September 2010

Presented By:

ITR

Brian Beaulieu

brian@itreconomics.com www.itreconomics.com

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US Industrial Production to Gross Domestic Product3/12 Rates-of-Change

-15

-10

-5

0

5

10

15

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

-15

-10

-5

0

5

10

15

GDP

US IP

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Global Industrial Production Indices12/12 Rates-of-Change

-25

-20

-15

-10

-5

0

5

10

15

'00 '02 '04 '06 '08 '10 '12 '14

-25

-20

-15

-10

-5

0

5

10

15

12.2 - SE Asia

-0.7 - Europe

6.8 - Japan

1.0 - Mexico

8.3 - Brazil

2.1 - US

ITR Trends Report

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Consumer Loan Delinquency Rates3MMA and 12MMA

-2

0

2

4

6

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 12-2

0

2

4

6

4.6%

4.7%

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Delinquency Rates for C&I Loans3/12 &12/12 Rates-of-Change

-80

-40

0

40

80

120

160

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 12-80

-40

0

40

80

120

160

3/12

12/12

25.0%

77.8%

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Corporate Profits, $ Billions

$28.1

$28.3

$84.0

$75.2

$75.0

$183.7

$139.9

$24.7

$30.0

$80.4

$83.5

$99.0

$150.9

$258.0

$39.4

$41.5

$91.5

$112.9

$129.1

$250.4

$362.7

$0 $50 $100 $150 $200 $250 $300 $350 $400

Transportation and warehousing

Utilities

Wholesale trade

Information

Retail trade

Manufacturing

Financial

Billions

2010 (1Q SAAR)

2009

2008

U.S.Bureau of Economic Analysis

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President Obama’s 10-Year Deficit Projections(Baseline of Current Policy)

Billions of Dollars

-2000

-1500

-1000

-500

0

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Based on an Average GDP Growth of 5.04 Percent perYear from 2010-2019

236128

-158

-378-413

-318 -248-161

-455

-1552-1449

-1173

-939 -938-955 -925 -988-1013

-1031-1145

Source: A New Era of Responsibility, Table S-2, budget.gov

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12MMT = 17.54

8.2%

Example: Revenue 12MMT

Monthly

Sep 09 1.47Oct 09 1.51Nov 09 1.65 3MMT = 4.63Dec 09 1.75

Jan 10 1.76Feb 10 1.64 3MMT = 5.14Mar 10 1.71

Apr 10 1.74May 10 1.54 3MMT = 4.98Jun 10 1.44

July 10 1.24 3MMT = 4.22Aug 10 1.26 3MMT = 3.95 12MMT = 18.70Sep 10 1.74 3MMT = 4.24 12MMT = 18.97

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ANNUAL MOVING TOTAL (12MMT) AS OF 8/10ANNUAL MOVING TOTAL (12MMT) AS OF 8/09

= 1/12

3-MOS MOVING TOTAL (3MMT) AS OF 8/103-MOS MOVING TOTAL (3MMT) AS OF 8/09 = 3/12

= 12/12

ACTUAL MONTHLY DATA AS OF 8/10ACTUAL MONTHLY DATA AS OF 8/09

RATE-OF-CHANGE

ITR Trends Report

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US Industrial Production Index to Foods Production12/12 Rates-of-Change

-15

-10

-5

0

5

10

15

20

1975 1980 1985 1990 1995 2000 2005 2010 2015

US IP

-6

-4

-2

0

2

4

6

8Production

US IP

Food Production

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Food ProductionN311, 2002=100

-15

-12

-9

-6

-3

0

3

6

'94 '96 '98 '00 '02 '04 '06 '08 '10 12

R-O-C

82

90

98

106

114

122

130

138MMA

4.0

100.9

5.0

Oct '03

Apr '04

Jul '06

Jan '06

12MMA3MMA

3/12

12/12

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US Industrial Production to Pet Food Expenditures12/12 Rates-of-Change

-16

-12

-8

-4

0

4

8

12

16

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Expenditures

-12

-9

-6

-3

0

3

6

9

12Index

Expenditures

Index

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US Industrial Production to Plastics Products Production12/12 Rates-of-Change

