 Good afternoon and welcome. I'm Rebecca Marquez, Business Intelligence Coordinator with PMMI. Today we're going to hear from Chris Steele, Research and Consulting Economist with ITR Economics. Chris will be covering the findings of PMMI's second quarter 2018 Quarterly Economic Outlook Report. Chris is an economist at ITR Economics. He provides economic consulting services with a great deal of insight and action-oriented advice for small businesses, trade associations, and Fortune 500 companies. Chris has also brought in-depth insights of industry trends to the ITR Economics team with his willingness to go above and beyond in his daily research for our clients. Chris graduated from UMass Amherst with a BA in Economics and served six years in the National Guard. His attention to detail, ability to understand the client's specific needs, and organizational skills create an enjoyable partnership with each of his clients. Today, Chris will interpret the information included in the Quarterly Outlook and provide insight on how today's economy may be affecting your packaging and processing operations. If you have any questions that you would like to ask Chris, please type your question in the chat box that is located in the bottom right-hand corner of the screen. At the end of the presentation, which will last approximately 30 to 40 minutes, he will answer your questions. At this point, I would like to hand the webinar over to Chris with ITR Economics. Thank you, Rebecca, and thank you for everyone for coming here today to our Market Forecast webinar. For those of you that have been tuning in for the last few quarters, the structure of today's webinar isn't going to be too surprising for you. For those of you that are first-time listeners, a quick update on what we're looking at going over here today, first we're going to start off with a little bit about what's going on in the U.S. macroeconomy right now, kind of the state of the Union and how the economy stands. We're going to look at our economic outlook for the next two or three years and some of the evidence that supports that before diving into some of the trends specific to PMMI. After that, we're going to zoom out a little bit and look at some of the global economic trends that are going on and some of the international growth drivers and international growth hindrances that we can be expected to see over the next again two or three years. But before we get into that, if I can get this, there we go, before we get into that, I want to go a little bit over our terminology and methodology. ITR as a long-term business cycle consulting firm does look at the economy in a way that is sometimes heterodox or a little bit different than you might hear on the headline news organizations or from other consulting organizations. So I'm not going to drive this point home because I know a lot of you are familiar with our work here at ITR, but the two primary metrics that we look at in our research, either when describing corporate trends or macroeconomic trends, are going to be our data trends and our rates of change. Our data trends are our three-month moving total, our three MMT, or our 12-month moving total or 12 MMT. Those are our quarterly totals or our annual totals. And basically all those are doing is summing up your monthly data into quarterly and yearly totals to help smooth out some of that data. As a long-term business cycle consulting firm, we don't want to get lost in the weeds of month-to-month volatility and trying to interpret what amounts to essentially noise and random chance. Because of that, we like to look at those long-term moving totals to get a better understanding of where a company or where an industry or where the economy as a whole is going in general. So for those three-month moving totals and 12-month moving totals, we also have our rates of change analogs. These are our 312 and 1212, which is our quarter over year and our year over year rates of change. In general, we use the 1212 annual rate of change for benchmarking both corporate and economic activity. And as a rule of thumb, if I'm talking about any rates of change without specifying, I'm generally talking about this annual rate of change. And the reason I'm generally talking about this annual rate of change is because ITR defines the business cycle, again, both for corporate activity, industry, and macroeconomic activity, by your 1212 and by what the 1212 is doing. So you can see down here on the bottom of our screen, we have ITR's business cycle. And for those of you who took finance or business or economics in college or high school, this isn't anything high-brow or surprising for you. But you can see that we break the business cycle down into four main phases. In the bottom left-hand corner in blue, in the bottom left of the sine curve, you can see we have the first phase of the business cycle, phase A recovery. Phase A is defined as when your 1212 is below the zero line, so things are contracting on a year over year basis. Your sales or your industry is declining. However, that 1212 is moving upward toward the zero line. So the pace of decline is diminishing every month. This is kind of the light at the end of the tunnel phase of the business cycle because while things are tough, you can start to see the potential for rise on the horizon. As that 1212 breaks through that zero line, we transition up into green here into phase B accelerated growth. This is the best phase of the business cycle. Whatever metric we're looking at is rising on a year over year basis, and the pace of rise is accelerating on a month over month basis. So your growth rates are going from 3.8 to 4.5% every month. And things are very good. However, those paces of acceleration obviously can't last forever. And at some point that 1212 will reach a peak and begin to fall back down toward the zero line. This brings us over to this yellow portion, phase C slowing growth. I like to think of phase C as the cautionary phase of the business cycle. Things are still good. You're still expanding on a year over year basis. You likely are building a strong backlog of orders. Your profitability figures are looking very good. You