Economic Outlook ROBERT FRY DuPONT ECONOMIST’S OFFICE Flexographic Prepress Platemakers Association Sanibel Island, Florida February 22, 2010

Economic OutlookROBERT FRY

DuPONT ECONOMIST’S OFFICE

Flexographic Prepress Platemakers Association

Sanibel Island, Florida

February 22, 2010

04/22/23 DUPONT ECONOMIST’S OFFICE

2

This presentation contains forward-looking statements based on expectations, estimates and projections that are not guarantees of future performance and involve a number of uncertainties and assumptions.

The content is provided “AS IS,” “AS AVAILABLE.” DuPont does not warrant the accuracy or completeness of the information, text, graphics, links, or other items contained in this communication, and DuPont expressly disclaims liability for errors or omissions in these materials. We reserve the right to make changes and corrections at any time, without notice.

DuPont expressly disclaims all liability for the use or interpretation by others of information contained in this DuPont communication. Decisions based on information contained in this DuPont communication are the sole responsibility of the reader, and in exchange for using this DuPont communication the reader agrees to hold DuPont harmless against any claims for damages arising from any decisions that the reader makes based on such information. Nothing contained in this DuPont communication constitutes investment advice.


3

Excuse me. Can you tell me where I

am?

You’re in a balloon.


4

You mustbe 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.


5

Recovery Chronology

Recovery is first apparent to economists when seasonally adjusted monthly data turn up.

Recovery becomes apparent to businesses when year-over-year growth turns positive, usually 5-6 months after the sequential upturn.

Skepticism about recovery persists among public and politicians until unemployment falls and economic activity returns to pre-recession levels. This can take years, depending on the speed of the rebound.

Markets (industries/geographies) are in various stages of “recovery.”


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11100908070605040302010099

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Industrial Production - World Index 2005=100

IP331R

Gray Bars = Recession Periods Peak

Trough(TurningPoint)


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Industrial Production, Mfg - WorldRate of Change Yr/Yr

IP33R

Y/Y % Chg2008 0.1%2009 -9.1%2010 5.6%

TrendRate

Actual


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500450400350300250

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500450400350300250

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Industrial Production: Asia1997 = 100, Seasonally Adjusted

asiaqjm4

Total industrial production in China, manufacturing elsewhere.*Data seasonally adjusted by this office.

Japan Taiwan* KoreaChina* India*


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Industrial Production, AsiaPercent Change from Year Ago, 3-Month Moving Averages

asiagary4

JapanChinaKoreaTaiwan


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Industrial Production, Latin America1997 = 100, 3-Month Moving Averages

Mexico

Argentina

Brazil

lataqjtt


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Industrial Production: Central Europe & Russia2005 = 100, 3-Month Moving Average

ee3sa

PolandHungaryCzech RepublicRussia


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Industrial Production: European Union2005 = 100

me25qjmfa

Industrial Production, ManufacturingOECD Leading Indicator


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-10-15-20-25-30-35

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Balance of Opinion Percent Change from Year AgoIndustrial Production and Expectations: EU

eu1

Production Expectations, Mfg (Left)Industrial Production, Mfg (Right)


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US Industrial ProductionCycle Trough = 100

June 2009 TroughMay 1975 TroughDecember 1982 Trough


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Global economy recovering from worst recession since WW2

Most of world is growing again.

•Recovery started in developing countries of Asia and South America.

•Production turned up in Japan in March 2009, in Western Europe in April 2009.

•North America turned up in July 2009.

•Central & Eastern Europe recovering slowly.

Question now turns to shape of recovery.

•A V-shaped bottom is the historical norm, but few expected one.

•Slow recovery (Nike “swoosh”) has been most common base case.

•So far, recovery in industrial production is closer to a V, but going forward, V is likely to become more asymmetrical (lop-sided) than in past as growth slows.

•W and √¯ are risks.

•Speed of recovery will vary across industries and geographies.

“Recovery” means different things to different people.


