Global Economics Update - October 2015

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A monthly summary of global economic performance including employment, trade, business conditions, leading indicators and regional data.

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Global Economics Update - October 2015

  1. 1. .... Laird Research - Economics October 14, 2015 Where we are now . . . . . . . . . . . . . . . . . . . . . . . . 1 Indicators for US Economy . . . . . . . . . . . . . . . . . . . 3 Global Financial Markets . . . . . . . . . . . . . . . . . . . . 4 US Key Interest Rates . . . . . . . . . . . . . . . . . . . . . . 9 US Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 QE Taper Tracker . . . . . . . . . . . . . . . . . . . . . . . . . 11 Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 12 US Banking Indicators . . . . . . . . . . . . . . . . . . . . . . 13 US Employment Indicators . . . . . . . . . . . . . . . . . . . 14 US Business Activity Indicators . . . . . . . . . . . . . . . . 16 US Consumption Indicators . . . . . . . . . . . . . . . . . . 17 US Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Global Business Indicators . . . . . . . . . . . . . . . . . . . 20 Canadian Indicators . . . . . . . . . . . . . . . . . . . . . . . 23 European Indicators . . . . . . . . . . . . . . . . . . . . . . . 25 Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 27 Global Climate Change . . . . . . . . . . . . . . . . . . . . . 28 Where we are now Welcome to the Laird Report. We present a selection of economic data from around the world to help figure where we are today. The economy and the stock market are related but certainly not “the same”. Although everything seems to move together these days, its important to step back and consider one of the biggest divergences in the world right now - the stunning recovery of financial markets since the 2008 crisis versus the very slow, plodding recovery of consumers (and I’m in particular looking at the slow recovery of unemployment metrics in the US and the EU). The estimates for US corporate earnings (using the S&P 500 as a proxy) show declining growth rates. Part of this can be blamed on the strengthening US dollar hurting the value of foreign income, but part is due to demand which is currently at low levels and not increasing “fast enough”. Unemployment has been slowly but steadily improving over time, especially in the US, to the point where the past year has seen un- ambiguous improvements in all employment metrics. Initial claims are at historic lows and the unemployment rate is well below fed targets. In the press, there’s a lot of concern over corporate profits stagnat- ing in the US and Canada, but its important to consider how historically high profit margins have become. Those margins can be attributed to very low interest rates, but also to productivity improvements – mea- sured as the amount of output per person. Much of the productivity improvements have stayed on the corporate bottom lines with little trickling down to workers/consumers as higher wages (note: consumers account for over 60% of US GDP). Hourly wages have stagnated for a long time - especially on a real (inflation adjusted) basis. As the US gets close to full employment, there is usally pressure for higher wages, and as talked about in previous reports, some of that is being seen. Here’s one version of the economy’s recent history: businesses needed to tighten their belt and restructure in 2008-2010 to survive, and this hit workers hard due to layoffs. Businesses saw an immedi- ate improvement in bottom lines when the economy stopped shrinking