might have more work than you know what to do with. However, if you're not paying attention to where you are in this business cycle, if you're not looking toward your rates of change, you risk focusing on all of that positivity and not realizing that your 1212 is falling down toward the zero line. And once it crosses below that zero line, we're in phase D recession. I don't think I need to explain what phase D is for any of you. So when I reference the four phases of the business cycle, phases A, B, C, and D throughout this report, always feel free to reference back to the slide because this describes in a little bit more detail what I'm talking about. So now where is the U.S. economy right now? Well, one of our primary benchmarks for U.S. economic growth, as it relates to you and the members of PMMI, we have U.S. industrial production. U.S. industrial production comprises three main segments of the economy, mining, manufacturing, and utilities production. Right now we are feeling very good when phase B accelerating growth up not quite 2.5% year over year. We expect to see some acceleration into the third quarter of 2018, where we'll rise to about 2.9% by the end of the year before falling into a mild industrial recession in 2019. While negativity will characterize 2019 as a whole, by the time we get into early 2020, we will be in a phase A to phase B trend, and 2020 is looking to be a fairly strong growth year. Now, kind of characterizing the economy in that way of thinking, of that phase B to phase C transition later on in 2018, before a slowing growth trend gives way to a mild recession in 2019, is really kind of the mindset I want you in throughout this report. Overall, 2018 is shaping up to be a very good year, but you do have to remember that crest, that tipping point, that inflection point is on the horizon, and we'll look at a little bit of the data that supports that before we move forward. Now, if you've been a long-time listener at ITR, and if you tuned in for our market forecast update last quarter, you'll know that we were talking about a mid-2018 peak for industrial production. So what's changed? Why has our outlook been extended? Well, first off, in February we had, or excuse me, in March, our annual Federal Reserve Bureau historical data revision. This is where they take a look at the assumptions they've made about the U.S. economy and some of the measuring metrics that they've implemented over the past two or three years, and they revised them and they tweaked them. Normally there's not a huge change to the data when this happens. This year it wasn't extreme. We did see some of those data trends tweaked up and tweaked down, and ultimately we're going to eke out a little bit more positivity for 2018 as compared to what we were looking at last year, or even last quarter. So our phase B expectations for industrial production has been extended to 3Q18. That's good news for everyone in this room. 2018 is generally shaping up to just be overall a little bit stronger than before this data revision. However, it is important that while being more aggressive this year, while positioning yourself to take hold of some of that growth and really translate that economic growth into sales growth or revenue growth, continue to plan for a 2019 recession. While we have upgraded our outlook for 2018, our outlook for 2019 and beyond is largely unchanged. In addition to some of the positivity that came out of that Federal Reserve data revision, there were also a few key leading indicators that were signaling that it might get a little more rise and a little more run out of the industrial sector than we had previously expected. Here you can see the U.S. total industry capacity utilization rate 112, which is essentially a metric that just tries to determine how hot the U.S. economy is running, how much of our capital equipment is being implemented and is being used at any given time. You can see it's currently in a very robust phase B trend, it's in that accelerating growth trend, and with the six to nine months lead time, it's signaling rise in the U.S. economy through at least the third quarter of 2018. That was one of the major metrics that suggested that that second quarter inflection point in U.S. industrial production wasn't going to take hold. Similar, another major leading indicator for the U.S. economy we have is U.S. corporate profits, and you can see that dissimilar to that phase B trend, U.S. corporate profits have turned over into that slow in growth, that phase C trend, and they're also signaling a third quarter of 2018 peak, as well as cyclical decline, that phase C weakening trend in the Wilshire total market cap, which is a measure of stock market activity, is also suggesting a third quarter peak in the industrial production 1212. So when we make revisions to our outlook, or when we're discussing our outlook in general, it's important that you don't have to take our word for it. Instead, we back up our outlook, we back up our view of the trajectory of the economy with these leading indicators, and it's important to remember that these leading indicators aren't constructed via forecast methods or statistical forecasting, anything like that. These are actual real-world, real-time economic data points talking about what is happening in the U.S. economy right now. So we can say with a strong degree of confidence that despite the positivity we're seeing right now in the U.S. economy, by late 2018, by that third quarter, we will reach a tipping point and the business environment is going to become progressively less and less favorable. Another major benchmark for the U.S. economy we have is U.S. non-defense capital goods, new orders without aircraft. All this kind of slurry of words is signifying is U.S. capital investment, B2B activity within the U.S. Again, in a very robust, sustained Phase B accelerating growth trend, capital investment is up about 6.5% year over year after a relatively significant slide in most of 2014, 2015, and 2016. Now, new orders are a dollar-denominated series and a lot of the rise that we saw in 2017 and that we see right now in 2018 coming out of the B2B sector is largely