Transcript PowerPoint Presentation - NABE Silicon Valley RoundTable

NABE OUTLOOK
2004Q1 SURVEY
Presented to Silicon Valley Round Table
MARCH 9, 2004
Duncan H. Meldrum
NABE President &
Chief Economist, Air Products
OUTLOOK SUMMARY
• 2004: Strongest Real GDP growth since 1984
– 2005: Growth recedes to trend
• Investment accelerates
• Employment recovers, but slowly
– Held back by productivity gains & high benefit costs
– Unemployment rate falls to 5.6%
• No inflation threat
– No rise in short rates until 2004Q3
– Long rates rise with recovery
• Profits continue to recover
– Demand expansion raises top line growth
– Strong productivity gains and moderate wage gains lead to
lower unit labor costs in 2004
REAL GDP GROWTH
FEB ‘04 FORECAST: STRONGER 2004
5.0
Percent Change
4.5
4.0
September
November
February '04
3.5
3.0
2.5
2.0
1.5
2003
2004
2005
MAIN SOURCES OF
GDP STRENGTH
LESS RELIANCE ON POLICY IN 2004
2003
2004
Residential Investment
Business Fixed Investment
Government Spending
Personal Consumption
Personal Consumption
Inventory Investment
REAL GDP GROWTH RATES
2003
2004
2005
REAL GDP
3.1
4.6
3.8
Consumption
3.1
3.8
3.5
Business Fixed Invest.
2.8
9.8
9.0
Residential Investment
7.6
3.5
-2.3
-$1.5
$41.5
$48.9
Government
3.4
2.6
1.8
Exports
1.9
10.0
9.9
Imports
3.7
7.3
5.4
Inventory Change (B00$)
2004 OUTLOOK
FEB ’04 VS PREVIOUS FORECASTS
12
SEPT
NOV
FEB '04
Percent Change
10
8
6
4
2
0
-2
P
S
R
E
CO
NS
BU
S
X
FI
V
N
I
ID
S
RE
V
N
I
G
VT
O
O
P
EX
S
T
R
IM
R
O
P
TS
2005 OUTLOOK
FEB ’04 FORECAST
Percent Change
12
FEB '04
10
8
6
4
2
0
P
S
R
E
CO
NS
BU
S
X
FI
V
IN
ID
S
RE
V
IN
G
VT
O
O
P
EX
S
T
R
IM
R
O
P
TS
INVENTORY INVESTMENT
LARGE SWING FROM 2003 TO 2004
60
50
BN 00$
40
Sept
Nov
Feb '04
30
20
10
0
-10
2003
2004
2005
U.S. REAL BUSINESS FIXED INVESTMENT
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
92
94
96
98
00
ACTUAL TO 2003Q4
02
04
06
INVESTMENT %CH VS YR AGO (4QMA)
INVESTMENT %CH VS YR AGO (4QMA)
EXPECTED CAP SPEND NRI (DOTTED) SUPPORTS NABE OUTLOOK
U.S. REAL BUSINESS FIXED INVESTMENT
20
40
15
30
10
20
5
10
0
0
-5
-10
-10
-20
92
94
96
98
00
ACTUAL TO 2003Q4
02
04
06
CAP SPEND NRI (4QMA)
INVESTMENT %CH VS YR AGO (4QMA)
EXPECTED CAP SPEND NRI (DOTTED) SUPPORTS NABE OUTLOOK
U.S. REAL BUSINESS FIXED INVESTMENT
20
40
15
30
10
20
5
10
0
0
-5
-10
-10
-20
92
94
96
98
00
ACTUAL TO 2003Q4
02
04
06
CAP SPEND NRI (4QMA)
INVESTMENT %CH VS YR AGO (4QMA)
EXPECTED CAP SPEND NRI (DOTTED) SUPPORTS NABE OUTLOOK
U.S. REAL BUSINESS FIXED INVESTMENT
20
40
15
30
10
20
5
10
0
0
-5
-10
-10
-20
92
94
96
98
00
ACTUAL TO 2003Q4
02
04
06
CAP SPEND NRI (4QMA)
INVESTMENT %CH VS YR AGO (4QMA)
EXPECTED CAP SPEND NRI (DOTTED) SUPPORTS NABE OUTLOOK
EQUIPMENT & SOFTWARE INVESTMENT
20
60
15
45
10
30
5
15
0
0
-5
-15
Equipt & Software Investment ($)
Expected Tech Spending in Next 12 Months
-10
-30
92
94
96
98
00
ACTUAL TO 2003Q4
02
04
CAP SPEND NET RISING INDEX
INVESTMENT %CH VS YR AGO
Industry Survey's New Expected Tech Spending NRI Anticipated Upturn
INDUSTRY SURVEY SUPPORTS
CAPITAL SPENDING OUTLOOK
JANUARY 2004 (03Q4) NET RISING INDEXES
Total
Goods
TUC
Service
Finance
29
16
8
36
41
Expected
45
53
42
47
58
Tech Expected
41
45
42
55
68
CAPITAL SPENDING
EMPLOYMENT WEAKNESS ENDING ?
