projecting when business cycles will change
DESCRIPTION
TRANSCRIPT
March 2006
“Projecting When Business Cycles Will Change”Presented By:
The Institute for Trend Research
Brian Beaulieu
www.ecotrends.org
2US Industrial Production IndexForecast Through December 2008
Annual Average Index
50
60
70
80
90
100
110
120
130
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
50
60
70
80
90
100
110
120
130
Source: ITR’s EcoTrendsTM
Here todayTipping Points- Hard Landing – 2009-2010
Debt
Interest Rates
Demographics
Inflation
Inventories
China – WTO
Elections
Oil
Home Prices
3
US Industrial Production to Textiles ProductionAnnual Average Indices
50
60
70
80
90
100
110
120
130
'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
US IP
85
91
97
103
109
115
121
127
133
Textiles
4
Industry % Change ’95 to ’05 NAICSSemiconductors & related equipment 2556.9 3344
Computers & related equipment 393.8 3341
Medical equipment/supplies 70.2 3391
Ships 47.6 336611
Turbines 46.9 333611
Mining equipment 35.3 33313
Medium & Heavy duty trucks 34.4 336112 & 336120
Motor vehicle parts 34.2 3363
Railroad rolling stock 32.7 3365
Appliances (excluding electronics) 32.2 332510
Commercial aircraft 30.5 336411
Chemicals 21.6 325
Farm equipment 19.8 333111
General purpose equipment 10.3 3339
N.A. Light vehicles 5.6 33611
Metalworking machinery -1.9 3335
Paper & paper products -8.2 322
Electrical industrial apparatus -10 3353
Apparel -49.8 315
5US Industrial Production to Oil & Gas Extraction Production
Annual Data Trends
50
60
70
80
90
100
110
120
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
US IP
85
90
95
100
105
110
115
120Oil
US IP
Oil Production
6
Upside Signals Negative Signals
New Orders
Commodity Prices
Purchasing Managers Index
Stock Prices
Retail Sales
Housing Starts
Inventories
US Leading Indicator
ITR Leading Indicator
China
Money Supply
Current account deficit
High Energy Costs
Interest Rates (mild rise)
7Exports by Nation
Percentage of Total World Exports of Goods and Services
Source: IMF
10.1
5.9
4.8 4.7
3.83.4
9.4
5.7
0
2
4
6
8
10
12
US Germany China Japan France UK Italy Canada
0
2
4
6
8
10
12
8
China Today and TomorrowChina Today and Tomorrow(Aka The Dirty Dozen)(Aka The Dirty Dozen)
1. Social Costs vs. Infrastructure
2. Skilled Labor
3. Raw Materials
4. $5 fresh capital to $1 incremental output
5. Relational Government
6. FDI – SARS – No Guarantees
7. Banking System
8. Negative Demographics
9. Floating the Yuan
10. Global Competitiveness
11. WTO EU denied China Market Status
12. Pollution 7 of the 10 most polluted cities
9
Employment – Civilian Labor ForceAnnual Data Trend
90
100
110
120
130
140
150
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
90
100
110
120
130
140
150
Employment Mils of Jobs
July '01
Jun '02
10
25
30
35
40
45
50
55
60
65
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
25
30
35
40
45
50
55
60
65Services
Goods
GOODS & SERVICES AS A PERCENT OF GDP (real) w/o structures
Example: Revenue 12MMT
Mar
Apr
May
JuneJul
AugSep
OctNovDec
Jan
FebMar
05
05
05
0505
0505
050505
06
0606
1.47
1.51
1.65
1.751.76
1.64
1.71
1.741.541.44
1.241.26
1.74
12MMT:
3MMT = 4.63
3MMT = 5.14
3MMT = 4.98
3MMT = 4.223MMT = 3.95
3MMT = 4.24
12MMT = 17.54
12MMT = 18.5412MMT = 18.70
12MMT = 18.97 8.2%
12
ANNUAL MOVING TOTAL (12MMT) AS OF 2/06ANNUAL MOVING TOTAL (12MMT) AS OF 2/05
= 1/12
3-MOS MOVING TOTAL (3MMT) AS OF 2/063-MOS MOVING TOTAL (3MMT) AS OF 2/05 = 3/12
= 12/12
ACTUAL MONTHLY DATA AS OF 2/06ACTUAL MONTHLY DATA AS OF 2/05
RATE-OF-CHANGE
13US Total Industrial Production
12/12 Rate-of-Change
70
80
90
100
110
120
130
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
70
80
90
100
110
120
130
Source: ITR’s EcoTrendsTM
14Company L to US Industrial Production
12/12 Rates-of-Change
80
85
90
95
100
105
110
115
120
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Sales
88
91
94
97
100
103
106
109
112Index
Sales
US Production
15
US Industrial Production to Canadian Industrial Production12/12 Rates-of-Change
91
94
97
100
103
106
109
112
115
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
91
94
97
100
103
106
109
112
115
Canada
U.S.
