Manufacturing Assessment

Manufacturing Assessment

Rocky Mountain Economic Summit Victor, ID July 13, 2017

William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago

GDP expanded by 2.1% over the past year

Real gross domestic product percent

8 6

4 2 0

-2 -4

Percent change from a year earlier

-6 -8

Quarterly change (saar)

-10 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

The Chicago Fed National Activity Index 3-month average is at zero Chicago Fed National Activity Index 2.0 1.0 0.0 -1.0 -2.0

Three month average

-3.0 -4.0 Monthly

-5.0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Employment increased by over 2.2 million jobs over the past 12 months Total employment percent

4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7

Percent change from a year earlier

Quarterly change (saar) 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Slow productivity growth helps explain why relatively strong employment growth has not translated into higher wages Productivty percent change (20-qtr ra te)

5 4 3 2 1 0 -1 1950

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

A large part of the weakness in productivity growth has been the weak pace of investment Real private nonresidential fixed investment percent

20

10 0 -10

Percent change from a year earlier

-20 Quarterly change (saar)

-30 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Declines in manufacturing output were broad-based during the Great Recession – especially in vehicle and primary metals manufacturing Industrial output: December 2007 - June 2009 percent change

-60 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other Manufacturing

-50

-40

-30

-20

-10

0

The recovery has also been broad-based with motor vehicles, computer and electronic components, primary metals and machinery manufacturing leading the way Industrial output: June 2009 - May 2017 percent change

-50 -25 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other Manufacturing

0

25 50 75 100 125 150 175

Over the past couple of years, the real trade-weighted dollar increased by 15.9% Trade-weighted exchange value of the U.S. dollar (real) i ndex: Ma rch 1973=100

115 110 105 100 95 90 85 80 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Manufacturing output has started to increase after being unchanged for the past couple of years Industrial production - manufacturing percent

40 30

Monthly change (saar) Percent change from a year earlier

20 10 0

-10 -20

-30 -40 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Manufacturers’ Purchasing Managers Indexes Jul-16

Aug-16

S e p-16

Oct-16

N ov-16

D e c-16

Ja n-17

Fe b-17

Ma r-17

Apr-17

Ma y-17

Jun-17

Globa l

51.0

50.8

51.0

52.0

52.1

52.7

52.7

53.0

53.0

52.7

52.6

52.6

U nite d S ta te s

52.9

52.0

51.5

53.4

54.1

54.3

55.0

54.2

53.3

52.8

52.7

52.0

Ca na da

51.9

51.1

50.3

51.1

51.5

51.8

53.5

54.7

55.5

55.9

55.1

54.7

Me xico

50.6

50.9

51.9

51.8

51.1

50.2

50.8

50.6

51.5

50.7

51.2

52.3

E urozone

52.0

51.7

52.6

53.5

53.7

54.9

55.2

55.4

56.2

56.7

57.0

57.4

Ge rma ny

53.8

53.6

54.3

55.0

54.3

55.6

56.4

56.8

58.3

58.2

59.5

59.6

Fra nce

48.6

48.3

49.7

51.8

51.7

53.5

53.6

52.2

53.3

55.1

53.8

54.8

Ita ly

51.2

49.8

51.0

50.9

52.2

53.2

53.0

55.0

55.7

56.2

55.1

55.2

S pa in

51.0

51.0

52.3

53.3

54.5

55.3

55.6

54.8

53.9

54.5

55.4

54.7

UK

48.2

53.3

55.4

54.2

53.6

56.1

55.7

54.5

54.2

57.3

56.7

54.3

R ussia

49.5

50.8

51.1

52.4

53.6

53.7

54.7

52.5

52.4

50.8

52.4

50.3

Ja pa n

49.3

49.5

50.4

51.4

51.3

52.4

52.7

53.3

52.4

52.7

53.1

52.4

China

50.6

50.0

50.1

51.2

50.9

51.9

51.0

51.7

51.2

50.3

49.6

50.4

India

51.8

52.6

52.1

54.4

52.3

49.6

50.4

50.7

52.5

52.5

51.6

50.9

Bra zil

46.0

45.7

46.0

46.3

46.2

45.2

44.0

46.9

49.6

50.1

52.0

50.5

Manufacturing added 49,000 jobs over the past year

Manufacturing employment percent

5 0 -5 Percent change from a year earlier Percent change from a year earlier

-10 -15 Quarterly change (saar) Quarterly change (saar)