-18

-12

-6

0

6

12

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

US IP

-18

-12

-6

0

6

12

Plastics

US IP

Plastics

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US Industrial Production to Medical Instruments Production12/12 Rates-of-Change

-12

-9

-6

-3

0

3

6

9

'96 '98 '00 '02 '04 '06 '08 '10 12

US IP

-16

-12

-8

-4

0

4

8

12Production

US IP

Instruments Production

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Pharmaceutical Production N3254, 2002=100

-40

-32

-24

-16

-8

0

8

16

'94 '96 '98 '00 '02 '04 '06 '08 '10 12

R-O-C

40

60

80

100

120

140

160

180MMA

0.5

101.8

2.5Sep '05

Sep '06

Jul '06

Sep '05

12MMA

3MMA

3/1212/12

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Computer & Electronic Products New Orders to Americas Chip Shipments

12/12 Rates-of-Change

-30

-20

-10

0

10

20

30

40

50

'94 '96 '98 '00 '02 '04 '06 '08 '10 12

Computer

-60

-40

-20

0

20

40

60

80

100Shipments

Computer New Orders

Chip Shipments

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Nondefense Capital Goods New Orders toElectro medical, Measuring, and Control Instruments New Orders

12/12 Rates-of-Change

-30

-24

-18

-12

-6

0

6

12

18

24

'94 '96 '98 '00 '02 '04 '06 '08 '10 12

Electromedical

-30

-24

-18

-12

-6

0

6

12

18

24Capital

Electromedical Instruments

Capital Goods

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Trends 10

2006-2009 2010-2013

New Orders

Financial

Sales

Housing

ProductionPrices

Foreign

Nonresidential Construction

Medical

Wholesale Trade

ITR Trends Report

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Mortgage Rates to Federal FundsRaw Data

-2

2

6

10

14

18

22

1975 1980 1985 1990 1995 2000 2005 2010 2015-2

2

6

10

14

18

22

Mortgage Rates

Federal Funds

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Short-Term Interest Rates to US Gov’t Long-Term Bond YieldsAnnual Data Trends

0

4

8

12

16

20

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120

4

8

12

16

20

Short-Term Interest Rates

Long-Term Bonds

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-25

-20

-15

-10

-5

0

5

10

15

'94 '96 '98 '00 '02 '04 '06 '08 '10 12

R-O-C

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0MMA

3.930

2.20.8

Sep '08

Sep '07

Jul '95

M2 Money SupplyTrillions of 82$

12MMA

Actual

12/12

1/12

ITR Trends Report

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US Industrial Production to Corporate Bond Prices12/12 Rates-of-Change

-15

-10

-5

0

5

10

15

1975 1980 1985 1990 1995 2000 2005 2010 2015

US IP

-30

-20

-10

0

10

20

30Bonds

US IP

Corporate Bonds

ITR Trends Report

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-24

-18

-12

-6

0

6

12

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

R-O-C

65

80

95

110

125

140

155MMA

7.57.1

107.4

U.S. Composite Leading Indicator1996 = 100

12MMA

Actual

12/12 1/12

ITR Trends Report

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-40

-20

0

20

40

60

80

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-40

-20

0

20

40

60

80

1/12

12/12

Dec '09

Dec '08

Purchasing Managers IndexISM

ITR Trends Report

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-90

-60

-30

0

30

60

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

R-O-C

200

1000

1800

2600

3400

4200MMA

19.2

2.8

1092.5

Aug '09

Sep '07

Sep '09

Dec '07

Stock Prices IndexS&P 500,1941 – 43 = 10

12MMA

Actual

12/12

1/12

ITR Trends Report

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-21

-14

-7

0

7

14

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

R-O-C

1.00

1.75

2.50

3.25

4.00

4.75

MMT

0.4

2.5

$2.048

May '06

Jul '05

Retail Sales Excluding AutomobilesTrillions of 82-84$

12MMT 3MMT

3/1212/12

ITR Trends Report

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Personal SavingsBillions of $, Annual Data Trend

SAAR

0

200

400

600

800

1000

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 12

0

200

400

600

800

1000

Source: Bureau of Economic Analysis

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Higher Education Expenditures to Retail Sales excluding Autos 12/12 Rates-of-Change

