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Industrial Outlook – What next?

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Industrial Outlook What next? LORD Corporation Karen Sy-Laughner * * * Global Outlook Who Knows? Data changes daily Government projections differ from that of the ... – PowerPoint PPT presentation

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Title: Industrial Outlook – What next?


1
Industrial Outlook What next?
  • LORD Corporation
  • Karen Sy-Laughner

2
  • Global Outlook
  • Who Knows?
  • Data changes daily
  • Government projections differ from that of the
    economists - even for the different countries
  • Couple of points
  • US Economy is expanding, but at a slower pace
    than earlier this year
  • China and India continue to grow strongly, but
    they are highly dependent on the growth of both
    the US and European economies
  • Growth in the Americas is primarily in Brazil,
    Mexico, and Argentina. Canadas growth is a bit
    faster than the US but very dependent on US trade
  • Europe is showing growth in Germany and England,
    but slower growth in England beginning to show.
  • Issues with debt and liquidity for Greece,
    Portugal, and Ireland

3
Global Overview
  • Key World Economic Outlook projections from
    January 2010 with September 2010 updates
  • World growth. After contracting by 1 percent
    in 2009, global activity is forecasted to expand
    by 3.9 in 2010 and 4.3 in 2011. Numbers have
    been since revised downwards to 3.7 for 2011 as
    of September 10, 2010 by Scotia Bank Group
  • Advanced economies Medium term prospect of
    sluggish growth. Output in the advanced economies
    is now expected to expand by 2 in 2010. In
    2011, growth is projected to edge up further to
    2.1. The US economy is expected to grow at 2.5
    for 2011, slower than the original 2.8 projected
    earlier this year. Eurozone expected to be 1.1
    for 2011 with stronger numbers for Germany and
    England. Core inflation remains under control.
  • Emerging and developing economies Outpacing
    the rest. Growth in Emerging and Developing
    Economies is expected to rise to 6 percent in
    2010. In 2011, output is projected to accelerate
    further. Between 6.5-7 Stronger economic
    frameworks and swift policy responses have helped
    many emerging economies to cushion the impact of
    the unprecedented external shock and quickly
    re-attract capital flows. China is expected to
    grow 10 for 2010, and 9.3 for 2011. Indias
    numbers have been revised upwards to 8.3 for
    2010 ( some as high as 8.8) and 7 for 2011.

Source World Economic Outlook Update
Policy-Driven, Multispeed Recovery January 26,
2010, Scotiabank group 2010, Morgan Stanley
Economic Forecasts September 2010
4
July 2010 Data on recovery remains mixed. IMF
and the Fed predict that the factors for growth
are solid - HIGHER THAN THAT OF ECONOMISTS
Reference WEO Update July 2010 Data
5
World Economic Outlook
  • Historical Gross Domestic Product Growth 2006
    2011
  • World
  • Advanced Economies
  • Emerging Developing Economics

6
Latest OECD Projections - note how with
the numbers slow in the 3rd abd 4th quarters for
US and UK.
Source OECD, System of National Accounts
database Datastream MarkitEconomics Limited
OECD Economic Outlook 87 database and OECD
Indicator Model forecasts.
7
Business Confidence has weakened Purchasing
Managers Index
8
(No Transcript)
9
What is happening now? - Tepid growth except for
developing countries
  • China GDP is expected to grow in 2010 between
    10-10.5 and next year closer to 9-9.5 as the
    government tries to head off inflation.
  • China Daily from 09-06-2010 reports In spite
    of high jobless rates, Europe is registering
    strong economic growth and the recovery base in
    the US is broadeningFor Chinese decision
    makers, all these sentiments and judgments are of
    no slight significance because their countrys
    economy is already deeply interwoven with the
    rest of the world.They further proceed to state
    that The coming five years can be divided into
    two parts. After massive stimulus investment and
    because the global economy is more likely to grow
    at a slower pace, Chinas economy may achieve
    moderate rate of about 8-8.5 in 2011-2012. After
    the first two years, China can have a stable 9
    growth when the global economy is in better
    shape.
  • Indias economy is strong, with numbers revised
    upwards to end 2010 at 8.8 and 2011 at 8.4.
  • Brazil will most probably end 2010 at around 7
    growth, but that will slow to closer to 4.1
    growth for 2011.
  • The US economy has started to slow in its growth
    projections from earlier this year. It is
    expected to grow 2.4 for 2011, which is slower.
    The adjusted numbers for GDP growth for the 1st
    quarter of 2010 is 2.4 and for the second
    quarter, it projected at 1.6
  • Germany and England are showing strong recovery
    from the Eurozone due to overseas demand for
    their products. China is the largest market for
    German automobiles, high luxury goods, and
    specialized equipment. Countries associated with
    similar export industries are also doing well
    like Sweden and France. However, Spain,
    Portugal, and Greece are still mired in some
    challenges.