550
WEEKLY CLAIMS (000)
500
450
400
350
300
250
200
Data Through
2/28/04
Weekly Initial Unemployment Claims
4-Week Moving Average
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11
2000
2001
2002
2003
2004
CALENDAR MONTH
EMPLOYMENT NRI VS TOTAL EMPLOYMENT
40
NABE NRI - EMPLOYMENT
20
20
0
0
-20
-20
JANUARY 2004 (03Q4) NET RISING INDEXES
Total Goods TUC Services Finance
EMPLOYMENT 1
(10) (17)
3
19
Hiring Plans 4
(5)
0
17
39
-40
82
84
86
88
90
92
94
96
98
00
02
04
-40
PERCENT NET RISING
PERCENT NET RISING
40
EMPLOYMENT NRI VS TOTAL EMPLOYMENT
40
5
NABE NRI - EMPLOYMENT
EMPLOYEES - ALL ESTABLISHMENTS
20
2
0
0
-2
-20
JANUARY 2004 (03Q4) NET RISING INDEXES
Total Goods TUC Services Finance
EMPLOYMENT 1
(10) (17)
3
19
Hiring Plans 4
(5)
0
17
39
-40
82
84
86
88
90
92
94
96
98
00
02
04
-3
-5
%CH VS YR AGO
PERCENT NET RISING
3
EMPLOYMENT FORECAST
Percent Change Annual Rate
Slow Improvement
2.0
1.5
1.0
0.5
0.0
-0.5
2003
Q3
Q4
2004
Q1
Q2
Q3
Q4
2005
Q1
Q2
Q3
Q4
EMPLOYMENT GROWS 1.1% IN 2004 AFTER 2003 DECLINE
Lowers Unemployment Rate from 6.0% in 2003 to 5.6% in 2004
%CH vs YR AGO - 12 MMA
4
3
2
1
0
-1
-2
Shaded Areas Indicate U.S. Recessions
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
ACTUAL THROUGH FEBRUARY 2004
SIGNIFICANT FACTORS HOLDING
BACK PAYROLL HIRING (RANKED)
Mean Rank
1
Productivity Gains
Health & Benefit Costs
Payroll Data Shortfall
Inadequate Final Demand
Jobs Lost Overseas
2
3
4
5
MOST IMPORTANT FACTOR
DRIVING PRODUCTIVITY IN U. S.
Percent of Panel
40
30
20
10
0
Staff
Network
Reductions
Management
Require More Improvements
From
Survivors
New Capital
Equipment
Other
Outsourcing
to Offshore
Providers
PRODUCTIVITY GROWTH SLOWS
Percent Change
But Outlook Stronger in 2004 Than in November
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Sept
Nov
Feb '04
2003
2004
2005
COMPENSATION PER HOUR
More Modest Gain Now Expected In 2004, Stronger Gain in 2005
4.0
Percent Change
3.5
Sept
Nov
Feb '04
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2003
2004
2005
Unit Labor Costs
Larger Decline Now Expected in 2004
% CHANGE
1.0
Sep
Nov
Feb '04
0.0
-1.0
-2.0
2003
2004
2005
AFTER TAX CORPORATE PROFITS
Percent Change
Faster Growth Than Previous Forecasts
20
18
16
14
12
10
8
6
4
2
0
Sept
Nov
Feb '04
2003
2004
2005
INDUSTRY SURVEY TOTAL MARGIN NET RISING INDEX
STRONG PROFIT OUTLOOK: JAN '04 BEST READING SINCE 1987
40
40
20
20
0
0
-20
-20
JANUARY 2004 (03Q4) NET RISING INDEXES
Total Goods TUC Services Finance
MARGINS 20
44
15
7
20
-40
-40
82
84
86
88
90
92
94
96
98
00
02
04
PERCENT NET RISING
PERCENT NET RISING
TOTAL MARGIN NRI
INFLATION IS NOT AN ISSUE
INFLATION RATE (%)
4.0
CPI
GDP PRICE INDEX
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2000
2001
2002
2003
2004
2005
INTEREST RATE OUTLOOK
First Short Term Increase In 2004Q3
6.0
Percent
5.0
3 Mo Tbill
10 Yr Tbond
4.0
3.0
2.0
1.0
0.0
Q1
2004
Q2
Q3
Q4
Q1
2005
Q2
Q3
Q4
Federal Deficit Forecast
A Little Deeper in FY2004
(With Some Recovery In FY2005)
0
-100
-200
-300
-400
Sept
Nov
Feb '04
-500
-600
FY 2003
FY 2004
FY2005
FEDERAL DEFICIT AS % GDP
