TRANSCRIPT
![Page 1: JANUARY 2017 Published Quarterly by ITR Economics ...files.constantcontact.com/65566436be/4cb88474-69be-4f49-8201-5b2d72ef... · Production in 2016 was down 0.1% compared to the 2015](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb70f90746fe02304399ff/html5/thumbnails/1.jpg)
MACROECONOMIC OUTLOOK
VOLUME 1
Steep RiseFlat
Mild Decline
Mild RiseSteep Decline
JANUARY 2017 Published Quarterly by ITR EconomicsTM
Average US Industrial Production, a benchmark for the US economy, during 2016 was down 1.0% compared to the 2015 level. US Industrial Production is in recovery and Production levels are currently rising. Of the three components of US Industrial Production (Manufacturing, Mining, and Utilities), only US Total Manufacturing avoided recession, with most of the weakness in Industrial Production concentrated in the Mining and Utilities components. The industrial side of the economy was subdued for a majority of 2016, but leading indicators, such as the ITR Leading IndicatorTM and the US Total Industry Capacity Utilization Rate, suggest that the US industrial economy will grow through the majority of 2017.
The recessions in the Mining and Utilities components of US Industrial Production were driven primarily by the 2015 collapse in commodity prices, as most major commodity prices, including oil, steel, and copper, began to slide. Moving into 2017, many of these commodity prices are rising, which is helping support rising levels of Mining Production. The appreciation in prices, particularly oil, has made the process of mining for these commodities profitable once again, leading businesses to increase mining production. In order for the rise in commodity prices and Mining Production to be sustained, global economic activity must increase to work through the current oversupply. Appreciation in commodity prices is also pushing up on Utilities Production, as energy becomes more expensive and profitable to produce and distribute. Recovery in Mining Production and Utilities Production is contributing to the rising levels of US Total Industrial Production.
While the industrial economy has been lagging, the US consumer has been the backbone of the economy and driving economic growth. The labor market is tightening, with jobless claims declining and the Unemployment Rate falling to 4.5% in December, as Private Sector Employment and wages are rising. Wage Growth is also outpacing inflation, which is leading to rising levels of US Disposable Personal Income and giving US consumers greater purchasing power. Consumers are also showing their willingness to spend as the US Personal Savings as a Percentage of Disposable Personal Income in November was the lowest since March 2015. This bodes well for businesses that are related to consumer spending in 2017.
SNAP SHOT INDICATORSArrow Denotes Cyclical Movement
Retail Sales
Manufacturing
Medical
Auto Production
Wholesale Trade
Interest Rates
Capital Goods
Electronics
ITR Leading Indicator
Housing Starts
Consumer ExpectationsTotal Industry
Capacity Utilization
RateUS Leading
IndicatorPurchasing Managers
IndexS&P 500 Stock
Prices
© 2017 ITR Economics™ - 603.796.2500 - www.itreconomics.com - All Rights Reserved
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MAKE YOUR MOVETM
Invest in customer research to find out what your customers value most, in order to meet their needs and increase your market share during a period of economic expansion. Ensure high customer service standards to gain an advantage over
competitors.
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Retail Sales Wholesale TradeUS Total Retail Sales (deflated) during the 12 months through December rose to a total of $2.3 trillion, up 2.0% from the year-ago level. Rising Crude Oil Prices are pushing Retail Sales at Gasoline Stations higher. This bodes well for US Total Retail Sales in 2017, as Gasoline Station Retail Sales was an area of weakness since the collapse in Crude Oil Prices.
US Total Wholesale Trade during the 12 months through November was down 0.9% compared to the year-ago level. The US Wholesale Trade of Lumber and Other Construction Materials is in an accelerating growth trend, as is US Whole-sale Trade of Professional and Commercial Equipment and Supplies, indicating these may be areas for growth in early 2017.
ManufacturingAverage Manufacturing Production during 2016 rose 0.3% compared to the previous year. The US Purchasing Managers Index, which leads Manufacturing Production by 12 months, has been in cyclical rise since late 2015. This indicates that Manufacturing Production will accelerate in 2017.
The decision by the US Federal Reserve to raise benchmark interest rates pushed up US Short-Term Interest Rates in December, jumping 149 basis points. The yields on 10-Year Government Bonds reached their highest level since Sep-tember 2014, indicating that borrowing costs are rising. This is corroborated by the rise seen in Mortgage Rates, which rose for five straight months through December.
Interest Rates
MedicalAverage US Medical Equipment and Supplies Production during the 12 months through December is up 5.9% from the year-ago level. US Personal Consumption Expenditures for Medical Laboratories, which typically lead Production by 12 months, has been in cyclical decline since early 2016. This suggests Production growth will slow imminently and signals deceleration will persist into late 2017.
Capital Goods New OrdersAnnual US Nondefense Capital Goods New Orders (excluding aircraft) during the 12 months through November totaled $758.2 billion, down 4.0% compared to the year-ago level. US Corporate Profits in the three months through September rose 2.1% from the same period in the previous year. This bodes well for New Orders, as it suggests companies will have the necessary funds to invest in capital.