10
How can Asia keep growing?
  • Asian economies are still highly dependent on
    exports so as the global economy improved,
    greater demand for their products
  • Sub-Saharan Africas economy has been growing at
    a steady pace, with Asia being their largest
    trade partner
  • Private domestic demand maintained momentum with
    the growth of the middle class and buying power
    of overall population
  • Demand for high item luxury goods continues to
    increase with increasing wealth.
  • Robust corporate profits and favorable financing
    in India
  • China growth is driven by export rebound and
    domestic demand coupled with government
    intervention to prevent over heating and maintain
    financial stability.
  • Risks are that any stalling in the European or
    American economy can slow growth. European bank
    situation is still tenuous. Asian banks,
    however, have the ability to deploy stabilizing
    measures.

11
Some positive indicators for the US economy
  • Companies are reporting strong earnings hopeful
    that they would gain confidence that they would
    start hiring soon
  • Retail Sales (MoM)July Retail Food Sales
    Revised to 0.3 from 0.4 U.S. August Retail
    Food Sales Ex-Autos rose 0.6 U.S. August
    Retail Food Sales rose 0.4 Compared to
    Consensus of an increase by 0.3.
  • Business Inventories (MoM) U.S. July Business
    Sales rose 0.7 Gain is Biggest in Four Months
    Increase in July Business Inventories is Biggest
    in Two Years U.S. July Business Inventories rose
    1.0
  • IBD/TIPP Economic OptimismU.S. September
    IBD/TIPP Economic Optimism Index 45.3 versus 43.6
    in August.

12
Economic Markers 2010 for US
Markers still show improvement, even if slower
US Federal Reserve, August 2010 release
13
More positive news- Americas and Europe
  • In the Eurozone, it is expected that 10 out of
    the 14 industries will grow in 2010, led by motor
    vehicles by 19.5. In 2011, 6 our the 14 will
    grow, primarily in the machinery and equipment
    building areas. For Central Europe, growth in 12
    of the 14 industries for 2010 but in 2011,
    electronics will see some volatility.
  • For Europe, production in non-high tech
    industries is expected to increase by 5.1 in
    2010, and by 4.3 in 2011.
  • Latin Americas economies are showing a sharp V
    shaped recovery from 2009. Brazil, Argentina, and
    Mexico are responsible for more than 80 of the
    manufacturing output for the region. Overall
    Manufacturing output will grow 8.3 in 2010 and
    will decelerate to 3.7 growth in 2011 which is
    more manageable.
  • Most of the growth in Latin America will be in
    food and beverage, machinery and equipment
    production, along with motor vehicles. These
    three categories make up 40-45 of total
    manufacturing output for the region.
  • US numbers while slowing still show that the
    manufacturing sector is recovering. The
    industrial rebound is stronger than the rest of
    the economy. Manufacturing has added over 100K
    jobs since the beginning of the year.
  • Economic activity in the manufacturing sector
    expanded in August for the 13th consecutive
    month, and the overall economy grew for the 16th
    consecutive month, say the nation's supply
    executives in the latest Manufacturing ISM Report
    On Business.

14
China and India
  • India -14 of the 16 sectors for India show
    growth, with transportation equipment and parts
    leading the pack at 17 and 15 respectively.
    Machinery and equipment are also growing strong
    at 12. Other industrial, such as pulp and paper
    are expected to grow at 10.
  • Stimulus related infrastructure investment will
    decline in China, but manufacturing production is
    still expected to grow swiftly. Chinas growing
    middle class is growing faster than that of any
    other countrys and their need for consumer goods
    and necessities will help set the tone for
    Chinas industrial output.

15
What is preventing us from faster growth?
  • Advanced Economies
  • Banking crisis in Europe is still far from over
    - only purchaser of Greek Debt were other
    European governments.
  • New banking rules formed in Basel will further
    tighten lending standards
  • The new rules would make banks roughly double the
    amount of capital set aside as a buffer against
    possible losses, slash stockholder dividends and
    executive pay if that stockpile falls short, and
    limit lending during economic boom times. Goal is
    to curb lending in good times in the hope that
    asset bubbles won't give way to a costly bust.
  • Arguments that this would further slow down the
    economic growth - Some financial industry
    analysts and groups have argued that the stricter
    standards would slow lending and economic growth.
  • Fiscal deficits, mounting public debt
  • Broad unemployment. August unemployment numbers
    remain high - at 9.6. Belief that in 2011,
    unemployment will remain high at 9.1. No
    lowering in numbers until 2012 where it is
    expected to go to 8.4 and then 7 by 2014.
  • Only started adding jobs, but 7.6MM jobs were
    lost in this recession and GDP contracted 4.1.
  • Consumer Spending remains tight
  • Companies are showing great profitability but
    hiring is still meager.
  • Housing and construction still showing poor
    recovery. Only Lennar and Toll Bros show some
    progress but it is from buying up loans
  • New Home sales, pending home sales, and mortgage
    applications are at a 13-year low. New home
    prices have plummeted 30 on average. 8 million
    home loans are in some state of delinquency and
    another 8 million have less than 5 equity in
    their homes.