due to an appreciating commodity price environment. Inflation has been kick-started and if we look back to about 2015, 2016, that dip in a wide variety of industrial commodity prices that we have, zinc, copper, aluminum, steel, kind of some of the benchmark names. You can see that coincided with the oil and gas crash and overall just a very large pullback in capital investment. The pricing point in the U.S. economy was low enough that returns on investment were being threatened on large pieces of capital equipment and purchasing managers basically stopped buying new pieces of equipment. They stopped upgrading those factories and we got into a fairly steep, prolonged lull. However, you can see now zinc up 23%, copper, 15%, aluminum, 12.7% steel, 3.3%. Whenever you see those double-digit, low single-digit growth rates on industrial commodity prices, you know that we have transitioned to an inflationary environment and that higher pricing point is stimulating a lot of growth within the U.S. economy. But now we can't talk commodity prices without talking a little bit about the recent news coming out of the White House and coming out of the Chinese administration with tariffs, trade and protectionism. Obviously, we levied a 25% tariff on imported Chinese raw steel as well as a 15% tariff on aluminum and that's going to help kickstart that steel prices 312 that we were looking at. You can see scrap prices down here kind of lagging behind the other industrial commodity prices at 3.3% compared to the same quarter in 2017. However, since the start of the year, so since January 1, 2018, steel scrap prices are already up almost 20% compared to the start of the year and with these new tariffs in place coupled with the strong economic rise that we're seeing, we expect to eke out a few more percentage points of rise in that steel Jan 1 to current pricing environment. So look for steel to rise about 25% higher, maybe 27% higher than where it was at the start of the year and generally appreciate throughout the year. But you can see this relatively well-defined phase C trend in the commodity pricing environment most other industrial metals as well as oil and natural gas, our major energy commodities are in that phase C trend and we're going to see some mild appreciation through the second quarter of 2018 before mostly just flatlining or declining very slightly through the end of the year. This is largely in line with our structural expectations of cyclical decline for the overall US economy by year end. When we talk about commodity price decline by year end, it's important you don't think back to 2014 and 2015 with the oil and gas crash. This is more just a cyclical transition that is naturally tied to lower consumer and industrial demand as opposed to any structural imbalances within our country or within the global economy abroad. Moving back to tariffs, the US White House recently announced tariffs totaling $100 billion worth of goods coming in from China. China recently hit back with $50 billion worth of goods moving into China and it looks like we may be getting ourselves into a little bit of a trade war here. That's concerning in the long run but it's important to note that total US exports into the Chinese economy only total about $115, $120 billion of goods or so. So with the US upping the ante to about $100 billion worth of tariffs on incoming goods, the Chinese government really doesn't have any more leeway to increase the amount of goods they're placing tariffs upon simply because of the trade imbalance between China and the US. The US is a much larger consumer of Chinese goods than China is a consumer of US goods. The US products being hit most severely by these tariffs going into China are going to be aircraft, steel, soy, a few other agricultural products like sorghum but largely while the tariffs are relatively broad across the board these three components are going to be the ones that are going to be hit the hardest and we'll see likely the biggest economic shock domestically. Outside of those industries the near term risks of this burgeoning trade war for the economy abroad are largely going to be higher inflation. We expect to see a generally higher pricing point for consumer goods and industrial goods and as that inflation metric kick starts rising interest rates. We're already in a rising interest rate environment. In any deepening of this trade war any deepening of these tariffs between the US and China will only exacerbate the pace at which the Fed likely raises interest rates. Long term risks talking more the two, three, four year outlook. If things continue to get bad, if the administrations continue to double down on their protectionist agenda versus each other, well like I said the US can continue to place tariffs upon the upwards of $500 billion of goods that come in from China but China largely has their hands tied with the relatively small portion of goods flowing out there. If this trade war deepened then hopefully it doesn't because I challenge any of you to find a situation in history when there was an overall winner in a trade war. We haven't been able to find one. I can't think of any off the top of my head for sure. Longer term risks really the only power China has at striking back at us punitively is either by stop buying or beginning to sell US debt. That could really cripple the US dollar in the long run, really exacerbate the demand for US money. And our international financing situation would be very tough if China even really just pulled back in the pace at which they buy US debt. Again in that situation which is basically a worst case situation we definitely see a weakening dollar ballooning interest rates in a just generally a less favorable business environment within the US especially when dealing with nations abroad. As far as that trade war goes well we'll have to wait and see. Again a lot of this is still in motion it's really breaking news and we'll have to see where both the Trump administration and the Chinese administration decide to draw the line as far as a trade war goes. Stepping back a little bit from the industrial sector and the industrial commodities that we're looking