  2. 2. and this is very slowly trickling down to workers. However, at a certain point businesses were running too tight on labour and need to hire more people, but this wasn’t inflationary because there was a large pool of unemployed to draw on. As businesses hire more in the future, hourly wages should increase. Luckily, inflation hasn’t taken off yet because raw material prices have stayed low (looking at you, oil), which has kept interest rates low. On the other hand, consumers/workers are only now seeing low unemployment (which probably helped account for consumer sentiment increases in the US earlier this year) but the rest of the world is still sputtering with China slowing way down - that makes businesses more cautious, which puts a damper on consumers because they are a sensitive lot - and now consumer sentiment in the US is going down again. In theory, full employment would also imply capacity utilization to be at some kind of global high - but it hasnt recovered to pre-recession levels (so I guess there’s some holes in the story or else there is a ways to go before wage inflation becomes a thing). In short, there’s a strange dynamic of the consumer ascending but business peaking and poten- tially declining – and there is an obvious interaction between the two. No idea which one wins this tug of war. Note that the government is a spoiler in all this as austerity measures are a net drag on the economy while programs like TARP were boosts while they lasted. This is mainly a US story - Europe certainly has a huge pool of un- employed and decent labour mobility which would take wage inflation- ary pressures down locally as they can draw on workers from outside individual countries). I would assume this means it is taking longer to play out - note that inflation is still very low in Europe. Pricing pressure upwards is a good indication that things are improving. If anything, there is a lack of demand in the EU, which is keeping prices down. Unemployment in the EU is still simply too high and they can’t export enough to make up for low demand at home. China is still a mystery in its performance - partially because it doesn’t data that we can trust (though many would argue the same for, say, US inflation data) and partially because there are some big shifts in the structure of its economy. There was a lot of upset earlier when Caterpillar talked about plummeting sales in the Asia/Pacific re- gion. Same with Alcoa talking about lower heavy industry demand. Oddly enough, consumer spending in China seems to be holding up - Nike saw sales up 36% in China in their 3rd quarter. In aggregate, Chinese imports declined in September by 20.4% from a year ago - if most imports are skewed to capital equipment (no thanks we’re full) and basic commodities (oil’s having a 50% off sale!) then this makes sense. The tug of war in China is whether domestic consumer demand can make up for lower business investment - this is a major multiyear transition. The evidence on GDP growth is that consumer demand is lagging behind investment for now. Note as well that exports are also down, and given China is a major source of finished consumer goods, that implies global demand is still down (though a stronger US dollar which makes Chinese goods cheaper also helps US domestic demand while still making exports in China look lower). The transition from export focus to a more balanced local demand focus was a clear policy decision by China and despite fits and starts (tough to make the whole economy work to your schedule even in a planned economy) it seems to be following the plan. Formatting Notes The grey bars on the various charts are OECD recession indicators for the respective countries. In many cases, the last available value is listed, along with the median value (measured from as much of the data series as is available). Subscription Info For a FREE subscription to this monthly re- port, please visit sign up at our website: www.lairdresearch.com Laird Research, October 14, 2015 www.lairdresearch.com October 14, 2015 Page 2
  3. 3. Indicators for US Economy Leading indicators are indicators that usually change before the economy as a whole changes. They are useful as short-term predictors of the economy. Our list includes the Philly Fed’s Leading Index which summarizes multiple indicators; initial jobless claims and hours worked (both decrease quickly when demand for employee services drops and vice versa); purchasing manager indicies; new order and housing per- mit indicies; delivery timings (longer timings imply more demand in the system) and consumer sentiment (how consumers are feeling about their own financial situation and the economy in general). Red dots are points where a new trend has started. Leading Index for the US Index:Est.6monthgrowth −3−10123 median: 1.53 Aug 2015: 1.64 Growth Contraction Initial Unemployment Claims 1000'sofClaimsperWeek 200400600 median: 349.75 Oct 