Cautious Optimism For a New Era of Global Growth delivered at the meeting of Steel Founders' Society of America September 12, 2017 Kris Bledowski Senior Economist and Council Director kbledowski@mapi.net
Today s Presentation A global overview U.S. outlook A detailed look at American Manufacturing An overview of European industry and SFSA end-markets What s important in China
The Outlook From 30,000 Feet Clear signs of coordinated but modest global growth improvement. The falling dollar a tailwind for U.S. manufacturing at a time of global economic strengthening. A moderate upgrade in U.S. manufacturing growth over the nearly stagnant 2013-2016 period. Political/Policy shocks, Brexit uncertainty, and the confrontation with North Korea the principle risks to U.S. manufacturing outlook.
Central Bankers Breathe Easier: Deflation Risks Abate Consumer Price Inflation: Japan, the Eurozone, and the UK 6 5 Percent (Year/Year) 4 3 2 1 0-1 -2 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Japan Eurozone United Kingdom Source(s): IHS Global Insight, and United Kingdom Central Statistics Organization (year/year for China and the Eurozone, annual percent rate for the UK)
Expectations Grow For An Improved Global Outlook World GDP Growth 6 5 4 Percent 3 2 1 0-1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (F) 2018 (F) F=Forecast Source(s): International Monetary Fund
On the Whole, A Mixed But Improving Picture for Global Manufacturing Growth Select Economies, Forecast of Manufacturing/Industrial Production Growth 0 1 2 3 4 5 6 7 World United Kingdom Eurozone Percent Japan China Asia, ex Japan Brazil Mexico 2017 2018 Source(s): Consensus Forecasts and MAPI Foundation
U.S. Manufacturing Growth Strengthens as An Improving Global Economy and a Falling Dollar Spur Factory Activity U.S. Manufacturing Production Growth, Annual Percent Change, Seasonally Adjusted 5 4 3 2 Percent 1 0-1 -2-3 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Source(s): Federal Reserve Board
MAPI Foundation Forecast: The Era of Moderate Economic Growth Continues in the U.S. U.S. GDP Growth, Inflation-Adjusted 6 5 4 3 2 Percent 1 0-1 -2-3 -4 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (F) 2018 (F) 2019 (F) 2020 (F) F=Forecast Source(s): U.S. Bureau of Economic Analysis and MAPI Foundation
U.S. Political/Policy Risk and Geopolitical Tensions Guide the Pessimistic Growth Scenario. A Strong Coordinated Global Upturn Guides the Optimistic Outcome. U.S. Manufacturing Forecast, Alternative Global Growth Scenarios, Projected Average of U.S. Manufacturing Growth for 2017-2020 4.0 3.5 3.0 2.5 Percent 2.0 1.5 1.0 0.5 0.0 Basline Pessimistic Optimistic Non-U.S. Advanced Country GDP Developing Country GDP U.S. Manufacturng Growth Source(s): MAPI Foundation
MAPI Foundation Forecast: Modest Outlook for the Drivers of Manufacturing Activity U.S. Manufacturing Production Growth 5 4 Annual Percent Change 3 2 1 0-1 -2-3 -4 2015 2016 2017 (F) 2018 (F) 2019 (F) 2020 (F) Exports Business Equipment Investment F=Forecast Source(s): MAPI Foundation
The Resulting Dollar Reversal Grows as an Outlook Issue U.S. Broad Nominal Dollar and Dollar Versus Major Currencies 130 120 Index: January 1997=100 125 120 115 110 105 100 95 90 115 110 105 100 95 90 85 80 75 70 Index March 1973=100 85 65 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Broad nominal dollar Dollar vs. major currencies Source(s): Federal Reserve Board
Hints of Stronger U.S. Export Demand From a More Stable World U.S. Total Export Growth, Annual Rate, Seasonally Adjusted 10 8 6 4 Percent 2 0-2 -4-6 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Source(s): U.S. Bureau of Economic Analysis
MAPI Foundation Forecast of U.S. Growth of GDP and Components GDP Expenditure Categories Inflation-Adjusted Percent Change 2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F) Gross Domestic Product 2.9 1.5 2.1 2.6 2.0 2.0 Total Consumption 3.6 2.7 2.6 2.9 2.7 2.4 Durables 7.7 5.5 5.3 4.5 5.3 5.0 Nondurables 3.1 2.8 2.2 2.8 2.7 2.2 Services 3.2 2.3 2.3 2.6 2.3 2.1 Nonresidential Fixed Investment 2.3-0.6 4.3 3.4 3.1 3.3 Equipment 3.5-3.4 3.6 4.0 3.8 3.1 Information Processing Equip. 4.3 1.8 6.2 2.3 5.1 4.3 Industrial Equipment 1.1 2.3 6.9 3.7 4.5 3.0 Transportation Equipment 10.4-7.3-1.7 5.9 3.6 1.4 Intellectual Property Products 3.8 6.3 3.6 3.4 2.9 4.2 Structures -1.8-4.1 6.7 2.0 2.0 2.4 Residential Fixed Investment 10.2 5.5 2.3 4.8 2.5 1.2 Exports 0.4-0.3 3.6 3.3 1.7 2.9 Imports 5.0 1.3 3.8 4.2 5.1 3.8 Federal Government -0.1 0.0 0.2 0.4-0.8-0.3 State & Local Government 2.3 1.2 0.1 0.4 1.1 0.6 F=Forecast Source(s): MAPI Foundation, August 2017