at we can take a look at US GDP gross domestic product to see how the most holistic capture of the US economy is doing and again very similarly excuse me to US industrial production GDP is growing at a 2.5% annualized rate rising to a record high about 17.5 trillion dollars. Again we're looking at that inflation rate sometime in the late second quarter early third quarter of 2018 before the US economy slows to that phase C trend overall but 2018 is still going to be positive. We're going to finish the year up about 1.6%. Before those growth rates tick down and kind of waffle around the zero line the majority of 2019. The major difference the major dichotomy or diverging trends within the US economy is going to be in 2019 as we saw the industrial sector is moving toward a mild economic recession while GDP as a whole is going to contract there's going to be some downward movement some sideways movement but we're likely not going to get the two consecutive quarters of decline in the GDP that is enough to warrant calling this a technical economic recession. So growth will largely halt in 2019 but 2019 by year end as a whole is going to be mildly positive up about a percent compared to 2018. Then once again in 2020 and beyond growth will be kickstarted and we're back to the front side of another positive macroeconomic business cycle. Now why that disparity between the industrial sector and overall GDP? Well it's important to look at what GDP is made up of. About 16% of the US economy is business investment. That's that non defense capital goods new orders kind of segment we were looking at. Government spending accounts for about another 17% and then 67% over two thirds of the US economy is US personal consumption. Personal consumption being the Snickers and Coca-Cola's and coffees and iPhones that you and I buy in our personal lives divorced from our corporate activity. So really as the consumer goes so goes the US economy as a whole and right now the consumer is doing pretty well. Here you can see we have a chart of US private sector employment. Employment is currently growing in a slowing growth trend but up about 1.8% year over year. However job openings are in a very robust phase B up over 5% year over year. So what's important to note here is that job openings are growing about two and a half times as fast as we can fill them and that to you should say a tightening labor market and that's why we're seeing these very low unemployment figures right now. This tight labor market has been very very good to the US consumer but there are some downsides to it as well. The rate is rising. People are confident in their ability to find a job and they are job hopping. But aside from that you know with those higher levels of employment the US consumer is largely doing what it does best and that's getting paid and instantly spending that money. Here you can see we have US retail sales excluding gas stations and that might seem a little strange. The reason we exclude gas stations from this figure is relatively low gas prices we're enjoying right now actually act as a negative indicator when you look at retail sales whereas in fact in reality we all know that low gas prices are good for the consumer. So we're just accounting for that little mismatch in what we're measuring. Once again retail sales up at record levels phase B accelerating growth trend up about 4% year over year. Very healthy and if you're tied to this consumer sector and sell more in the B to C markets than B to B markets you're likely going to link better to that GDP figure which is going to avoid a recession in 2019 than that industrial figure which is going to feel marginally more pain next year. You can see here a broad measure of retail sales segments are all experiencing growth from health and personal care stores at a relatively mild, relatively weak 1% up to jewelry at 6% building materials and gardening supplies 7.5%, 8% and online retailers blowing everyone out of the water at 11% year over year growth. Now and it's important when we look at those online retailers everyone knows about the Amazon effect, everyone knows about the emergence and the dominance of e-commerce and the consumers day to day life but it's important to note that and this is a lesser known figure that while e-commerce is dominating the retail sector business to business e-commerce actually accounts for about twice the activity of business to consumer activity. So the B to B e-commerce space is very robust, it's growing at a similar rate and what that should be saying to you is whether you play in the B to C space or the B to B space it's time for you to stop thinking of yourself as either a brick and mortar retailer or an e-commerce retailer and start realizing that as the years go on in the next 1, 5, 10 years the line between traditional brick and mortar and e-commerce is going to become more and more blurred as they largely converge. And if you don't already have an online presence or if you don't have a brick and mortar domestic presence it's time to start thinking about how you can have some low effort investments that bridge that gap between e-commerce and brick and mortar because that's one of the large scale trends that we're seeing in the B to B and the B to C space. However, despite the overwhelming positivity in these figures and that 4% headline growth rate, there are some areas of weakness primarily light vehicle sales excluding trucks, trucks are doing pretty well in automotive parts stores. The automotive sector as a whole is one of the risk sectors that we're monitoring as we move into this 2019 recessionary period and largely US consumers are moving away from buying new cars at a fast pace and they're doing more with less. They're seeing them as pieces of equipment that perform a job as opposed to a luxury good that you want to buy for a status or a brand effect and because of that the auto industry is very oversupplied and very over leveraged right now. Up here in New Hampshire where we're based at ITR there's a jingle that's on the radio all the time for one of the largest regional car dealers and they're offering, I believe if you bring home $400 a week