Global Industrial Outlook ROBERT FRY DuPONT ECONOMIST S OFFICE Georgia State University Economic Forecasting Center Atlanta, Georgia November 17, 20
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3 Excuse me. Can you tell me where I am? You re in a balloon.
4 You must be a economist. Your answer is perfectly correct and totally useless. You must be a manager. You have a great view, but don t know where you are.
115 1 5 95 Industrial Production - World Index 2005= Gray Bars = Recession Periods Peak Trough 5 115 1 5 95 85 85 80 IP331R 99 00 01 02 03 04 05 06 07 08 09 11 80
6 12 8 Industrial Production, Mfg - World Rate of Change Yr/Yr Trend Rate 12 8 4 4 0 0-4 -8-12 Y/Y % Chg 2008-0.2% 2009-8.7% 20 7.5% 2011 3.7% -4-8 -12-16 IP33R 99 00 01 02 03 04 05 06 07 08 09 11-16
600 500 400 300 200 150 Industrial Production: Asia 1997 =, Seasonally Adjusted Total industrial production in China, manufacturing elsewhere. *Data seasonally adjusted by this office. 7 600 500 400 300 200 150 50 asiaqjm4 98 99 00 Japan Taiwan* Korea China* India* 01 02 03 04 05 06 07 08 09 50
150 140 130 120 1 Industrial Production, Latin America 1997 =, 3-Month Moving Averages Mexico Brazil Argentina 8 150 140 130 120 1 80 lataqjtt 97 98 99 00 01 02 03 04 05 06 07 08 09 80
140 130 120 Industrial Production: Central Europe & Russia 2005 = Poland Hungary Czech Republic Russia 9 140 130 120 1 1 ee3sa 05 06 07 08 09
115 1 Industrial Production: European Union 2005 = Industrial Production, Manufacturing OECD Leading Indicator 115 1 5 5 95 95 85 me25qjmfa 99 00 01 02 03 04 05 06 07 08 09 85
125 120 US Industrial Production: Manufacturing Cycle Trough = June 2009 Trough April 1975 Trough December 1982 Trough 11 125 120 115 115 1 1 5 2007 2008 2009 Dates on bottom axis apply to current recovery (June 2009 trough). 20 2011 5
Multi-speed recovery from synchronous global recession has slowed. 12 Regions have recovered at very different rates. Recovery (in industrial production) is complete in developing Asia, Brazil, Poland. Recovery has been slow in most of Europe. North America and Japan lie somewhere in between. Growth has slowed. Countries that recovered first (China, India, Taiwan, Brazil) have slowed the most. Europe continues to grow, but growth is uneven and at risk. Recovery in US manufacturing has slowed significantly since May.
115 1 5 US Composite Leading Indexes January 2006 = ECRI Long Leading Index* Conference Board OECD 13 115 1 5 95 95 85 leius3 06 *Used by permission of the Economic Cycle Research Institute 07 08 09 85
60 40 US Manufacturing Production & Stock Prices Percent Change from Year Ago, Smoothed Correlation =.50 Long-term average of both series 15 14 20 0-20 5 0-5 -40-60 jipsp 75 80 85 Manufacturing Production ex high tech (Right) Wilshire 5000, 7 months prior (Left) 95 00 05 -
3-Month LIBOR minus 3-Month T-bills, Percent 5 DJIA (Right) TED Spread (Left) 4 3 2 1 TED Spread & Dow-Jones Industrial Average 15 Index 15000 14000 13000 12000 00 00 8000 7000 teddow 0 J 2007 O J 2008 A J O J 2009 A J O J 20 A J O 6000
40 30 20 0 - US Manufacturing Production & Orders Percent/Percentage Point Change from Year Ago Manufacturing Production ex high tech (Right) ISM New Orders Index, 7 months prior (Left) Average of both series 20 15 5 0-5 16-20 -30 1979-2009 Correlation =.57 jiporn 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 - -15
Diffusion Index 75 70 65 60 55 50 45 40 35 30 25 20 US Manufacturing Production & ISM New Orders Index 89 91 93 95 97 99 6-Month Annualized Growth Rate 20 Industrial Production, Manufacturing (Right) ISM New Orders Index (Left) 01 03 05 07 09 16 12 8 4 0-4 -8 17-12 -16-20 -24
5 US Manufacturing Production ex High-Tech Sectors 2007 = Actual 95-07 Trend (0.9%) 18 5 95 X X X X X 95 85 80 Annual Growth Rates (%) 1.4 0.8-8.5 0.0 0.0 2.2 3.3 1.2 0.7-3.7-11.1 5.4 3.8 99 00 01 02 03 04 05 06 07 08 09 11 85 80
5 US Industrial Production, Chemicals ex Pharma 2007 = Actual 95-07 Trend (1.3%) 19 5 95 95 X X X X X 85 85 80 75 chemexpharm 1.0-0.1-7.2 99 00 01 Annual Growth Rates 5.6 0.1 6.3 2.7 0.8 7.2 02 03 04 05 06 07-9.3-7.7 5.5 2.4 08 09 11 80 75
20 Manufacturing recovery has slowed Stronger-than-expected early recovery was driven by inventory cycle. Recovery likely in pause through end of 20. Inventory bullwhip effect could even cause production to decline in some industries. Manufacturing likely to reaccelerate by mid-2011. Longest leading indicator has turned up. Motor vehicle sales are well below scrappage. Inventories are still lean in some places. ISM New Orders Index up strongly in October.