2015: 267.50 Manufacturing Ave. Weekly Hours Worked Hours 394041424344 median: 40.60 Sep 2015: 41.60 ISM Manfacturing − PMI Index:SteadyState=50 3040506070 median: 53.40 Sep 2015: 50.20 expanding economy contracting economy Manufacturers' New Orders: Durable Goods BillionsofDollars 150200250300 median: 184.06 Aug 2015: 235.52 Index of Truck Tonnage TruckTonnageIndex 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 100120 median: 112.95 Jun 2015: 132.10 Capex (ex. Defence & Planes) BillionsofDollars 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 40506070 median: 57.79 Aug 2015: 69.31 Chicago Fed National Activity Index IndexValue 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −4−202 median: 0.08 Aug 2015: −0.41 U. Michigan: Consumer Sentiment Index1966Q1=100 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 507090110 median: 88.40 Sep 2015: 87.20 www.lairdresearch.com October 14, 2015 Page 3
  4. 4. Global Financial Markets Global Stock Market Returns Country Index Name Close Date Current Value Weekly Change Monthly Change 3 month Change 12 month Change Corr to S&P500 Corr to TSX North America USA S&P 500 Oct 13 2,003.7 1.2% I 2.6% I -4.6% J 6.9% I 1.00 0.82 USA NASDAQ Composite Oct 13 4,796.6 1.0% I -0.2% J -5.4% J 13.8% I 0.97 0.80 USA Wilshire 5000 Total Market Oct 13 21,001.6 1.1% I 1.9% I -5.4% J 6.9% I 1.00 0.84 Canada S&P TSX Oct 13 13,844.7 1.4% I 3.7% I -4.7% J -1.4% J 0.82 1.00 Europe and Russia France CAC 40 Oct 13 4,643.4 -0.4% J 2.8% I -7.1% J 13.8% I 0.58 0.67 Germany DAX Oct 13 10,032.8 1.3% I -1.0% J -12.6% J 13.8% I 0.57 0.65 United Kingdom FTSE Oct 13 6,342.3 0.3% I 4.2% I -5.9% J -0.4% J 0.59 0.68 Russia Market Vectors Russia ETF Oct 13 16.8 2.1% I 5.0% I -6.3% J -18.4% J 0.68 0.73 Asia Taiwan TSEC weighted index Oct 13 8,567.9 2.1% I 3.1% I -5.2% J -1.6% J 0.39 0.49 China Shanghai Composite Index Oct 12 3,287.7 0.0% K 5.5% I -17.2% J 39.0% I 0.32 0.37 Japan NIKKEI 225 Oct 13 18,234.7 0.3% I 1.5% I -9.2% J 19.2% I 0.43 0.42 Hong Kong Hang Seng Oct 13 22,600.5 3.5% I 4.8% I -10.4% J -2.3% J 0.40 0.48 Korea Kospi Oct 13 2,019.1 1.4% I 4.5% I -2.1% J 4.8% I 0.40 0.45 South Asia and Austrailia India Bombay Stock Exchange Oct 13 26,846.5 -0.3% J 3.8% I -4.0% J 1.8% I 0.46 0.55 Indonesia Jakarta Oct 13 4,483.1 0.8% I 2.1% I -8.4% J -8.8% J 0.42 0.51 Malaysia FTSE Bursa Malaysia KLCI Oct 13 1,711.1 2.9% I 4.4% I -0.3% J -4.8% J 0.28 0.38 Australia All Ordinaries Oct 13 5,234.6 0.7% I 2.2% I -4.1% J 1.6% I 0.31 0.37 New Zealand NZX 50 Index Gross Oct 13 5,702.8 0.6% I 0.7% I -0.1% J 10.3% I 0.10 0.19 South America Brasil IBOVESPA Oct 13 47,363.0 -0.8% J 0.2% I -10.8% J -18.3% J 0.68 0.67 Argentina MERVAL Buenos Aires Oct 13 10,762.5 0.6% I 0.6% I -9.9% J 8.8% I 0.63 0.66 Mexico Bolsa index Oct 13 44,318.2 1.7% I 3.5% I -1.5% J 2.9% I 0.71 0.74 MENA and Africa Egypt Market Vectors Egypt ETF Oct 13 41.7 6.1% I 5.0% I -7.2% J -35.2% J 0.38 0.36 (Gulf States) Market Vectors Gulf States ETF Oct 13 25.3 -0.1% J 2.6% I -6.5% J -17.8% J 0.44 0.55 South Africa iShares MSCI South Africa Index Oct 13 57.7 -0.2% J 5.0% I -10.3% J -7.0% J 0.69 0.62 (Africa) Market Vectors Africa ETF Oct 13 21.0 1.8% I 4.4% I -9.7% J -26.9% J 0.61 0.59 Commodities USD Spot Oil West Texas Int. Oct 05 $46.3 4.2% I 0.8% I -11.8% J -48.8% J 0.41 0.55 USD Gold LME Spot Oct 13 $1,154.4 1.5% I 4.2% I -0.0% J -6.0% J -0.16 -0.06 Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days. www.lairdresearch.com October 14, 2015 Page 4
  5. 5. S&P 500 Composite Index The S&P 500 Composite Index is widely regarded as the best single gauge of the large cap U.S. equities market. A key figure is the valua- tion level of the S&P500 as measured by the Price/Earnings ratio. We present two versions: (1) a 12-month trailing earnings version which reflects current earnings but is skewed by short term variances and (2) a cyclically adjusted version which looks at the inflation adjusted earn- ings over a 10 year period (i.e. at least one business cycle). Forecasted earnings numbers are estimates provided by S&P. S&P 500 Profit Margins and Overall Corporate Profit Margins (Trailing 12 months) Percent 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 Percent Total Corporate Profits (% of GDP) − median: 6.2%, Q2/15: 10.3% Net Profit Margin (S&P 500 