16
85
90
95
100
105
110
115
120
125
130
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
85
90
95
100
105
110
115
120
125
130
US IP
Japan IP
US Industrial Production to Japan Industrial Production12/12 Rates-of-Change
Source: ITR’s EcoTrendsTM
17
US Industrial Production to China Industrial Production12/12 Rates-of-Change
94
97
100
103
106
109
112
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
US IP
90
95
100
105
110
115
120China
US IP
China IP
18
China Cutting Machine Tools to China Industrial Production Index12/12 Rates-of-Change
50
100
150
200
'02 '04 '06 '08
Metal
105
110
115
120
China IP
China Metal China IP
19
92
96
100
104
108
112
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
US IP
88
94
100
106
112
118Asia
US IP
Asia Industrial Production
US Industrial Production to Asia Industrial Production12/12 Rates-of-Change
20
India Industrial Production Index to India Machinery & Equipment excluding Transport Production Index
Rates-of-Change
95
100
105
110
115
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
India IP
90
100
110
120
130
Machinery
India IP
Machinery
21US to Europe Industrial Production
Annual Average Data Trends
40
60
80
100
120
1975 1980 1985 1990 1995 2000 2005 2010
US
60
80
100
120
140Europe
US
Europe
Source: ITR’s EcoTrendsTM
22
Indicator Sequence
Phase A Phase B Phase C Phase D
Leading Indicators
CoincidentIndicatorsLagging
Indicators
23
Phase A Phase B Phase C Phase DPhase A
A A
Phase A Phase B
A
B
A
B
Phase A Phase B Phase C
A
B C
A
B C
Phase A Phase B Phase C Phase D
A
B C
D A
B C
D
Four Phases
24
Phase Management ObjectivesTM :
1. Start to phase out marginal opportunities
2. Build inventories in the system
3. Continue placing capital equipment orders
4. Hire "top" people
5. Implement training programs
6. Add sales staff
7. Introduce new product lines
8. Begin advertising and sales promotions
9. Implement plans for facilities' expansion
10. Update standard costs
Phase Late A - Recovery:Phase Late A - Recovery:
25Phase Management ObjectivesTM :
1. Accelerate training
2. Continue to build inventory
3. Increase prices
4. Find the answers to “what next”
5. Consider outside manufacturing sources if internal resources becoming tight
6. Check the process flow for possible future bottlenecks
7. Open distribution centers
8. Use improved cash flow for corporate governance.
Phase Early B - Growth:Phase Early B - Growth:
26
Phase Management ObjectivesTM :
1. Stay in stock
2. Penetrate new OEM accounts
3. Develop plan for lower activity in traditional, mature markets
4. Begin missionary efforts into new markets
5. Consider taking on subcontract work if the backside of the cycle looks recessionary
6. Freeze all expansion plans in current corebusiness units
7. Spin off undesirable operations
8. Stay realistic – beware linear budgets
9. Consider selling the business in a climate of maximum “goodwill”
Phase Late B Early C - Prosperity:Phase Late B Early C - Prosperity:
27
Phase Management ObjectivesTM :
1. Begin work force reductions
2. Reduce advertising
3. Cut training
4. Weed out inferior products
5. Reduce inventories
6. Avoid long-term purchase commitments – late in the price cycle
7. Set budget reduction goals by dept.
8. Encourage distributors to decrease inventory
9. Concentrate on cash and the balance sheet
10. De-Emphasize commodity products/services in anticipation of diminishing margins
Phase Late C - Warning:Phase Late C - Warning:
28
US Industrial Production to General Purpose Machinery Production12/12 Rates-of-Change
80
85
90
95
100
105
110
115
120
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Machinery
88
91
94
97
100
103
106
109
112Index
General Machinery
US IP
29US Industrial Production to General Purpose Machinery Production
Annual Data Trends
50
60
70
80
90
100
110
120
130
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Machinery
50
60
70
80
90
100
110
120
130
US IP
General Machinery
US IP
30
US Industrial Production to Paper & Products Production12/12 Rates-of-Change
94
96
98
100
102
104
106
108
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Index
94
96
98
100
102
104
106
108Production
US IP
Paper Production
31General Purpose Machinery Production
to Manufacturing Utilization excluding Hi-Tech IndustriesAnnual Data Trends
60
70
80
90
100
110
120
130
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Machinery
60
65
70
75
80
85
90
95Manufacturing
General Machinery
Manufacturing
32
US Industrial Production Index to Industrial Machinery Production12/12 Rates-of-Change
60
70
80
90
100
110
120
130
140
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Machinery
88
91
94
97
100
103
106
109
112
Index
Industrial Machinery
US IP
33
US Industrial Production to Machinery New Orders12/12 Rates-of-Change
88
92
96
100
104
108
112
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Index
70
80
90
100
110
