Economic Outlook: The 2020-2023 Business Cycle

Presented by

Brian Beaulieu

Monday, May 6

1:30 p.m. – 2:30 p.m.

Sponsored by

1

The 2020-2023 Business Cycle

BRIAN BEAULIEUCEO & CHIEF ECONOMIST

First in Forecasts Since 1948

ITR Economics provides the best economic intelligence to reducerisk and drive practical and profitable business decisions.

2018 Forecast ResultsIf you heard ITR around two years prior… 2

Duration Accuracy

US GDP 24 99.9%

US Ind. Production  34 99.4%

Europe Ind. Production  24 99.2%

Canada Ind. Production  27 97.1%

China Ind. Production 30 99.9%

Retail Sales  28 99.6%

Housing (Single Family Units) 26 99.2%

Employment (Private Sector) 30 99.4%

2

First in Forecasts Since 1948

3-Month Moving Average 3/12 Rate-of-ChangeQuarter-over-Quarter Growth Rate

• . • Phase: • Quarter-over-Quarter:

2019:

2020:

2021:

ITROutlook

US Economy Stalls in 2019 and Into 2020US Gross Domestic Product, SAAR, Chained 2012 $

US Gross Domestic Product

$18.8 trillionB

3.0%

0.9%

1.8%

1.3%

Source: BEA

12

14

16

18

20

12

14

16

18

20

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

2006 2008 2010 2012 2014 2016 2018 2020 2022 20242019: 0.9%2020: 1.8%2021: 1.3%2022: -1.1%2023: 2.1%

First in Forecasts Since 1948

Manage the Business Cycles to Maximize ProfitsUS Industrial Production to Gross Domestic Product

-6.9%

-2.9%-5.2%

-15.5%

3.2%

-16

-12

-8

-4

0

4

8

12

-16

-12

-8

-4

0

4

8

12

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

GDPUS IP

GDP

US IP

Sources: FRB, BEAYear-over-Year, Quarter-to-Quarter (3/12)

3

First in Forecasts Since 1948

Availability is a Huge AdvantageWorld Natural Gas Production by Region

Source: IEABillion Cubic Meters

Producers bcm

% of World Total

United States 760 20.2

Russia 694 18.4

Iran 214 5.7

Canada 184 4.9

Qatar 169 4.5

China 142 3.8

Norway 128 3.4

Australia 105 2.8

Algeria 94 2.5

Saudi Arabia 94 2.5

Rest of World 1,184 31.3

World 3,768 100

First in Forecasts Since 1948

Freed Up Money Likely Not going to CapexUS Corporate Tax Rate and Gross Business Investment

0%

10%

20%

30%

40%

50%

60%

70%

0%

10%

20%

30%

40%

50%

60%

70%

'60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 '20

Corporate Tax Rate %

Gross Business Investment (% of GDP)

Linear (Gross Business Investment (% of GDP))

Sources: Tax Policy Center, FREDPercent

6

4

First in Forecasts Since 1948

Global Issues• Business Cycle

• Tariffs

First in Forecasts Since 1948

Trade Stress Becomes Acute on the Downside of the CycleWorld 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

Fair Trade

Competition

5

First in Forecasts Since 1948

Brands That Have or Will Be Increasing Prices Due to Tariffs

Source: Business Insider, “These popular brands say Trump's tariffs will force them to raise prices”

TOYOTAWHIRLPOOLCOCA-COLAWINNEBAGOMILLER COORSSAMUEL ADAMSCAMPBELL SOUPLG ELECTRONICSGENERAL MOTORSKLEENEX & HUGGIESPOLARIS INDUSTRIESNEWELL BRANDS (Crock-pot, Rubbermaid, Yankee Candle, & Sharpie)

“I can't just go to the shareholders and say, 'You're just going to have to accept my profit's going to be $40 million less. It doesn't work that way…”

- Gavin Hattersley, CEO MillerCoors

First in Forecasts Since 1948

Neighbors, Trade Partners, Economically LinkedUS Industrial Production Index to Canada Industrial Production

2.4%

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Canada IPUS IP

US

Canada

Source: FRB, Statistics Canada

12/12 Rates-of-Change

6

First in Forecasts Since 1948

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

'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

Production C$ - 12/12

Production C$ Forecast - 12/12

Indicator - Monthly

IndicatorProduction C$

ITR Leading Indicator Works for CanadaCanada Industrial Production to ITR Leading Indicator

Sources: Statistics Canada, ITR EconomicsRates-of-Change

Monthly

12/12

First in Forecasts Since 1948

Mexico Manufacturing Holding Up Well for NowMexico Manufacturing Production Index

114.0

70

80

90

100

110

120

70

80

90

100

110

120

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

12MMA

3MMA

Source: Mexico National Institute of Statistics and GeographyData Trends, 2013 = 100

L.I Improving

3/12 1.1% C

12/12 1.7% Flt

7

First in Forecasts Since 1948

Financial Indicators

Back to the USA

First in Forecasts Since 1948

10

100

1000

10000

10

100

1000

10000

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Raw

12MMA

Perilous Height Is Not the Issue S&P500 Stock Prices Index

Source: Wall Street JournalData Trends

8

First in Forecasts Since 1948

TSX is Leading Canada’s General EconomyCanada Industrial Production to Canada Stock Price TSX Composite Index