Earnings / Revenue) − median: 6.6%, Q3/15: 8.2% S&P Quarterly Earnings (USD$ Inflation Adjusted to current prices) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 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 −5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 −5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 Tech Bubble Japanese Asset Bubble House BubbleAsian Financial Crisis US Financial Crisis Eurozone crisis Oil Crisis I Oil Crisis II Gulf War Savings and Loans Crisis High Inflation Period Afganistan/Iraq WarVietnam War Reported Earnings Operating Earnings Trailing P/E Ratios for S&P500 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 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 0 10 20 30 40 50 0 10 20 30 40 50 Multiple Multiple 12−month P/E ( median = 17.4, Oct = 20.9) 10−year CAPE ( median = 19.5, Oct = 24.4) www.lairdresearch.com October 14, 2015 Page 5
  6. 6. S&P 500 Composite Distributions This is a view of the price performance of the S&P 500 index com- panies. The area of each box is proportional to the company’s market cap, while the colour is determined by the percentage change in price over the past month. In addition, companies are sorted according to their industry group. AAPL +3.8% GOOG +9.1% MSFT +12% FB +7.9% V +8.8% ORCL +5% INTC +15% IBM +4.9% CSCO +11% MA +7.7% QCOM +4.5% ACN HPQ TXN CRM ADP YHOO BRCM EBAY INTU TEL FISV EA FIS MU ADI ADS ALTR MSI RHT WU BRK−A +0.22% WFC +1.7% JPM +0.16% BAC −0.064% C +0.53% GS AXP AIG USB MS SPG MET BLK PNC BK COF AMT PSA PRU ACE TRV CME MMC CB STT CCI BBT AFL AON ALL HCN DFS GGP AVB BEN PLD STI HIG VNO PFG IVZ HST L RF SLG O XL JNJ +3.6% PFE +5.2% GILD −3.3% MRK −5% UNH +11% AMGN AGN −11% BMY MDT CELG ABBV −11% LLY BIIB ABT ESRX REGN TMO AET SYK ALXN CI BDX VRTX BXLT MYL ABC ZBH STJ BAX ISRG EW ENDP A LH AMZN +11% DIS +7.1% HD +7.6% CMCSA +9.3% NKE +16% MCD +11% SBUX PCLN +11% LOW +7.7% TWX F FOX TWC GM TGT TJX CCL VFC JCI LB ORLY CMG DLPH AZO RCL DG M MHK AAP JWN BBY HOT HBI DHI RL GT AN WMT +4.6% PG +7.6% KO +8.4% PEP +8% PM +8.5% CVS MO +12% WBA −1% KHC +4.6% COST RAI CL +7.7% KMB KR GIS EL ADM STZ K SYY TSN GE +17% BA MMM UPS +8.5% UTX +5.1% UNP +12% HON LMT DHR GD FDX CAT DAL RTN NOC ITW PCP EMR AAL CSX LUV DE ETN NSC WM UAL CMI ROP APH TYC PH IR VRSK AME LLL XOM +9.8% CVX +13% SLB −1% KMI COP +15% OXY +5% EOG PSX APC VLO MPC BHI PXD SE DVN HES APA NOV DUK NEE D SO AEP EXC PCG SRE PPL PEG EIX ED ES DTE FE ETR NI DOW DD LYB MON ECL PX APD PPG SHW IP WRK FCX AA NUE CF IFF T +2.8% VZ −1.2% LVLT CTL Information Technology Financials Health Care Consumer Discretionary Consumer Staples Industrials Energy Utilities Materials Telecommunications Services <−25.0% −20.0% −15.0% −10.0% −5.0% 0.0% 5.0% 10.0% 15.0% 20.0% >25.0% % Change in Price from Sep 1, 2015 to Oct 13, 2015 Average Median Median Median Sector Change P/Sales P/Book P/E Utilities 7.8% I 1.6 1.7 18.4 Information Technology 7.7% I 3.6 4.4 24.7 Industrials 7.1% I 1.5 3.6 18.6 Consumer Discretionary 7.1% I 1.6 3.7 20.5 Consumer Staples 7.0% I 2.2 5.8 26.8 Average Median Median Median Sector Change P/Sales P/Book P/E Energy 6.7% I 1.5 1.8 19.3 Materials 5.0% I 1.3 3.8 20.5 Financials 2.4% I 2.8 1.6 16.4 Telecommunications Services 1.1% I 1.4 2.0 26.7 Health Care -0.7% J 3.1 3.6 25.8 www.lairdresearch.com October 14, 2015 Page 6
  7. 7. US Equity Valuations A key valuation metric is Tobin’s q: the ratio between the market value of the entire US stock market versus US net assets at replacement cost (ie. what you pay versus what you get). Warren Buffet famously follows stock market value as a percentage of GNP, which is highly (93%) correlated to Tobin’s q. We can also take the reverse approach: assume the market has valuations correct, we can determine the required returns of future es- timated earnings. These are quoted for both debt (using BAA rated securities as a proxy) and equity premiums above the risk free rate (10 year US Treasuries). These figures are alternate approaches to under- standing the current market sentiment - higher premiums indicate a demand for greater returns for the same price and show the level of risk-aversion in the market. Tobin's q (Market Equity / Market Net Worth) and S&P500 Price/Sales 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 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 0.25 0.50 0.75 1.00 1.25 1.50 1.75 0.25 0.50 0.75 1.00 1.25 1.50 1.75 Buying assets at a discount Paying up for growth Tobin Q (median = 0.76, Mar = 1.06) S&P 500 Price/Sales (median = 1.35, Sep = 1.71) Equity and Debt Risk Premiums: Spread vs. Risk Free Rate (10−year US Treasury) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 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 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Implied Equity Premium (median = 4.2%, Sep = 4.9%) Debt (BAA) Premium (median = 2.0%, Sep = 3.3%) www.lairdresearch.com October 14, 2015 Page 7