Wall Street Journal September 21, 2010
16
Unemployment Data
17
Deflation ?
  • With mounting public debt, large fiscal deficits,
    concern about deflation in the US .
  • Possibility highly unlikely - if economy
    shrinks, we would just enter another recession -
    recession officially declared over as of June,
    2009 means period of declining activity has
    ended, not that the economy is healthy.
  • Reasons
  • Institutional structure around the Fed and the
    political economy is highly adverse to deflation
  • Feds goal is not just monetary policy but also
    the inclusion of employment. Feds inflation
    goals are made clear each announcement so
    investors understand. Accountability of Fed to
    Congress and need to testify before Sentate and
    House plays a huge role in terms of
    responsibility.
  • Fed has tools they can deploy to head off
    deflation.
  • Dollars international role encourages discipline
    on US policy
  • Aging US population is not as rapid as that of
    Japans.
  • US has run deficits for many years and is
    dependent on foreign nations for financing.
    Japan has always balanced their budget, but yen
    is a more local currency.

Morgan Stanley-Global Economic Forum September
10, 2010 Crisis, Credit, and Capital
18
Focusing on this region..
  • The Mid-American region looks stronger than the
    national economy, said Creighton University
    Economics Professor Ernie Goss.
  • "Over the past several months, for example, the
    region has been adding jobs at a very healthy
    pace while U.S. job growth has been nil," he said
    in a statement. ( Reuters September 1, 2010)

19
Midwest Manufacturing Index
Interesting to note his the output is 13.1
higher than a year ago, much higher than the
national average of 8.1.
20
Individual key sectors for this region
Auto index is 27 above last year, Steel, highly
dependent on auto is also significantly up. Auto
industry still looks strong for 2011. Industrial
production and Machinery is slower but still
recovering. We expect strength in the
agricultural and off-highway segments
21
Key sectors for this region their performance
22
Industrial Rubber Goods- Outlook still shows
growth on a macro scale
  • Global demand to rise 4 annually through 2011
  • World rubber consumption is forecast to increase
    4.0 percent annually to 26.5 million metric tons
    in 2011. US, China and Japan dominate global
    rubber consumption, and will continue to do so,
    collectively accounting for more than half of the
    market in 2011.
  • China has become the leading consumer of rubber
    worldwide, following more than a decade of strong
    growth in motor vehicle production and industrial
    goods manufacturing. The country overtook Japan
    as the second largest rubber market in the late
    1990s and by 2001 had essentially caught up to
    the US as the world's leading consumer. While
    China will continue to extend that lead, the US
    and Japan will remain leading markets worldwide.

23
Industrial Rubber Goods- Outlook
  • Non-tire rubber demand to outpace tire rubber
  • Non-tire rubber will outpace tire rubber demand
    through 2011, based on a favorable outlook for
    mid-range elastomers(e.g.,ethylene-propylene,
    nitrile and polychloroprene) used in components
    such as hoses, belts, gaskets and weather
    stripping.
  • Natural, synthetic rubber to both expand at
    strong pace
  • Demand for both natural and synthetic rubber will
    expand at a strong pace, but the division of the
    market will remain essentially unchanged through
    2011, with synthetic rubber continuing to hold
    approximately 55 percent of demand and natural
    rubber holding the remaining 45 percent.
    General-purpose synthetic commodity elastomers --
    typically defined as SBR (styrene-butadiene
    rubber), BR (polybutadiene rubber) and IR
    (polyisoprene rubber) -- account for the vast
    majority of synthetic rubber demand.

24
Resources
  • Bharat Book Bureau Industrial Rubber Products
    forecasts for 2010 2017
  • US Department of Housing
  • U.S. Census Bureau News 2009-10 U.S.
    Department of housing and Urban Development New
    Residential Construction in January 2010
    January 2009
  • World Energy Outlook - Online
  • International Monetary Fund Online
  • Bloomberg, Citigroup
  • Nomura Global Economics - 2010 Global Economic
    Outlook
  • HSBC Purchasing Managers Index Emerging Markets
    Index
  • www.metalsplace.com - Metals and Mining Stock
    Review Jan. 2010 Industry Outlook January
    7, 2010
  • www.federalreserve.gov/releases
  • SP Indices
  • www.chicagofed.org
  • Bureau of Labor and Statistics
  • Morgan Stanley Reports
  • OECD Reports
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