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Real GDP(Annual % Change)

2008 2009 2010 2011

World 1.8 -2.1 3.2 3.3

N. America 0.5 -2.7 3.5 3.1

W. Europe 0.5 -4.0 1.0 1.6

C. & E. Europe 4.0 -5.6 2.3 3.6

Asia 3.1 0.9 5.3 4.6

Japan -1.2 -5.1 1.8 1.1

China 9.6 8.7 10.1 8.5

S. America 4.8 -0.8 3.3 4.5

M. East & Africa 5.1 0.8 4.0 5.1


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Short-Term Interest RatesPercent

US

UK

Euro-Zone

Japanrates3


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201020092008200720062005

300260

220

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300260

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180

140

100

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US Monetary AggregatesJanuary 2005 = 100

Currency + bank reservesCurrency + checkable depositsM1 + time & savings deposits + money market mutual funds

******

M2***M1**Monetary base*


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FJDNOSAJJMAMFJDNOSAJJMAMFJDNOSAJ2010200920082007

5

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1500014000130001200011000

10000

9000

8000

7000

6000

3-Month LIBOR minus 3-Month T-bills, Percent IndexTED Spread & Dow-Jones Industrial Average

teddow

DJIA (Right)TED Spread (Left)


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Heads, we save Bear Stearns. Tails, we save Lehman.

Hank Paulson, March 2008


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“I think we’ve averted” the risk of a new American depression.

Ben Bernanke, March 12, 2009


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Index, 4-Week Moving Average ThousandsUS Mortgage Applications and Home Sales

mbavprch

Mortgage Applications for Purchases (Left)New + Existing Home Sales (Right)


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1005009590858075

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1.6

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2.4

2.0

1.6

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0.8

0.4

US Housing StartsMillions, Seasonally Adjusted Annual Rate

XXX

XXXXX

Blue Chip Forecasts 2010 2011

Top 10 0.82 1.20Consensus 0.71 0.96Bottom 10 0.63 0.73


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Gee, thanks for the housing bubble, Alan.

I’m sure you can handle it, Ben. (Looks like Andrea and I sure picked the right time to sell our condo in DC.)


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Median Sales Price of Existing Single-Family HomesPercent of Median Family Income

1981-2000Average

puvholdmedyfam Source: National Association of Realtors


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Anything that can’t go on forever will stop.Herbert Stein, 1916-1999


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US Motor Vehicle Sales & ProductionMillions

XX

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Sales1986-2007 Trend (1.0%)Production


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DNOSAJJMAMFJDNOSAJJMAMFJDNOSAJJMAMFJ200920082007

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US Consumer Spending and Disposable IncomePercent Change from Year Ago, Constant Dollars

mceydpyp96

2008Fiscal

Stimulus

Disposable IncomeConsumption Expenditures


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FJDNOSAJJMAMFJDNOSAJJMAMFJDNOSAJJMAMFJ2010200920082007

3

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9

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US Retail Sales ex AutomotivePercent Change

sretafsxmvpnom

From Year Ago (Right)From Month Ago (Left)


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US Real Gross Domestic ProductAnnualized Growth Rates

Shaded areasdenote recessions

2.5 3.03.7 4.5 4.4 4.14.8 -2.51.8 3.6 3.1 2.7 2.1 0.41.1Annual Growth Rates (%)

3.6

Quarter-to-quarterYear-over-yearYear-over-year forecast


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US Manufacturing Production & Stock PricesPercent Change from Year Ago, Smoothed

Long-term averageof both series

jipsp

Correlation = .50

Manufacturing Production ex high tech (Right)Wilshire 5000, 7 months prior (Left)


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US Manufacturing Production & OrdersPercent/Percentage Point Change from Year Ago, Smoothed

Long-term averageof both series

jiporn

Correlation = .61

Manufacturing Production ex high tech (Right)ISM New Orders Index, 7 months prior (Left)


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Worst US recession since WW2 has ended

US recession was been longest and deepest since Great Depression.

• Real GDP declined 3.9% over four quarters.

• 8.4 million jobs lost.

• Recession lasted at least 18 months.

Recession probably ended in June 2009.

• Unprecedented action by Fed steadied financial markets.

• Stock prices bottomed in March 2009.

• Unemployment claims have fallen sharply since early April 2009.

• Home sales & housing starts have risen from troughs.