120
130Orders
US IP
New Orders
34
US Industrial Production to Equipment & Software Investment12/12 Rates-of-Change
88
92
96
100
104
108
112
116
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Index
82
88
94
100
106
112
118
124Investment
US IP
Investment
35
Nondefense Capital Goods New Orders to Material Handling Equipment New Orders
12/12 Rates-of-Change
80
85
90
95
100
105
110
115
120
125
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Material
80
85
90
95
100
105
110
115
120
125Goods
Material Handling
Capital Goods
36
Interest Rate ComparisonInterest Rate Comparison
0
2
4
6
8
10
12
14
16
18
20
22
1975 1980 1985 1990 1995 2000 2005 2010
0
2
4
6
8
10
12
14
16
18
20
22
Prime Rate Fund Rate
37Short-Term Interest Rates to US Gov’t Long-Term Bond Yields
Annual Data Trends
0
2
4
6
8
10
12
14
16
18
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
0
2
4
6
8
10
12
14
16
18
Short-Term Interest Rates
Long-Term Bonds
38Mortgage Rates to Federal FundsRaw Data
0
2
4
6
8
10
12
14
16
18
20
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
0
2
4
6
8
10
12
14
16
18
20
Mortgage Rates
Federal Funds
39
US Industrial Production to Corporate Bond Prices12/12 Rates-of-Change
85
90
95
100
105
110
115
1975 1980 1985 1990 1995 2000 2005 2010
Index
70
80
90
100
110
120
130Bonds
US IP
Corporate Bonds
Source: ITR’s EcoTrendsTM
40
Corporate Bond Prices to General Purpose Machinery Production 12/12 Rates-of-Change
80
85
90
95
100
105
110
115
120
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Index
80
85
90
95
100
105
110
115
120
Bond
Material Production
Bond Prices
41
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Sales
2.1
2.3
2.5
2.7
2.9
3.1
3.3
3.5
3.7M2
Retail Sales 12MMT - Trillions of $
M2 12MMA - Trillions of 82$
M2 Money Supply to Retail Sales12MMT(A) Data Trend Comparison
42
88
91
94
97
100
103
106
109
112
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
R-O-C
90
105
120
135
150
165
180
195
210MMA
101.8102.4
137.2
Sep '04
Jun '03
Oct '00
Nov '01
U.S. Composite Leading Indicator1996 = 100
12MMA
Actual
12/12
1/12
Source: ITR’s EcoTrendsTM
43
Purchasing Manager’s Index to General Purpose Machinery Production12/12 Rates-of-Change
80
85
90
95
100
105
110
115
120
125
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Machinery
80
85
90
95
100
105
110
115
120
125Index
General Machinery
Index
44
ITR Leading Indicator to General Purpose Machinery Production Raw Data to 12/12 Rate-of-Change
80
90
100
110
120
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
80
90
100
110
120
General Machinery
Indicator
45New Homes Sales Median Price to Stock Prices Index
Data Trends
0
25
50
75
100
125
150
175
200
225
250
1970 1975 1980 1985 1990 1995 2000 2005 2010
Homes
0
150
300
450
600
750
900
1050
1200
1350
1500
Prices
New Homes
Stock Prices Index
46
85
88
91
94
97
100
103
106
109
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
R-O-C
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
MMT
104.9
105.2
$1.794
Jul '04
May '03
Retail Sales Excluding AutomobilesTrillions of 82-84$
12MMT3MMT
3/12
12/12
Source: ITR’s EcoTrendsTM
47
Higher Education Expenditures to Retail Sales excluding Autos 12/12 Rates-of-Change
94
97
100
103
106
109
112
115
118
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Education
96
98
100
102
104
106
108
110
112Sales
Education
Retail Sales
48
Housing Starts to Inventory Ratio
0.6
0.8
1.0
1.2
1.4
1.6
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Inventory
60
80
100
120
140
160Housing
Inventory Ratio
Housing Starts
49
Casino Gambling Expenditures to Housing Starts 12/12 Rates-of-Change
70
80
90
100
110
120
130
140
150
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Gambling
55
70
85
100
115
130
145
160
175
Housing
Gambling
Housing Starts
50US Industrial Production to Non-Residential Construction
Data Trends
40
55
70
85
100
115
130
1975 1980 1985 1990 1995 2000 2005 2010
Index
50
90
130
170
210
250
290
Construction
Index
Construction
51
Fed. Government Cash Account to US Industrial Production IndexData Trends
-40
-20
0
20
40
60
80
100
120
140
160
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Index
-320
-240
-160
-80
0
80
160
240
320
400
480
Cash
Index - Annual Average
Cash - Bils. Of $ Monthly
52
Consumer Price Index to Crude Oil Futures Prices12/12 Rates-of-Change
101
102
103
104
105
106
107
108
'92 '94 '96 '98 '00 '02 '04 '06 '08
CPI
50
70
90
110
130
150
170
190OIL
CPI
OIL
Source: ITR’s EcoTrendsTM
53
Nondefense Capital Goods New Orders excluding Aircraft to Steel Scrap Producer Price Index
12/12 Rates-of-Change
12
34
56
78
100
122
144
166
188
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Steel
80
85
90
95
100
105
110
115
120Capital
Steel Scrap Producer Price Index
Capital Goods
54
GDP , Bils of US $, Current Prices
Percent of World GDP
28.4%
10.6%6.4%
5.0%
4.8%
4.3%
3.9%
2.6%
2.5%1.8%
1.8%1.8%
1.7% 1.7% 1.6%