-20 1990'91 '92 '92 '93 '93'94 '94'95 '95'96 '96'97 '97'98 '98'99 '99'00 '00'01 '01'02 '02'03 '03 '04 '04 '05'05 '06'06 '07'07 '08'08 '09'09 '10'10 '11'11 '12'12 '13'13 '14'14 '15 '15 '16 '16 '17

Capacity utilization has been improving

Capacity utilization - manufacturing percent

86 84 82 80 78 76 74 72 70 68 66 64 62 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

The supply managers’ composite index continues to signal a solid expansion Purchasing managers' index - composite net percent reporting i ncreases

65 60 55 50 45 40 35 30 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

The industrial sector output growth has been improving over the past several months Current 3 Month Moving Average Growth is: Above Trend and Accerating Above Trend and Decelerating Below Trend and Accelerating Below Trend and Decelerating Contracting but Improving Contracting and Deteriorating

Manufacturing Industries Activity Chart Growth (3-month moving average) compared with the most recent 5-year trend 2012

Manufacturing Wood Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Misc. Transport Equip Furniture and Related Products Miscellaneous Durable Goods Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products

0.9% 3.4% 3.2% -0.9% -0.3% -2.3% 3.1% 0.6% 5.3% 0.8% 1.1% -0.4% 1.7% 0.9% -6.2% -0.9% -0.4% -0.3% 1.7% 1.4%

2013

2014

2015

2016

2017

Industrial production is forecast to improve but expand at a pace a bit below its historical rate Total industrial production percent

10

Percent change from a year earlier

5 0 Q1-2017

-5

Blue Chip IP Forecast

-10 Actual 2016 -0.1

-15 -20

Forecast 2017 2018 2.7 2.3

Quarterly change (saar)

-25 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Light vehicles sales set a record in 2016 edging up 0.4% from 2015 – 2017 year-to-date sales were 1.3% lower than a comparable period of year earlier Light vehicle sales mi l lions of units (saar)

22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Consumer spending on energy are well below the historical average Energy goods and services expenditures as a share of percent total consumption 10 9 8

80s

60s

7

70s

1960-2017

6 5 90s

4

10s

00s

3 1960

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

Year-to-date light truck sales are 5.7% higher than a year earlier, while passenger car sales are 11.7% lower Passenger car and light truck sales mi l lions of units (saar)

13

12 11 10

light trucks passenger cars

9 8

7 6

5 4 3 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Light truck market share is at a record high

Light truck share of light vehicle market sales percent

70 65 60

55 50

45 40 35 30 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Domestically produced sales are higher than in 1980

Share of light vehicle sales percent

percent

100

100 imports

90

90

80

80

70

70 new domestics

60

60

50

50

40

40 Detroit-3

30

30

20

20

10

10

0

0 1980

'83

'86

'89

'92

'95

'98

'01

'04

'07

'10

'13

'16

Days supply of vehicles are somewhat higher than desired, especially for passenger cars Passenger car and light truck days supply da ys

120

110

light trucks

100

90 80

70 60 50 40 30

passenger cars 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Automotive production growth has slowed

Industrial output - consumer autos and trucks percent change from a year earlier

125 100

75 50 25

0 -25

-50 -75 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

New vehicle price increases remain low

Consumer price index - new vehicles percent change from a year earlier

6 5 4 3 2 1 0 -1 -2 -3 -4 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

The automobile delinquency rate from direct loans are rising, but remain very low Delinquency rate - automobile direct loans percent

3.5 3.0

2.5 2.0 1.5

1.0 0.5 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

The automobile delinquency rate from indirect loans have also been rising, but also remain low Delinquency rate - automobile indirect loans percent

3.75

3.50 3.25 3.00 2.75 2.50

2.25 2.00

1.75 1.50 1.25 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Alternative powered vehicles (including hybrids) are a very small fraction of total vehicle sales Power-Type percent of total sales

100

90

Gasoline and Diesel

80 70 60 50

40 30

20 10

Alternative

0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Alternative powered vehicles (including hybrids) market share barely exceeded 4% and have been declining over the past two years Alternative Powered Vehicles percent of total sales

5 4 3

2 1 0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Vehicle sales are anticipated to edge lower over this year and in 2108 Vehicle sales mi l lions of units

18 17 16 15 14 Blue Chip Light-Vehicle Sales Forecast

13 12

Actual 2016 17.5

11

Forecast 2017 2018 17.0 16.9

10 1980

'85

'90

'95

'00

'05

'10

'15

Summary •Manufacturing output is expected to increase at a rate below trend this year and in 2018 •Manufacturing employment is likely to increase at a modest pace •Vehicle sales are anticipated to move lower through 2018

www.chicagofed.org www.federalreserve.gov