LONG-TERMVIEW2017: Accelerating Growth
2018: Slower Growth
2019: Mild Recession
US Chemicals & Chemical Products ProductionAverage US Chemicals and Chemical Products Production in 2016 was down 0.1% compared to the 2015 level. Activity in US Inorganic Chem-icals Production in 2016 is down 0.7% from the 2015 level, while US Organic Chemicals Produc-tion during 2016 declined 0.5% compared to the 2015 level. Look to the Inorganic Chemical mar-ket in early 2017, as the downturn is expected to be milder.
Canada Industrial ProductionAverage annual Canada Industrial Production rose through October, but is down 1.3% from the year-ago level. Canada Nondurable Goods New Orders, a four-month leading indicator, was in an accelerating growth trend through October, suggesting the rising trend in Production will persist in early 2017. The rise in Oil Prices will also support rise in Production in early 2017.
SNAPSHOT INDICATORS
INDUSTRY ANALYSIS
Indicator What it means for the US economy
ITR Leading Indicator™(Actual)
Housing Starts (Most recent 12 months compared to same 12 months one year ago)
Consumer Expectations Index (Most recent 12 months compared to same 12 months one year ago)
US Total Industry Capacity Utilization Rate(Most recent month compared to same month one year ago)
US Leading Indicator (Most recent month compared to same month one year ago)
Purchasing Managers Index(Most recent month compared to same month one year ago)
S&P 500 Stock Prices(Raw Data)
Direction
RiseThe indicator rose for the 11th month and signals expansion in the US
economy through 2017.
Mild DeclineA stronger housing market will benefit the US industrial economy in
2017, particularly the latter half of the year.
RiseThe S&P 500 rose to a record-high level, a good health check of
market activity, supporting rise in the first half of 2017 for the US economy.
Mild RiseConsumer Expectations rose in December. This may bode well for
Retail Sales in the second half of 2017 as the consumer is more optimistic.
RiseGeneral rise in the Index suggests there will be ongoing recovery for
the US industrial economy.
RiseThe Utilization Rate rose in December, signaling economic expansion
for the US economy in 2017.
Mild RiseThe Indicator is above the previous low and suggests expansion for
the US economy in 2017.
JANUARY 2017© 2017 ITR Economics™ - 603.796.2500 - www.itreconomics.com - All Rights Reservedpage 2
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By: Alex Chausovsky
Adopt or perish. This is the mindset that businesses of all sizes must embrace to thrive in today’s global and increasingly-digital marketplace, where more transactions are taking place online rather than through traditional sales channels. In what is clearly one of the most significant and transformative trends to affect the world of business today, US E-Commerce Retail Sales reached a record high $379.5 billion during the 12 months ending in September, up 15.6% on a year-over-year basis. This was the fastest pace of growth in nearly four years, reaffirming the fact that online sales are the future of commerce.
On the losing side of this trend are sales at traditional venues, represented by Retail Sales at General Merchandise Stores. Sales in this category for the past 12 months declined to a nearly two-year low of $668.3 billion, representing a contraction of 0.8% versus the year-ago level. The contrast is stark, yet some of the biggest brands in the world are realizing the importance of e-commerce to their business, and their very survival, too late in the game. According to a recent analysis by Yahoo Finance, many brick and mortar retailers have lost significant portions of their market value since 2006. The value of several well-known and respected brands, such as Best Buy, JCPenney, Kohl’s, and Sears, is down by more than 49% over the last 10 years (table 1). The clear winner of these developments is Amazon, whose market value rose by 1,910% in that time, from $17.5 billion in 2006 to more than $350.0 billion today.
Furthermore, Amazon once again dominated the 2016 holiday season. According to new data from Slice Intelligence, which scanned more than 1 million digital shopping receipts, Amazon captured 38% of online sales from November 1 to December 29, dwarfing the combined market share of Best Buy, Target, Walmart, Macy’s, Nordstrom, Kohl’s, Home Depot, and many others (table 2). Although some of these industry stalwarts were able to realize small gains in market share relative to their 2015 positions, such as Best Buy (up to 3.9% in 2016 from 3.5% in 2015), others like Walmart actually moved in the wrong direction (down to 2.6% in 2016 from 2.8% in 2015).
All of these developments point to an important fundamental truth: no matter your company’s size or industry, business leaders must have a comprehensive e-commerce strategy. It should include plans to invest time, money, and people in order to aggressively grow your enterprise’s online presence as a complement to its existing physical operation. Only a few years ago, e-commerce was in direct competition with traditional sales channels. Decision makers must understand that this often problematic relationship is now fundamentally changing. Today, an intelligent e-commerce platform enables organizations to not only build an additional digital sales channel, but it creates a powerful tool for the digitalization of their entire sales strategy. This transformation is not optional, but rather imperative to the future success and survival of your organization in the new, e-commerce driven world.