before taxes we'll give you up to $40,000 toward a new car loan with a zero down. Now, I'm not a car salesman, I'm not a lender, but that should be concerning when you're talking about $400 a week for a $40,000 car loan. That should start to harken back to the 2006-2007 bubble spending era and definitely if they don't start to police themselves could bode very poorly for the automotive sector moving into 2019. One of the drivers behind the very healthy retail spending we're seeing the U.S. economy right now is rising wages due to that tight labor market condition. Again, here you can see the growth rates on a monthly raw data basis. They're currently up about 2.9%, not quite at the 3% mark and overall if you want to deal with that rising quit rate you want to deal with people job hopping and you really want to max out your retention for 2018 and into 2019 as well. You should be planning for 3% wage inflation at least, more so for your key players who you'd have difficulty replacing. Now, while this is largely positive that 3% growth rate is outpacing inflation meaning real wages are rising there are some cracks beginning to show on the consumer sector of the U.S. economy. As you can see while again 2.9% wage inflation is fairly healthy it's down over 100 basis points from the beginning of 2017 when we saw about 4% wage growth. We're on the back side of that business cycle and as we see these labor conditions equilibrate people won't be enjoying the same pace of wage growth as they're seeing right now. And that's concerning because at the same time we're seeing U.S. personal savings absolutely plummet. This top line number you can see on the top of your screen that 15% quarterly growth rate and negative 26% annual growth rate is the rate of change of U.S. personal savings. So in the last year they've declined by over 25% which should be concerning in itself. But then if you look down bottom we have the total U.S. dollar value of personal savings currently at about 474 billion and you can see that is less than half of where we were just back to 2012 and we're approaching the pre-recession peak of about 400 billion. Very concerning, fewer personal savings again go to show that while the consumer is doing well in the moment and they are spending and they are buying and they are greasing the wheels of economic growth they are also leveraging themselves and making themselves more vulnerable to any potential downturn and any potential rise in that unemployment rate that we tend to see during recessionary periods. Compounding that fact we can see that delinquency rates in consumer loans are also rising. Similar to personal savings that peaked in 2012-2014 we saw a trough in delinquency rates a low in 2014 and they've been rising ever since. This is on personal consumer loans and also credit card delinquency. They're both up around 2.5% or so. Now a nascent burgeoning risk factor for the U.S. consumer but no reason to panic yet. You can see both consumer credit and credit card delinquency are both below their 10-year average. So again, there's still time to turn this around and with all of the economic growth that we're seeing in 2018 right now if that consumer does kind of pull back in their spending habits tighten up their purse strings a little bit and begin saving again we could likely mitigate some of the consumer weakness that we're seeing moving into 2019. Now regardless of the recessionary pressures in 2019 and how exposed the consumers are you can always count on beer, wine and liquor store sales to get you through a recession. Last time in over 25 years that we had even a mild recession in the liquor space was after the tech bubble crashed in 2001 and they weren't even drinking less alcohol they were just drinking cheaper alcohol. So if you're looking for a real recession-proof industry it's either beer, wine and liquor or maybe cat food. And again, as we mentioned before commodity prices are appreciating likely to do so through most of 2018 wages are rising, labor costs are rising and that's kick-starting inflation. Here in orange you can see we have the consumer price index and that's a measure of price rise as you and I feel it again for those Twinkies and those iPhones in our personal life but more importantly for you as business leaders we have in blue the US producer price index which measures inflation for producers of goods. The US producer price index PPI is currently outpacing the CPI 2.7% for producers about 2.2% for consumers look for that to rise into late 2018 before those pricing effects begin to diminish late this year into next year. So any pricing issues that you've been dealing with especially if steel or aluminum or imported Chinese goods are a major cost driver for you if you've been having profitability issues if you've been seeing your bottom line threatened by increasing costs you're going to have to find a way to continuously pass on those price increases to your consumers really through the majority of 2018. And as inflation is rising obviously the dual mandate of the Federal Reserve is to control inflation and interest rates and we have seen historically low interest rates over the past six or seven years since the almost decade now since the 2008 recession with the quantitative easing that the Fed was playing with however that has begun to turn around we are seeing yields start to rise interest rates start to rise not quite sure what they're going to do next luckily we have a hard and fast forecasting method all you do is line up our Fed chairmen and chairwomen by their tenure if they're getting shorter and shorter interest rates are going down luckily we know Jeremy Powell is about six and a half feet tall so interest rates have to be going up but you don't have to listen to us for it we can ask the Federal Reserve themselves here we have the Federal Open Market Committee member interest rate projections so each one of these docs for each year is one of the members of the Federal Reserve who is responsible for targeting interest rates and where they expect interest rates to be in 2017, 18, 19 2020 and beyond these blue dots were then being pulled as of 3Q17 and you can see they