  8. 8. US Mutual Fund Flows Fund flows describe the net investments in equity and bond mutual funds in the US market, as described in ICI’s “Trends in Mutual Fund Investing” report. Note however that this is only part of the story as it does not include ETF fund flows - part of the changes are investors entering or leaving the market, and part is investors shifting to ETF’s from mutual funds. US Net New Investment Cash Flow to Mutual Funds US$billions(monthly) 2007 2008 2009 2010 2011 2012 2013 2014 2015 −40−2002040 Domestic Equity World Equity Taxable Bonds Municipal Bonds US Net New Investment Cash Flow to Mutual Funds US$billions(Monthly) 2007 2008 2009 2010 2011 2012 2013 2014 2015 −60−40−200204060 Flows to Equity Flows to Bonds Net Market Flows www.lairdresearch.com October 14, 2015 Page 8
  9. 9. US Key Interest Rates Interest rates are often leading indicators of stress in the financial system. The yield curve show the time structure of interest rates on government bonds - Usually the longer the time the loan is outstanding, the higher the rate charged. However if a recession is expected, then the fed cuts rates and this relationship is inverted - leading to negative spreads where short term rates are higher than long term rates. Almost every recession in the past century has been preceeded by an inversion - though not every inversion preceeds a recession (just most of the time). For corporate bonds, the key issue is the spread between bond rates (i.e. AAA vs BAA bonds) or between government loans (LIBOR vs Fedfunds - the infamous “TED Spread”). Here a spike correlates to an aversion to risk, which is an indication that something bad is happen- ing. US Treasury Yield Curves ForwardInstantaneousRates(%) 14 15 16 17 18 19 20 21 22 23 24 25 0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.5 1.0 1.5 2.0 2.5Oct 9, 2015 (Today) Sep 9, 2015 (1 mo ago) Jul 9, 2015 (3 mo ago) 09 Oct 2014 (1 yr ago) 3 Month & 10 Yr Treasury Yields 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% 10 Yr Treasury 3 Mo Treasury Spread AAA vs. BAA Bond Spreads 4% 5% 6% 7% 8% 9% 4% 5% 6% 7% 8% 9% Percent AAA BAA 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 91.00 Oct 2015: 137.00 0 100 200 300 0 100 200 300 Spread(bps) LIBOR vs. Fedfunds Rate 0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% Percent 3 mos t−bill LIBOR 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 36.38 Oct 2015: 30.86 0 100 200 300 0 100 200 300 Spread(bps) www.lairdresearch.com October 14, 2015 Page 9
  10. 10. US Inflation Generally, the US Fed tries to anchor long run inflation expectations to approximately 2%. Inflation can be measured with the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) index. In both cases, it makes sense to exclude items that vary quickly like Food and Energy to get a clearer picture of inflation (usually called Core Inflation). The Fed seems to think PCI more accurately reflects the entire basket of goods and services that households purchase. Finally, we can make a reasonable estimate of future inflation ex- pectations by comparing real return and normal bonds to construct an imputed forward inflation expectation. The 5y5y chart shows expected 5 year inflation rates at a point 5 years in the future. Neat trick that. Consumer Price Index Percent 84 85 86 87 88 89 90 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 −1% 0% 1% 2% 3% 4% 5% 6% −1% 0% 1% 2% 3% 4% 5% 6% US Inflation Rate YoY% (Aug = 0.22%) US Inflation ex Food & Energy YoY% (Aug = 1.8%) Personal Consumption Expenditures Percent(YearoverYear) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −10123456 PCE Inflation Rate YoY% (Aug = 0.33%) PCE Core Inflation YoY% (Aug = 1.3%) 5−Year, 5−Year Forward Inflation Expectation Rate Percent 07 08 09 10 11 12 13 14 15 16 17 18 19 20 −10123456 5 year forward Inflation Expectation Actual 5yr Inflation (CPI measure) Actual 5yr Inflation (PCE Measure) www.lairdresearch.com October 14, 2015 Page 10