0-200 US Merchandise Trade Balance Billion $, Annual Rate, 3-Month Moving Average Total (Left) Chemicals ex Pharma (Right) 40 30 21-400 20-600 -800 0-0 exchem 97 98 99 00 01 02 03 04 05 06 07 08 09 -
22 0 US Merchandise Trade Balance Billion $, Seasonally Adjusted Annual Rate 0 - - -200-200 -300-300 -400-400 -500-600 exdcchinxoil 97 98 99 00 01 02 with China Rest of World ex Oil Oil 03 04 05 06 07 08 09-500 -600
5 95 85 80 75 70 65 60 55 Value of US Dollar vs Major Currencies 2002 Peak = Euro British Pound Japanese Yen Chinese Yuan 23 5 95 85 80 75 70 65 60 55 50 dollar4 02 03 04 05 06 07 08 09 50
24 Forecasting exchange rates has a success rate no better than that of forecasting the outcome of a coin toss. -- Alan Greenspan November 19, 2004
116 112 Global Composite Leading Indexes January 2006 = ECRI 19-Country OECD + 6 25 116 112 8 8 4 4 96 leiww2 06 07 08 09 96
26 Real GDP (Annual % Change) 2008 2009 20 2011 World 1.6-2.0 3.8 3.2 N. America 0.0-2.6 2.8 2.9 W. Europe 0.2-4.1 1.8 1.5 C. & E. Europe 4.0-5.3 3.9 4.0 Asia 3.0 1.1 6.5 4.6 Japan -1.2-5.3 3.5 0.7 China 9.6 9.1.1 8.8 Latin America 3.9-2.1 5.3 4.1 M. East & Africa 5.4 1.4 4.5 5.3
US Crude Oil and Natural Gas Futures Prices $/mmbtu 24 22 20 18 16 14 12 8 6 4 2 oilgasl 0 99 NYMEX Crude Oil (Right) Natural Gas (Left) 00 01 02 03 04 05 06 07 08 09 27 $/bbl 144 132 120 8 96 84 72 60 48 36 24 12 0
28 Industrial Chemical Prices vs. Oil Prices $/BBL 1982 = 150 140 130 120 1 80 70 60 50 40 30 20 97 98 PPI, Industrial Chemicals (Right) WTI Crude Oil (Left) 99 00 01 02 03 04 05 06 07 08 09 ppichemoil 350 325 300 275 250 225 200 175 150 125
29 Conclusions Global growth has slowed. Leading indicators suggest slowdown continues near-term. Leading indexes have flattened in US & China. Indexes have turned down in most of Europe; also negative in Japan. Pause that Refreshes or Slowing to Stall Speed? Initially, very hard to distinguish between the two. Reacceleration in Korea, ECRI FRDI suggest pause more likely than recession. Good October PMI reports in US and China suggest reacceleration. Key messages: Another recession is not in our forecast, but risk cannot be dismissed. Growth is likely to reaccelerate in 2011. Even if sequential growth reaccelerates, yoy growth will slow in 2011H1.
30 Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate. --Lammot du Pont II, 1937
31 0-200 US Federal Budget Surplus/Deficit* Rolling 12-month total, Billion $ *On- and off-budget 0-200 -400-400 -600-600 -800-800 -0-1200 -1400 Budget deficit BEFORE stimulus plan and Obama budget proposal -0-1200 -1400-1600 2005 2006 2007 2008 2009 20-1600
32 You know a recession is over when Congress finally passes a stimulus bill. -- Anonymous
33 Every election is a sort of advance auction sale of stolen goods. --H. L. Mencken, 1880-1956
34 Public expenditures are made for the primary benefit of the middle classes, and financed with taxes which are borne in considerable part by the poor and the rich. --Aaron Director, 11-2004