Deep, But Not As Deep As After Previous Recessions
4
History
2
% OF GDP
0
-2
-4
BLUE BARS
FEB '04 NABE
FORECAST
-6
-8
80
82
84
86
88
90
92
94
96
98
00
02
04
REAL NET EXPORTS
Better Performance Expected
Net Exports of Goods & Services, NIA Basis
-200
-250
BN 00$
-300
-350
-400
-450
Sept
Nov
Feb '04
-500
-550
-600
2003
2004
2005
FACTORS BEHIND DOLLAR’S DECLINE
VS EURO (&, TO LESSER EXTENT, OTHER CURRENCIES)
Mean Rank
1
Foreign Investor Views Of $ Assets
Interest Rate Differentials
Unstated "Weak $ Policy"
Stronger Growth Expected Outside US
Friction Between US & Trading Partners
2
3
4
5
GOODS-PRODUCERS DEMAND NRI VS
FRB INDUSTRIAL PRODUCTION INDEX
100
100
75
75
50
50
25
25
0
0
-25
-25
-50
-50
82
84
86
88
90
92
94
96
98
00
02
04
PERCENT NET RISING
PERCENT NET RISING
NABE NRI - GOODS DEMAND
GOODS-PRODUCERS DEMAND NRI VS
FRB INDUSTRIAL PRODUCTION INDEX
100
16
75
12
50
8
25
4
0
0
-25
-4
-50
-8
82
84
86
88
90
92
94
96
98
00
02
04
CAGR
PERCENT NET RISING
NABE NRI - GOODS DEMAND
FRB INDUSTRIAL PRODUCTION (RT SCALE)
INDUSTRIAL PRODUCTION
SOLID GROWTH ABOVE 5% IN 2004 AND 2005
10
%CH vs YR AGO - 12MMA
8
6
4
2
0
-2
-4
-6
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
ACTUAL THROUGH DECEMBER 2003
U.S. MANUFACTURING CAPACITY UTILIZATION
RECOVERS TO LEVELS EQUIVALENT TO 91 RECESSION IN 04
90
PERCENT
85
80
FEB 2004
NABE OUTLOOK
BLUE BARS
75
70
65
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
ACTUAL THROUGH DECEMBER 2003
OUTLOOK SUMMARY
• 2004: Strongest Real GDP growth since 1984
– 2005: Growth recedes to trend
• Investment accelerates
• Employment recovers, but slowly
– Held back by productivity gains & high benefit costs
– Unemployment rate falls to 5.6%
• No inflation threat
– No rise in short rates until 2004Q3
– Long rates rise with recovery
• Profits continue to recover
– Demand expansion raises top line growth
– Strong productivity gains and moderate wage gains lead to
lower unit labor costs in 2004
JANUARY ’04 INDUSTRY SURVEY
DEMAND
Exports
INVENTORY
Net Too High
PRICES
Expected
Success Raising
COST MATERIALS
Expected
Wages
Benefits
MARGINS
EMPLOYMENT
Hiring Plans
CAPITAL SPENDING
Expected
Tech Expected
No Shortages
JANUARY 2004 (03Q4) NET RISING INDEXES
Total
Goods
TUC
Service
Finance
49
81
31
27
56
52
60
0
38
100
(7)
(11)
33
(33)
0
0
(11)
33
25
N
17
14
15
13
20
30
20
8
40
35
32
38
23
32
33
26
22
83
6
44
34
35
46
31
27
14
10
0
10
32
11
10
(8)
23
19
20
44
15
7
20
1
(10)
(17)
3
19
14
(5)
0
17
39
29
16
8
36
41
45
53
42
47
58
41
45
42
55
68
81
94
89
77
83
JULY ‘03 INDUSTRY SURVEY
DEMAND
Exports
INVENTORY
Net Too High
PRICES
Expected
Success Raising
COSTS
Expected
Wages
Benefits
MARGINS
EMPLOYMENT
Hiring Plans
CAPITAL SPENDING
Expected
Tech Expected
No Shortages
Total
27
27
8
13
3
6
19
13
9
3
8
(3)
(13)
(3)
3
27
50
82
JULY 2003 NET RISING INDEXES
Goods
TUC
Service
(5)
(6)
31
13
D
8
(25)
25
18
13
25
8
(25)
17
11
(20)
12
7
5
28
24
11
29
11
(5)
12
5
(5)
6
0
5
0
17
(11)
0
(2)
(40)
(39)
(7)
(35)
(18)
(7)
(5)
(6)
(2)
15
(7)
40
50
20
53
84
85
83
Finance
65
D
25
0
0
14
19
(18)
4
33
27
9
16
36
29
61
78
78