  11. 11. QE Taper Tracker The US has been using the program of Quantitative Easing to pro- vide monetary stimulous to its economy. The Fed has engaged in a series of programs (QE1, QE2 & QE3) designed to drive down long term rates and improve liquidity though purchases of treasuries, mor- gage backed securites and other debt from banks. The higher demand for long maturity securities would drive up their price, but as these securities have a fixed coupon, their yield would be decreased (yield ≈ coupon / price) thus driving down long term rates. In 2011-2012, “Operation Twist” attempted to reduce rates without increasing liquidity. They went back to QE in 2013. The Fed chairman suggested in June 2013 the economy was recover- ing enough that they could start slowing down purchases (“tapering”). The Fed backed off after a brief market panic. The Fed announced in Dec 2013 that it was starting the taper, a decision partly driven by seeing key targets of inflation around 2% and unemployment being less than 6.5%. In Oct 2014, they announced the end of purchases. QE Asset Purchases to Date (Treasury & Mortgage Backed Securities) Trillions 0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.5 1.0 1.5 2.0 2.5 QE1 QE2 Operation Twist QE3 TaperTreasuries Mortgage Backed Securities Total Monthly Asset Purchases (Treasury + Mortgage Backed Securities) Billions −100 −50 0 50 100 150 200 −100 −50 0 50 100 150 200 Month to date Oct 07: $−0.02 Inflation and Unemployment − Relative to Targets Percent 0 2 4 6 8 10 0 2 4 6 8 10 Target Unemployment 6.5% Target Inflation 2% U.S. 10 Year and 3 Month Treasury Constant Maturity Yields Percent 0 1 2 3 4 5 0 1 2 3 4 5 2008 2009 2010 2011 2012 2013 2014 2015 Short Term Rates: Once at zero, Fed moved to QE Long Term Rates: Moving up in anticipation of Taper? www.lairdresearch.com October 14, 2015 Page 11
  12. 12. Exchange Rates 10 Week Moving Average CAD Exchange Rates 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0.620.710.810.901.001.09 USA/CAD 0.550.610.660.720.770.82 Euro/CAD 59.1674.7190.26105.81121.36136.91 Japan/CAD 0.380.440.490.550.610.67 U.K./CAD 0.591.101.602.112.613.12 Brazil/CAD CAD Appreciating CAD Depreciating Change in F/X: Sep 1 2015 to Oct 9 2015 (Trade Weighted Currency Index of USD Trading Partners) −3.0% −1.5% 1.5% 3.0% Euro 0.4% UK 1.4% Japan 1.6% South Korea −1.7% China 1.0% India −1.2% Brazil 3.0% Mexico −1.5% Canada −0.5% USA −1.2% Country vs. Average Appreciating Depreciating % Change over 3 months vs. Canada <−10.0% −8.0% −6.0% −4.0% −2.0% 0.0% 2.0% 4.0% 6.0% 8.0% >10.0% CAD depreciatingCAD appreciating ARG −0.6% AUS 0.8% BRA −14.7% CHN −1.3% IND −0.5% RUS −7.6% USA 2.4% EUR 5.1% JPY 5.8% KRW 0.0% MXN −2.6% ZAR −4.9% www.lairdresearch.com October 14, 2015 Page 12
  13. 13. US Banking Indicators The banking and finance industry is a key indicator of the health of the US economy. It provides crucial liquidity to the economy in the form of credit, and the breakdown of that system is one of the exac- erbating factors of the 2008 recession. Key figures to track are the Net Interest Margins which determine profitability (ie. the difference between what a bank pays to depositors versus what the bank is paid by creditors), along with levels of non-performing loans (i.e. loan loss reserves and actual deliquency rates). US Banks Net Interest Margin Percent 3.03.54.04.5 median: 3.94 2015 Q2: 2.97 Repos Outstanding with Fed. Reserve BillionsofDollars 0200400600 median: 56.56 Oct 2015: 282.68 Bank ROE − Assets between $300M−$1B Percent 051015 median: 12.82 2015 Q2: 9.85 Consumer Credit Outstanding %YearlyChange −505101520 median: 7.61 Aug 2015: 6.78 Total Business Loans %YearlyChange −2001020 median: 8.60 Sep 2015: 10.64 US Nonperforming Loans Percent 12345 median: 2.19 2015 Q2: 1.69 St. Louis Financial Stress Index Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0246 median: 0.087 Oct 2015: −0.55 Commercial Paper Outstanding TrillionsofDollars 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.01.41.82.2 median: 1.34 Oct 2015: 1.04 Residential Morgage Delinquency Rate Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 246810 median: 2.32 2015 Q2: 5.77 www.lairdresearch.com October 14, 2015 Page 13