expect to rise into the 2% range in 2018 before hitting about 3% in 2019 and beyond when they were pulled at the close of 2017 you can see very little changed we're still expecting 3% interest rates by the end of 2019 in the long term as well likely a healthy thing for the US economy getting back to fiscal normalness fiscal normalcy but it does bring with it a pricier cost of doing business in addition to rising labor costs in addition to rising input costs you will have to be dealing with these rising borrowing costs moving to the 2019 recessionary period as well so largely good things for the US economy moving throughout 2018 the 2019 period is going to bring with it some weakness, some managerial hurdles that you have to pass especially if you're tied to the industrial sector as opposed to the consumer sector but overall no serious points of weakness for the US economy over the next 2 to 3 years but there are some lingering long term concerns once again that developing burgeoning trade war with China still in development nothing is finalized yet stay tuned to hear what we here at ITR have to say in the coming weeks in the coming months competitive business cycle problems wages are rising, retention is going to continue being an issue and costs in general are going to be going up through 2018 if you don't deal with that you risk running into that profitless prosperity issue that we've talked a little bit about in previous months and that's the last thing you want knowing that there is a mild recessionary period in 2019 where it would help to have cash on hand couple that with some slowing growth in developing nations and we're really talking about your brick here your Brazil, Russia, India, China Russia, India, China specifically have seen growth rates that are very subdued compared to what they saw even a decade ago and they likely won't be growing at a robust enough pace to help carry us through any cyclical weakness next year and then finally in the longer term US debt and world demographics the CBO just raised their budgetary deficit for the US to one trillion dollars by 2020 and we are moving toward a crisis point in the late 2020s, early 2030s couple that with world demographics, population demographics that are skewing toward the older side a very very aging population in the EU China, especially Japan to drive that point home a funny anecdote I heard about Japan as they set a record in 2017 the first year in history that I know of where they sold more adult diapers than they did infant diapers and again you don't have to be an economist to know that that does not bode well for a robust, useful, vigorous workforce in the decades to come but now let's move away from the macro and jump into a few of the niche sectors that we're looking at for PMMI and now when we look at the industry drivers here it's important to notice that historical data revision that the US industrial production figures were subject to also are affecting the majority of these industries found in the PMMI report in your next quarterly update your quarterly report provided by ITR you will see the finalized forecasts for these industries accounting for that mild historical data revision US food and food preparation production again this is all processed food basically any kind of food including meat that touches machinery other than transportation at any point currently ripping up about 4% year over year phase B accelerating growth trend an imminent slow down is coming phase C is going to characterize most of 2018 with the year closing out up about not quite 2% 2019 also going to be positive up about 2% no weakness in the next three years as far as food production goes as we saw earlier the US consumer is making money they love to spend money and more so than anything except maybe beer and wine as we saw the US consumer loves to spend money on food and they will continue to do that over the next three years if you sell into the food sector you're going to have to grapple with some slowing growth rates but nothing overtly negative similar outlook for US beverages coffee and tea production not quite as rapid pace of rise also in a phase B accelerating growth trend up about 1.7% year over year going to accelerate through year end 2018 finishing up 3% before slowing to about half a percentage to 1% point in 2019 again at less than 1% growth for some periods in 2019 depending on where you're looking in the beverage coffee and tea space this sector may begin to feel recessionary but overall plan for general albeit mild growth through 2018 19 and into 2020 major period of weakness that drove the recession last year was other beverage production not including beer wine and distilled liquors we're talking sodas any any processed non-water drink that was in a relatively deep recession just now coming up to the zero line just now we're beginning to see some growth and that's what's going to drive that phase B accelerating growth trend through year end now we move on to some of the more dour outlooks for this report pharmaceutical and medical device production currently in a phase D this industry is running just below our expectations it's really having trouble kicking itself into gear largely as the conversation around long term healthcare spending has been very nebulous and very undefined however we do expect imminent phase D to phase A transition not going to see any growth until late late in 2018 when it will be up about 2.1% but again the period of growth is going to be mild we're largely going to plateau and oscillate around the zero line for the majority of 2019 growth prospects for this sector aren't looking good until 2020 and beyond so if you're playing in the medical device space 2018 2019 there's going to be some respite but largely driving growth in this sector is going to be a story of market share market share market share similarly but to a lesser extent us personal care products production it has made that phase D to phase A transition we are in that light at the end of the tunnel phase marginally more growth in 2018 the whole second half of the year is going to be positive finishing up about 2.4% year over year but again 2019 as a