Macro Advisor Snapshot

Dashboard
Spring, 2013

Dashboard US Industrial Production & Manufacturing (Spring 2013)

Headline production numbers still show US economy making moderate forward progress
IP growth consistent with Early Recovery stage of business cycle Autos assemblies a big part of activitybut look to be tapering Goods exports have been decentless austerity in EU will help

However, durables have been especially sluggish and accelerating lower

Durables and CapGds are at stall speed and heading lower Inventories are slumping on demand uncertainty Payroll tax hike and weak external demand having expected impact on US economy

Manufacturing employment indicators are also broadly weaker

Payrolls and weekly hours signal wavering confidence in future demand Stagnant wage growth means excess capacity still exists

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Figure 1. Industrial Production Suggests Steady US Growth

Headline IP showing steady expansion
Index Value 105 Percent 10% Percent 15% 10% 5% 95 0% 0% -5% -10% 85 IP (LHS) IP % YoY (RHS) Jan-07 Jan-09 Jan-11 Jan-13 -10% -15% -15% -20% Jan-05 IP Final Products % YoY IP Materials % YoY Jan-07 Jan-09 Jan-11 Jan-13

typical of Early Recovery phase of business cycle

100

5%

90

-5%

80 Jan-05

Source: Federal Reserve Notes: 1Q13 saw largest nominal quarterly increase in IP since end 1999. Automotive products a big contributor as well as utilities on unseasonably cold March. Utilities should unwind in April, leaving room for IP to print lower. Real shipments are already steadily lower and worrisome.

Source: Federal Reserve Notes: IP currently expanding at steady pace.suggesting US GDP 2.5%-3.0%. Auto production up 10.2% over past yearrising steadily after reaching 5-year high in 2012

Percent 120%

Autos have been big part of IP growth

Autos & Lt Truck % YoY Med & Hvy Truck % YoY

Billion $ 0

Goods exports have been improving

Percent 60%

BoP Goods BoP Goods % YoY 40% -20 20% -40

80%

40%

0% -60 -40%

0%

-20%

-80% Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

-80 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

-40%

Source: Federal Reserve Notes: but autos gains are slowing. Med&Hvy assemblies are negative , but decline is slowing. Feb Class 8 net orders best YoY print since 2011 but still neg.

Source: Federal Reserve Notes: USD 2% lower from mid 2012 highs supporting exports. Weaker EUR could crimp.

Figure 2. Components of Headline Production Trending Lower

Billion $ 500

Real manufacturing shipments losing steam

Mftr Shipments Total - Real (LHS) Mftr Shipments % YoY - Real (RHS)

Percent 20%

Index Value 80

PMI indicates slower expansion for now

ISM Mftr Composite ISM Mftr Production

460

10%

70

60 420 0% 50 380 -10% 40 340 -20%

30

300 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

-30%

20 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

Source: US Census Bureau Notes: Despite decent headline IP, manufacturing telling a different story. Shipments at 3 yr lows. While only 12% of GDP, mftr accounts for most of economys cyclical variation.meaning changes track very closely with changes in overall economy.

Source: Institute of Supply Management Notes: For now, PMI survey still suggests growth at slower pace. With slower China and Europe, unclear how long sentiment can remain firmish. Jan-Mar PMI corresponds to 3.3% GDP, Mar PMI corresponds to 2.8% increase according to ISM. The 50 level generally indicates that manufacturing is expanding, while 42.2 level generally indicates overall economy is expanding.
Index Value 80

Billion $ 500

Trend in new orders pointing to weaker momentum

Mftr Orders Total - Real (LHS) Mftr Orders % YoY - Real (RHS)

Percent 30% 20%

as confirmed by ISM survey

460 10%

70

60 420 0% 50 380 -10% 40 -20% 340 -30% 300 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 -40% 30

ISM Mftr New Orders 6mma

20 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

Source: US Census Bureau Notes: New orders printed negative in Jan before marginal pop higher in Feb. Orders suggest softer final demand into 2Q13.

Source: Institute of Supply Management Notes: 52.2 is the new orders level of growth/nogrowth for mftr orders.

Figure 3. Durables Dropping at Fastest Pace in 7 Months

Shipments and orders going negative
Percent 30% 20% 10% 0% -10% -20% -30% -40% -50% Jan-05 Jan-07 Durables Shipments - Real % YoY Durables Orders - Real % YoY Jan-09 Jan-11 Jan-13 -30% CapGds exDef/exAir Ships - Real % YoY -40% Jan-05 Jan-07 CapGds exDef/exAir Orders - Real % YoY Jan-09 Jan-11 Jan-13 0% Percent 20%

Business investment flat

10%

-10%

-20%

Source: US Census Bureau Notes: Durables demand slumped in March by most in 7 months. Federal budget cuts and slow external growth having an impact.

Source: US Census Bureau Notes: Business investment worrisomeIT is collapsing. No surprise Blackstone pulled its Dell bid.

Percent 15% 10% 5%

The inventory cycle is over

Index Value 60

ISM inventory sluggish

50 0% -5% -10% -15% -20% Jan-05 Jan-07 40

Mftr Inventories - Real % YoY Durables Inventories - Real % YoY 30 Jan-09 Jan-11 Jan-13 Jan-05 Jan-07 Jan-09

ISM Mftr Inventories 6mma

Jan-11

Jan-13

Source: US Census Bureau Notes: Inventories lower on expected softer demand.

Source: Institute of Supply Management Notes: 42.7 level is consistent with BEA overall mftr inventory growthso while not contracting, pace of expansion is slowing. On the other hand, 1Q GDP shows fairly health inventory add.

Figure 4. Manufacturing Employment Vulnerable Lower

ISM employment still expanding
Index Value Percent 5% 65 0%

but pace of actual gains is slowing

50

-5%

-10% 35 -15%
Mftr PMI Employment

Manufacturing Payrolls % YoY -20% Durables Payrolls % YoY Jan-07 Jan-09 Jan-11 Jan-13

20 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

Jan-05

Source: Institute of Supply Management Notes: ISM employment has strong correlation with BLS unemployment rate.index value above 50.5 is consistent with BLS growth.

Source: Bureau of Labor and Statistics Notes: Rate of mftr job growth has been slowing for last 12 months. While still positive, weak external demand and budget cuts will have impact.

Percent 10%

Hours approaching stall speed

Percent 4.0%

Broader earnings are stagnant

Average Hourly Earnings % YoY

5%

3.5%

0%

3.0%

Soft wages will limit PCE growth

-5% 2.5% -10% 2.0% -15%

Mftr Hours Index % YoY

-20% Jan-07 Jan-09

Goods Hours Index % YoY

1.5% Jan-07 Jan-09 Jan-11 Jan-13

Jan-11

Jan-13

Source: Bureau of Labor and Statistics Notes: Slower mftr job gains and very soft hours suggest slower overall economic activity in 2013.

Source: Bureau of Labor and Statistics

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