• Vehicle sales surged in July/August 2009 and continue to trend up.

• Leading indicators are up strongly.


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US Manufacturing Production ex High-Tech Sectors2002 = 100

Annual Growth Rates (%)

X

-11.03.3 1.2

X

0.00.81.4 0.0

X

2.2 -3.7 3.6

X

X

X

-8.5 0.7

XX

5.9

Actual95-07 Trend (0.8%)


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Industrial Production, Containers2002 = 100

jipcont


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US Industrial Production, Printing & Related Activities2002 = 100

0.60.8 -5.9 -3.8 -1.0 2.60.6

X X X

0.8

X

-6.1

XX

X X

-14.5Annual Growth Rates (%)

-6.60.9jip27

2.4



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US Industrial Production, Food2002 = 100

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jip20

3.1 1.5 4.3 1.11.1

X

1.0 1.7 0.0 2.4 1.0

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-0.5

X X X X X

Annual Growth Rates (%)



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US Merchandise Trade BalanceBillion $, Annual Rate, 3-Month Moving Average

exchem

Total (Left)Chemicals ex Pharma (Right)


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US Merchandise Trade BalanceBillion $, Seasonally Adjusted Annual Rate

exdcchinxoil

with ChinaRest of World ex OilOil


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Value of US Dollar vs Major Currencies2002 Peak = 100

dollar4

EuroBritish PoundJapanese YenChinese Yuan


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Forecasting exchange rates has a success rate no better than that of forecasting the

outcome of a coin toss. -- Alan Greenspan

November 19, 2004


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14413212010896847260483624120

$/mmbtu $/bblUS Crude Oil and Natural Gas Futures Prices

oilgasl

NYMEX Crude Oil (Right)Natural Gas (Left)


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$/BBL 1982 = 100Industrial Chemical Prices vs. Oil Prices

ppichemoil

PPI, Industrial Chemicals (Right)WTI Crude Oil (Left)


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US Consumer Price IndexPercent Change from Year Ago

XX

X

2.9

X

2.3 3.8 2.52.8 2.9 2.3 2.5

X

3.4 -0.42.2 3.21.6Annual Inflation Rates (%)

2.7

X

2.8 1.6 3.4

XX


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Percentage of Companies Reporting Slower Deliveries PercentPCE* Price Index, ex Food & Energy

jpcxfae *Personal Consumption Expenditures

"Core" Inflation (Right)ISM Supplier Delivery Index (Left)


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US Interest RatesPercent

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ratesq

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10-Year Bond YieldTarget Federal Funds Rate


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Global Industrial ProductionPercent Change from Year Ago, 3-Month Moving Average

ipworlei

1994-2008 Correlation = .89

Industrial Production (Right)OECD+6 Leading Index, 4 months prior (Left)


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Global Industrial Production2005 = 100

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Industrial Production OECD Broad Leading Index


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Conclusions

Leading indicators point to continued near-term growth.

• No evidence of double-dip, but growth likely to slow in second half of 2010.

Rising commodity prices & surprising bottlenecks have halted decline in inflation despite slack in economy.

2010 Central Bank challenge: Withdrawing stimulus at correct pace.

Many arguments for slow recovery are really explanations for why the recession was so severe or arguments for slow long-term growth.

• √¯


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201020092008200720062005

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US Federal Budget Surplus/Deficit*Rolling 12-month total, Billion $

*On- and off-budget

Budget deficit BEFOREstimulus plan and

Obama budget proposal


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You know a recession is over when Congress finally passes a

stimulus bill.

-- Anonymous


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“Every election is a sort of advance auction sale of stolen goods.”

--H. L. Mencken, 1880-1956


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“The accuracy of an economic vision is not always commensurate with the analytical ability of those who

hold it. Pessimistic visions about almost anything always strike the public as more erudite than optimistic ones.”

--Joseph Schumpeter, 1883-1950


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“The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is

born not an infant, but a giant.”

--A. C. Pigou, 1877-1959

Documents

Economic Outlook ROBERT FRY DuPONT ECONOMIST’S OFFICE Flexographic Prepress Platemakers Association Sanibel Island, Florida February 22, 2010