whole is likely going to be a wash similarly with 2020 where we'll get up to about 2.3% year over year growth showing a 0% for 2020 here that is a mistake please don't be too overtly concerned about 3 years of no growth in the sector but what is important again that consumer who has money to spend is responding well in the consumer healthcare sector this is things that you're going to find at retail pharmacies CVS Walgreens and the like and once you see some of that growth taking hold in the consumer health sector you know that the institutional health sector is likely going to be about a quarter behind chemicals and cleaning products production phase B accelerating growth trend up not quite 3% year over year that phase B is going to persist into the fourth quarter of 2018 finishing the year up about 5% year over year so some solid growth prospects in the cleaning sector before 2019 as a whole is going to be characterized by that phase C but with its ties to the commercial sector again we're going to be seeing more of a soft landing more of that low 1% maybe 0% growth at times for this sector throughout 2019 and again 2020 looking good for the front side of that business cycle to really kick these growth rates in the butt durables hard goods components and parts perhaps one of the more vague names for an economic data series and there's not much we can do about that but basically durables hard goods components and parts are any materials consumer goods or pieces of equipment that are meant to last for 2 to 3 years or more these are things like automotive parts airplane parts on the consumer sector we have furniture computers appliances household fixtures and it's going to be that consumer sector especially tied to the single unit housing market those beds that furniture personal computers fixtures large appliances that's what's going to be driving that phase B accelerating growth trend for much of 2018 after years of the older generations griping about the millennial generation and I consider myself a part of that millennial generation for better or worse depending on who you ask we are finally starting to begin buying houses and mass and so that demand for household appliances is going to help give some lift over the next year, year and a half to this sector we are looking at a technical recession in 2019 with an upside risk of just about flatlining for the year but overall again that weakness is going to be tied more towards the manufacturing sector in the automotive sector as opposed to the retail consumer sector in 2019 so if you are able to shift your focus between the consumer and the industrial over the next two years begin focusing on the consumer sector as we move toward 2019 now we'll take a moment to look at what's happening abroad and you can see just like we're looking at that inflection point in the US economy that phase B to phase C slowing growth transition later this year if we look at the majority of the global leading indicators the Eurozone manufacturing PMI the total EU PMI the JP Morgan global manufacturing PMI forget specifics forget growth rates they have all turned the corner to that phase C slowing growth trend so the same trend that inflection point that slowing growth period that worsening of business conditions that we're expecting for the US is also going to be affecting Asia it's going to be affecting much of South America and the Eurozone as a whole so we're not going to be able to rely on demand from international economies to help kind of drag us through this 2019 period they're largely going to be following suit as of now though the global economy is doing very well on the next few heat maps that we'll be looking at we'll be looking at industrial production by country the more green we are the more positive the more red we are the more negative Canada up 5% US up 2.5% both countries responding very well to rising natural gas rising oil prices as well as just a general inflationary environment Mexico dealing with a lot of uncertainty about the future of long-term investment from the US in their country down less than 1% growth prospects to return by year end but definitely not going to be a rising star over the next year South America one of the weakest regions in the world we're looking at right now a lot of red a lot of mild growth the main driver of growth in the region Brazil up 2.7% but that's a little misleading based off the depths of the industrial recession they're coming out of with the petro brass scandal and the natural gas and oil crash 2% growth off of a very low low line is not going to feel like much if you're involved in this market weakness is going to persist through 2019 for Brazil if you are either tied to their demand or selling directly into their country the EU doing very well growth taking hold in the less developed Eastern European region that it is in the west but largely green across the board good to see the UK up at about 1.9% which is lack luster but still positive given some of the weakness that we saw in their financial markets last year based around the Brexit speculation and some massant protectionism Scandinavian countries just now recovering from the oil and natural gas crunch but again overall we're looking at phase B for much of 2019 before things turn down and really slow down to null in the 2019 time period as far as the EU is concerned more green here when we look at Asia China up 6.5% India 4% Australia lagging behind at about 1.2% but it's important to note while all of these countries are expanding on a year over year basis the growth rate that we're seeing right now in China about 6% is less than half of the growth rates that we were seeing only about 5 years ago in 2013 so while 6.5% sounds good for a developing nation like China it's really not enough to get us excited and it's not a fast enough pace of growth for China to be able to carry us through any potential recessionary periods and really give kind of bolster international demand similar with India we're seeing low single digit growth best case scenario to help mitigate some of the weakness we're seeing next year would like to see high single digits maybe even low double