  14. 14. US Employment Indicators Unemployment rates are considered the “single best indicator of current labour conditions” by the Fed. The pace of payroll growth is highly correlated with a number of economic indicators.Payroll changes are another way to track the change in unemployment rate. Unemployment only captures the percentage of people who are in the labour market who don’t currently have a job - another measure is what percentage of the whole population wants a job (employed or not) - this is the Participation Rate. The Beveridge Curve measures labour market efficiency by looking at the relationship between job openings and the unemployment rate. The curve slopes downward reflecting that higher rates of unemploy- ment occur coincidentally with lower levels of job vacancies. Unemployment Rate Percent 79 80 81 82 83 84 85 86 87 88 89 90 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 median: 6.10 Sep 2015: 5.10 4 5 6 7 8 9 10 11 4 5 6 7 8 9 10 11 Percent 4 5 6 7 8 9 10 2.02.53.03.54.0 Beveridge Curve (Unemployment vs. Job Openings) Unemployment Rate (%) JobOpenings(%totalEmployment) Dec 2000 − Dec 2008 Jan 2009 − Jun 2015 Jul 2015 Participation Rate Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 6364656667 median: 66.00 Sep 2015: 62.40 Total Nonfarm Payroll Change MonthlyChange(000s) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −5000500 median: 164.00 Sep 2015: 142.00 www.lairdresearch.com October 14, 2015 Page 14
  15. 15. There are a number of other ways to measure the health of employ- ment. The U6 Rate includes people who are part time that want a full-time job - they are employed but under-utilitized. Temporary help demand is another indicator of labour market tightness or slack. The large chart shows changes in private industry employment lev- els over the past year, versus how well those job segments typically pay. Lots of hiring in low paying jobs at the expense of higher paying jobs is generally bad, though perhaps not unsurprising in a recovery. Median Duration of Unemployment Weeks 510152025 median: 8.70 Sep 2015: 11.40 (U6) Unemployed + PT + Marginally Attached Percent 810121416 median: 9.80 Sep 2015: 10.00 4−week moving average of Initial Claims Jan1995=100 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 50100150200 median: 107.53 Oct 2015: 82.24 Unemployed over 27 weeks MillionsofPersons 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 01234567 median: 0.79 Sep 2015: 2.06 Services: Temp Help MillionsofPersons 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.52.02.5 median: 2.25 Sep 2015: 2.91 −200 0 200 400 600 15 20 25 30 35 40 Annual Change in Employment Levels (000s of Workers) Averagewages($/hour) Private Industry Employment Change (Sep 2014 − Sep 2015) Construction Durable Goods Education Financial Activities Health Services Information Leisure and Hospitality Manufacturing Mining and Logging Nondurable Goods Other Services Professional & Business Services Retail Trade Transportation Utilities Wholesale Trade Circle size relative to total employees in industry www.lairdresearch.com October 14, 2015 Page 15
  16. 16. US Business Activity Indicators Business activity is split between manufacturing activity and non- manufacturing activity. We are focusing on forward looking business indicators like new order and inventory levels to give a sense of the current business environment. Manufacturing Sector: Real Output YoYPercentChange −1001020 median: 9.41 2015 Q2: 6.38 ISM Manufacturing − PMI Index 3040506070 Sep 2015: 50.20 manufac. expanding manufac. contracting ISM Manufacturing: New Orders Index Index 304050607080 Sep 2015: 50.10 Increase in new orders Decrease in new orders Non−Manufac. New Orders: Capital Goods BillionsofDollars 40506070 median: 57.79 Aug 2015: 69.31 Average Weekly Hours: Manufacturing Hours 3940414243 median: 41.10 Sep 2015: 41.60 Industrial Production: Manufacturing YoYPercentChange −15−50510 median: 3.12 Aug 2015: 1.65 Total Business: Inventories to Sales Ratio Ratio 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.11.21.31.41.51.6 median: 1.36 Jul 2015: 1.36 Chicago Fed: Sales, Orders & Inventory Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −0.50.00.5 Aug 2015: −0.03 Above ave growth Below ave growth ISM Non−Manufacturing Bus. Activity Index Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 35455565 Sep 2015: 60.20 Growth Contraction www.lairdresearch.com October 14, 2015 Page 16