-60

-40

-20

0

20

40

60

-15

-10

-5

0

5

10

15

'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

Production C$ - 12/12

Production C$ Forecast - 12/12

Stock Price - 3/12

Stock PriceProduction C$

3/12

12/12

Sources: Statistics Canada, The EconomistRates-of-Change

First in Forecasts Since 1948

US Mortgage Rate Will Be Heading Higher After this CycleUS 30-Year Mortgage Rate

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Source: Wall Street Journal30-Year, Percent

9

First in Forecasts Since 1948

Leading Indicators

First in Forecasts Since 1948

ITR’s Leading Indicator™ Says Problems AheadUS Industrial Production to ITR Leading Indicator™

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

IndicatorUS IP

Indicator - Monthly

US IP - 12/12

Sources: FRB, ITR EconomicsUSIP – 12/12 Indicator - Monthly

Reported in ITR Trends Report – ITR Advisor

10

First in Forecasts Since 1948

Leading Indicator System is a Powerful ToolUS Industrial Production Index to Leading Indicators

-60

-40

-20

0

20

40

60

-15

-10

-5

0

5

10

15

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

US IP - 12/12US IP ForecastG7 Indicator - 1/12PMI - 1/12Wilshire Market Cap - 3/12JP Morgan Indicator - 3/12

PMI, Wilshire, G7US IP, JP Morgan

Sources: FRB, OECD, ISM, Yahoo Finance, IHS MarkitRates-of-Change

First in Forecasts Since 1948

Copper is Also Signaling a Slowdown in SpendingUS Copper Futures Prices to

US Nondefense Capital Goods New Orders(excluding aircraft)

-4.0%

5.3%

-30

-20

-10

0

10

20

-150

-100

-50

0

50

100

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Capital GoodsCopper

Copper Futures Prices

Capital Goods

Sources: WSJ, Census Bureau12/12 Rates-of-Change

11

First in Forecasts Since 1948

Searching for a RecessionITR Retail Sales Leading Indicator to US Retail Sales’ 12/12

Sources: Google, US Census BureauRates-of-Change (Search Interest has a 16 month lead time)

-24

6

36

66

96

126-12

-8

-4

0

4

8

'06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Retail Sales

Retail Sales - 12/12

Search Interest - 3/12

3/12

12/12

Search Interest

First in Forecasts Since 1948

Industry Drivers

Photo by ELEVATE from Pexels

12

First in Forecasts Since 1948

Slowing Rise IndicatedUS Warehouse Buildings Construction

4.6%

11.3%

$34.1

0

10

20

30

40

50

60

-160

-120

-80

-40

0

40

80

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/12 12/12

3MMT 12MMT

Source: Census BureauBillions of Dollars

First in Forecasts Since 1948

General Weakness Through 2019North America Light Vehicle Production

-1.2%-0.4%

16.9

5

10

15

20

25

30

35

-120

-90

-60

-30

0

30

60

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/1212/12

3MMT

12MMT

Source: Wards AutoMillions of Units

13

First in Forecasts Since 1948

Slowdown But No BreakdownUS Food and Beverage Stores Retail Sales

1.4%2.6%

745.0

400

500

600

700

800

900

1000

-12

-9

-6

-3

0

3

6

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMTR-O-C

3/12 12/12

3MMT12MMT

Source: Census BureauBillions of Dollars

First in Forecasts Since 1948

Good Long-Term FundamentalsUS Chemicals & Products Production Index

2.6%3.7%

101.1

70

90

110

130

150

170

-40

-30

-20

-10

0

10

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMAR-O-C

3MMA12/12

12MMA

3/12

Source: FRB2012 = 100

14

First in Forecasts Since 1948

Utilization Providing a Negative SignalUS Material Handling Equipment New Orders to US Manufacturing Capacity Utilization

8.7%0.2%

-20

-10

0

10

20

-50

-25

0

25

50

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Capacity Util.New Orders

New Orders 12/12

Capacity Util. 1/12

1/12

12/12

Source: US Census Bureau, FRBRates-of-Change

First in Forecasts Since 1948

Dragged Down by Weakness in the Automotive MarketNorth America Value of Robotics Shipments

Source: Robotic Industries AssociationBillions of Dollars

-24.3%-11.1%

$1.7 bils

0.2

1.2

2.2

3.2

4.2

5.2

-150

-100

-50

0

50

100

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

MMTR-O-C

3/12 12/12

3MMT 12MMT

15

First in Forecasts Since 1948

The Long ViewProsperity in the Age of Decline

First in Forecasts Since 1948

A Model for the FutureUS Industrial Production Index

2

4

6

8

10

12

2

4

6

8

10

12

'20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36 '37 '38 '39 '40

12MMA3MMA

12MMA

3MMA

Great Depression

Roaring 20s (3 recessions)

Source: FRBData Trends

16

First in Forecasts Since 1948

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