Adopt or Perish – The Importance of E-Commerce to the Future of Your Business
JANUARY 2017© 2017 ITR Economics™ - 603.796.2500 - www.itreconomics.com - All Rights Reservedpage 3
0.9%
1.1%
1.6%
2.3%
2.4%
2.4%
2.6%
2.7%
3.9%
38.0%
1.0%
1.0%
1.6%
2.6%
1.7%
2.5%
2.8%
2.6%
3.5%
37.9%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
J.Crew
Home Depot
Kohl's
Nordstrom
Apple
Macy's
Walmart
Target
Best Buy
Amazon
% of online revenue during holiday season
Amazon dominated the holiday season again in 2016
2015
2016
Item % Change
Amazon $17.5B $351.8B 1910%Source: Yahoo Finance
*Peak Market Value 2006
$18.1B $3.0B
$24.2B $13.0B
$27.8B $1.3B
$214.0B $219.3B
Target $51.3B $43.8B -15%
Walmart 2%
Nordstrom $12.4B $9.8B -21%
Sears -95%
Kohl's $24.2B $9.9B -59%
Macy's -46%
-49%
JCPenney -83%
$28.4B $14.5B
Market Value 2006 Market Value TodayBrick & Mortar Retailer Market Value (2006* VS. Today)
Best Buy
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READER’S FORUM
What’s your take on retailers, especially sporting goods establishments? With the failure of Sports Authority, Sports Chalet, and others, is this 2008 all over again for retailers?
It is only like 2008 for those who do not sell through a strong e-commerce platform for consumers. An absence of an online presence, along with the lack of a strong brand, will lead to retailers finding themselves rolled up or out of business. Sporting Goods Retail Sales themselves are doing fine.
Please send questions to [email protected]
Brian Beaulieu, CEO at ITR Economics™, answers:
-31.6% 96.5%
% Deviation from US Average
STATE-BY-STATE: US Average Home Prices
• US Average Home prices in 2016 rose 4.8% above the 2015 level.• The majority of the below-average Home Prices lie in the Great Lakes, Northeast, and Southeast regions, with the
exception of Massachusetts and Florida. • US New Homes Sold greater than $300k is the fastest growing housing segment and will be an area of opportunity in
2017.
page 4 JANUARY 2017© 2017 ITR Economics™ - 603.796.2500 - www.itreconomics.com - All Rights Reserved
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JANUARY 2017page 5
US Material Handling Equipment New Orders during the 12 months through November totaled $36.5 billion, up 9.7% from the November 2015 level. The pace of rise is mildly easing, but the level of New Orders will rise through 2017. Decline will then take hold through mid-2019 before mild rise resumes at the end of the year.
Upward momentum expected in US Private Manufacturing Buildings Construction into early 2019 suggests that New Orders will rise into early 2018. As new buildings are constructed and existing ones are renovated, demand for Material Handling Equipment will increase. General deceleration in US Warehouse Construction expected through 2019 signals cyclical decline in New Orders through at least 2018 is likely as less equipment will be needed to outfit new warehouses.
US Material Handling Equipment New Orders
Canada Industrial Production
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US Material Handling New Orders 12 Month Moving Total
Average Canada Industrial Production during the 12 months through October is down 1.3% from the year-ago level. However, Production activity is rising from an August 2016 low and accelerating rise is expected to charac-terize 2017.
Rising Oil Prices will contribute to upward momentum for Canada Industrial Production this year, as the Canadi-an economy is largely dependent on oil production. Canada typically moves in tandem with the US economy due to its strong economic ties. Expect stronger economies in both the US and Canada in 2017 relative to the 2016 level.
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Canada Industrial Production 12 Month Moving Average
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Canada Industrial Production 12/12 Rate-of-Change
© 2017 ITR Economics™ - 603.796.2500 - www.itreconomics.com - All Rights Reserved
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JANUARY 2017page 6
US Total Light Vehicle Production during the 12 months through December totaled 12.0 million units, up 1.5% compared to the 2015 level. The pace of growth is easing, but a tentative transition to an accelerating growth trend occurred in November.
US Light Vehicle Retail Sales are growing at a slower rate. However, internal trends indicate a transition to accel-erating growth is imminent. If this transition comes to fruition, rising Retail Sales will drive growth in Production. There will be a higher demand for light vehicles which will necessitate an increase in Production to keep pace.
US Automotive Industry
US Food & Beverage Industry
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US Automotive Industry 12 Month Moving Total
US Food and Beverage Stores Retail Sales during 2016 totaled $706.9 billion, rising 2.4% compared to the 2015 level. Rise in Retail Sales is supported by expansion in US Food Production, up 1.9% year-over-year. Although, MHEDA members should be aware that particular components of Food Production are outperforming others. US Snack Food Production is an area of opportunity, up 7.5% year-over-year.
Average US Coffee and Tea Production in 2016 rose 8.3% over the year-ago level. This accelerating growth is driving growth in the overall beverage industry. US Food and Beverage Stores Retail Sales will expand in 2017 due to a strong consumer. Look to take advantage of the growth by aligning yourself with this market.
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US Automotive Industry 12/12 Rate-of-Change
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US Food and Beverage Industry 12 Month Moving Average
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US Food and Beverage Industry 12/12 Rate-of-Change
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