digits growth in India and China but right now structurally it's looking like that's not going to happen and so that slower growth trend and a lot of the major developing nations that we're seeing is really going to be concentrated in this China Indo-China region for 2019 especially but also beyond until they find a way to really reignite and reorient their markets to enjoy the growth rates that we were seeing about a decade ago now it's not enough to know what is going to happen you have to know what to do about it and what is going to happen so I've listed some managerial objectives for you here but for almost a year now all of the changes in the U.S. economy over the last few months only heighten the fact that you have to use this period of rise this period of phase B into 3Q18 to your advantage economic growth period of acceleration reward risk takers really expose yourself to some new opportunities in 2018 use the last half of the year to build up your cash reserves and position yourself to either that period of slower growth if you're tied to GDP or that recessionary period if you're tied to USIP in 2019 now we're coming up on time now so I want you all to kind of internalize these and disseminate these managerial objectives within your company but I'm not going to go through them all instead Rebecca I'm going to turn it over to you to see if we have any questions Thank you Chris for the great reflection of the current economy and the issues at hand in the emerging and processing industry we do actually have a couple of questions the first question is most of us and that's the people attending the webinar produce capital equipment if capacity utilization is forecast to decline what is the reason for that is it possibly because people will be using newer or faster equipment so there's a two prong answer here first off the main reason that capacity utilization is going to decline later in this year into 2019 is basically going to be a tick down and aggregate demand we're going to be seeing less demand internationally and also the US market are basically just transitioning to the back half of that business cycle now as far as your intuition about smarter equipment and equipment doing more with less that's going to be a double edged sword if you supply these kind of AI oriented pieces of equipment these smart more technologically oriented pieces of equipment you're likely going to see some prolonged demand over the next one, five, ten years in general that's the trend of the US economy but if you supply more traditional low tech pieces of equipment in a market that is being impacted by AI you're likely going to be a shift in preference away from utilization of your goods to these new burgeoning goods okay and thank you for that and we do have another question the question is will the effects of the recession impact this industry, packaging and processing earlier in the economic cycle than for other industries? likely not with the amount of different verticals that are involved in the packaging and processing industry really you're likely going to be able to assume you're right around the median expectations of the mid 2019 trough for this recession again largely if you're more tied to consumer products and personal products those amplitudes will be less negative and if you're more tied to industrial packaging those amplitudes are going to be more negative thank you for that also on the slide showing growth in Asia it shows that Singapore has an 11.4% growth rate any idea what's driving that? it's partially just the overall rise in a relatively small economy in Asia is going to see very large swings in their growth rates as opposed to something like China or the US that are these massive institutions but overall we have a feeling there's a lot of trade going through Singapore through some other countries like Vietnam from China in order to avoid tariffs in the US but also tariffs in other countries as well China has a long history of trying to skirt or flout WTO rulings on where goods come from and a lot of times that kind of pass through demand can really bolster demand within some of those kind of gateway or harbor countries that's all the questions we have right now if anyone has further questions please feel free to type them into the text box at the bottom left of your screen and we'll give a moment just in case anyone else has any questions and while we wait for that Rebecca as always I just want to let all of your members know that they can submit any questions they have after the fact to you and you can forward them over to me or they can email them directly to questions at itreconomics.com and either me or the team will get back to them in the days to come Thank you Chris and if anybody, I mean please feel free to email Chris and team directly but if for some reason you forget the email or something you can always feel free to email either myself at armarkesatpmmi.org or Paula Feldman and we will be sure to get those questions over to Chris and his team Just out of curiosity Chris has anybody started conversations about the proposed new Silk Road? I haven't been discussing that specifically if that's something that you and your members are kind of muttering about internally we can definitely start putting together kind of an outlook or an opinion piece on that Just curious about that and it looks like we don't have any further questions let me just make sure and we have no further questions I think we can conclude Chris on behalf of PMMI Thank you for participating today As a final note for everyone who logged on you will receive an email to complete an evaluation on today's webinar We really would like to know how we're doing and so completing this webinar or excuse me completing this evaluation does let us know that please complete it as soon as possible it will only take a moment of your time and just let us know how we can improve and as well this webinar will be posted on PMMI.org tomorrow so for anyone who wants to review anything that we went over you may just visit PMMI.org webinars and view the webinar that way Thank you so much Chris Great Thank you all for coming Enjoy your week everyone