MAPI Foundation Baseline Forecast of U.S. Manufacturing Output Growth Percent Change or Level as Specified Economic Indicators 2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F) Manufacturing 0.1 0.0 1.1 2.2 2.2 1.2 Computers & Electronic Products 1.1 1.4 4.6 4.9 2.5 3.0 Non-high-tech Manufacturing 0.0-0.1 1.1 2.3 2.1 1.5 F=Forecast Source(s): MAPI Foundation, August 2017
MAPI Foundation Forecast of Output Growth in Consumer-Related Industries Industry Inflation-Adjusted Percent Change 2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F) Motor Vehicles & Parts 5 4 0 2 0 3 Petroleum & Coal Products -2 3 5 3 2 0 Plastic Products 2 0 1 4 4 3 Logging -1 0-1 4 2 1 Wood Products 3 4 4 3 1 0 Furniture & Related Products 5 0 1 2 2 0 HVAC Equipment 2 4 2 4 2 2 Textile Product Mills 1 3-1 -2-2 -2 Paints, Soaps, Toiletries & Misc. 2 0 1 2 2 1 Food 2 3 3 2 2 2 Apparel -1-11 -10-6 -1-1 Pharmaceuticals & Medicines 7 0-1 3 3 2 F=Forecast Source: MAPI Foundation, August 2017
MAPI Foundation Forecast of Output Growth in Investment-Related Industries Industry Inflation-Adjusted Percent Change 2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F) Electric Lighting Equipment 3 10 3 2 1 3 Electrical Equipment -5-6 -7 0-1 1 Architecture. & Structural Metals 0-5 0 5 3 0 Construction Machinery -10-12 -1 4-1 3 Engines & Turbines -3-14 5 4 2 1 Agricultural Equipment -17-5 -5 2 2-1 Drilling Equipment -29-24 19 11 10 7 Metalworking Machinery -1-6 3 4 2 0 Industrial Machinery -2 5 8 3 3 3 Heavy Duty Trucks 10-17 4 11 1-3 Medical Equipment & Supplies -1 3-4 2 4 1 Forging & Stamping -5-1 3 3 1 0 Aerospace Products & Parts 0-2 -3 2 6 7 Ship & Boat Building 0-6 1-5 -3-3 F=Forecast Source: MAPI Foundation, August 2017
MAPI Foundation Forecast of Output Growth in Materials-Related Industries Industry Inflation-Adjusted Percent Change 2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F) Paper -1-3 0 0 0 0 Iron & Steel -10-2 4 0-1 -2 Alumina & Aluminum 1-10 0 2 1 2 Glass 1-3 5 3 1 0 Resins & Synthetic -8 1 1 7 8 7 Organic Chemicals 0 0 3 6 6 8 Inorganic Chemicals -5-2 -4 2-1 -1 Agricultural. Chemicals -5 11 7 7 5 2 F=Forecast Source: MAPI Foundation, August 2017
European Manufacturing Leapfrogs America s Performance Global Manufacturing Output Growth, Year-Over-Year 5 4 3 Percent Y/Y 2 1 0-1 -2-3 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Germany Eurozone U.S. Source(s): OECD
European Mining Outlook Subdued Eurozone and Germany, Mining Output Growth, Year-Over-Year 10 5 0 Percent -5-10 -15-20 -25 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Germany Eurozone Source(s): Eurostat
Truck Production Decelerates in Europe Eurozone and Germany, Truck Production Growth, Year-Over-Year 12 10 8 6 Percent 4 2 0-2 -4-6 -8 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Germany Eurozone Source(s): Eurostat
European Rolling Stock in the Doldrums but Recovery Not Far Away Eurozone and Germany, Locomotives and Rolling Stock, Production Growth, Year-Over-Year 12 10 8 6 Percent 4 2 0-2 -4-6 -8 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Germany Eurozone Source(s): Eurostat
China s Slowdown: It s Over! China s Annual GDP Growth 16 14 12 Percent 10 8 6 4 2003 2005 2007 2009 2011 2013 2015 Source(s): National Bureau of Statistics of China
Dodging the Bullet on a China Investment Contraction China s Fixed Asset Investment, Purchase of Equipment and Tools 25 20 15 10 5 0 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Year to Date Percent Change (Year/Year) Jul-17 Source(s): National Bureau of Statistics of China
The Chinese Manufacturing Slowdown Has Reached a Bottom China s Growth of Industrial Value-Added 30 25 Percent (Year/Year) 20 15 10 5 0 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Source(s): National Bureau of Statistics of China
Key Takeaways Growing signs of a coordinated but modest global growth improvement. The falling dollar adds a tailwind for U.S. manufacturing at a time of global economic strengthening. MAPI Foundation baseline forecast calls for an average of 1.7% U.S. manufacturing growth 2017-2020. While modest, this is a meaningful acceleration from the nearly stagnant 2013-2016 period. U.S. political/policy shocks, Brexit uncertainty, and the confrontation with North Korea are the principle risks to the U.S. manufacturing outlook. The impact of the hurricane Harvey will take some time to assess but will vary by subsector.