-9

-6

-3

0

3

6

9

12

15

18

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Education

-6

-4

-2

0

2

4

6

8

10

12Sales

Education

Retail Sales

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-90

-75

-60

-45

-30

-15

0

15

30

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

R-O-C

0.2

0.7

1.2

1.7

2.2

2.7

3.2

3.7

4.2

MMT

-6.8-4.3

0.586

Mar '06

Feb '08

Sep '09

Mar '01

Housing StartsMillions of Units

12MMT3MMT

3/1212/12

ITR Trends Report

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Phase A Phase B Phase C Phase DPhase A

A A

Phase A Phase B

A

B

A

B

Phase A Phase B Phase C

A

B C

A

B C

Phase A Phase B Phase C Phase D

A

B C

D A

B C

D

Four Phases

Bankrupt

Expansion

ITR Trends Report

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Phase Management ObjectivesTM:

 

Phase Late D – Recession Early A - Early Recovery

1. Prepare training programs

2. Negotiate union contracts if possible

3. Develop advertising & marketing programs

4. Enter or renegotiate long-term leases

5. Look for additional vendors

6. Capital expenditures & acquisitions considered in

light of market-by-market potential

7. Make acquisitions – use pessimism to your

advantage

8. People will be scared – lead with optimism and “can

do” attitude

ITR Trends Report

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Phase Management ObjectivesTM :

1. Positive leadership modeling (culture turns into behavior)

2. Establish goals: tactical goals which lead to strategic achievement

3. Develop a system for measurement and accountability re: #2

4. Align compensation plans with #2 and #3

5. Process standardization

6. Judiciously expand credit

7. Check distributions systems for readiness to accommodate

increased activity

8. Review and uncover competitive advantages

9. Invest in customer market research (know what they value)

10. Improve efficiencies with investment in technology and software

Phase Late A - Recovery:

ITR Trends Report

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Phase Management ObjectivesTM :

11. Start to phase out low margin work

12. Add sales staff

13. Build inventories, commoditized items (price)

14. Introduce new product lines

15. Capital equipment orders

16. Begin advertising and sales promotions

17. Hire to fill skill gaps

18. Implement plans for facilities expansion

19. Implement training programs

Phase Late A - Recovery:

Part 2

ITR Trends Report

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Phase Management ObjectivesTM :

1. Accelerate training

2. Check the process flow for possible future bottlenecks

3. Continue to build inventory

4. Increase prices

5. Consider outside manufacturing sources if internal

pressures becoming tight

6. Find the answer to “What next?”

7. Open distribution channels (your own or outsource)

8. Use improved cash flow to improve corporate operations

9. Use cash to create new competitive advantages

10.Watch your debt-to-equity ratio and ROI

11.Maintain/pursue quality: don’t let complacency set in

Phase Early B - Growth:

ITR Trends Report

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Phase Management ObjectivesTM :

1. Stay in stock on A items, be careful with C items2. Consider selling the business in a climate of maximum “goodwill”3. Penetrate new selected accounts4. Develop plan for lower activity in traditional, mature markets5. Freeze expansion plans (unless related to

“what is next”)6. Spin off undesirable operations7. Consider taking on subcontract work if the backside of the cycle

looks recessionary8. Stay realistic – beware of linear budgets9. Begin missionary efforts into new markets10.Communicate competitive advantages to maintain margins

Phase Late B Early C - Prosperity:

ITR Trends Report

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Find a way to do business in the “counter-cyclical” or largely unaffected areas:

Energy Green Water Canada / Exports Higher Education Health Care Practices

Food/Leisure Pets Funeral Services Alcohol Security Legal Services

(Diversified)

40

Demographics

Winning Demographics

USA ~ 300 Million grows to 400 – 500 Million

India

Indonesia

Australia

Brazil

Negative Demographics

China

Europe

Japan

RussiaSource: United Nations

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itreconomics.com

GDP, Bils of US $, Current Prices

Percent of World GDP

3.8%

25.6%

8.8%

8.5%

5.8%

4.6%

United States

Australia

Mexico

IndiaCanada

Brazil

United Kingdom

Italy

Russia

SpainG

erm

any

China

Japan

France

S. K

orea

For follow-up questions, spreadsheet,TrendCastTM or Forecast information

please contact:

Barbara@itreconomics.com603-796-2500