  17. 17. US Consumption Indicators Variations in consumer activity are a leading indicator of the strength of the economy. We track consumer sentiment (their expec- tations about the future), consumer loan activity (indicator of new purchase activity), and new orders and sales of consumer goods. U. Michigan: Consumer Sentiment Index1966Q1=100 5060708090110 median: 88.40 Sep 2015: 87.20 Consumer Loans (All banks) YoY%Change −10010203040 median: 7.61 Sep 2015: 4.82 Accounting Change Deliquency Rate on Consumer Loans Percent 2.03.04.0 median: 3.46 2015 Q2: 1.96 New Orders: Durable Consumer Goods YoY%Change −20020 median: 4.11 Aug 2015: 7.38 New Orders: Non−durable Consumer Goods YoY%Change −2001020 median: 4.21 Aug 2015: −12.40 Personal Consumption & Housing Index Index −0.40.00.20.4 median: 0.02 Aug 2015: −0.08above ave growth below ave growth Light Cars and Trucks Sales MillionsofUnits 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 10121416182022 median: 14.82 Aug 2015: 17.73 Personal Saving Rate Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 246810 median: 5.55 Aug 2015: 4.60 Real Retail and Food Services Sales YoY%Change 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −10−505 median: 2.47 Aug 2015: 1.94 www.lairdresearch.com October 14, 2015 Page 17
  18. 18. US Housing Housing construction is only about 5-8% of the US economy, how- ever a house is typically the largest asset owned by a household. Since personal consumption is about 70% of the US economy and house val- ues directly impact household wealth, housing is an important indicator in the health of the overall economy. In particular, housing investment was an important driver of the economy getting out of the last few recessions (though not this one so far). Here we track housing prices and especially indicators which show the current state of the housing market. 15 20 25 30 35 150200250300 Personal Income vs. Housing Prices (Inflation adjusted values) NewHomePrice(000's) Disposable Income Per Capita (000's) Aug 2015 r2 : 89.4% Range: Jan 1959 − Aug 2015 Blue dots > +5% change in next year Red dots < −5% change in next year New Housing Units Permits Authorized MillionsofUnits 0.51.01.52.02.5 median: 1.35 Aug 2015: 1.16 New Home Median Sale Price SalePrice$000's 100150200250300 Aug 2015: 292.70 Homeowner's Equity Level Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4050607080 median: 66.50 2015 Q2: 56.30 New Homes: Median Months on the Market Months 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 468101214 median: 4.95 Aug 2015: 3.70 US Monthly Supply of Homes MonthsSupply 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4681012 median: 5.90 Aug 2015: 4.70 www.lairdresearch.com October 14, 2015 Page 18
  19. 19. US Housing - FHFA Quarterly Index The Federal Housing Finance Agency provides a quarterly survey on house prices, based on sales prices and appraisal data. This gener- ates a housing index for 355 municipal areas in the US from 1979 to present. We have provided an alternative view of this data looking at the change in prices from the peak in the 2007 time frame. The goal is to provide a sense of where the housing markets are weak versus strong.The colours represent gain or losses since the start of the housing crisis (defined as the maximum price between 2007-2009 for each city). The circled dots are the cities in the survey, while the background colours are interpolated from these points using a loess smoother. Change from 2007 Peak − Q2 2015 −50% −40% −30% −20% −10% 0% 10% 20% 30% 40% 50% Today's Home Prices Percentage Change from 2007−2009 Peak Frequency −75% −50% −25% 0% 25% 50% 75% Year over Year Change − Q2 2015 −10% −8% −6% −4% −2% 0% 2% 4% 6% 8% 10% YoY Change in this quarter YoY Percent Change Frequency −15% −10% −5% 0% 5% 10% 15% www.lairdresearch.com October 14, 2015 Page 19
  20. 20. Global Business Indicators Global Manufacturing PMI Reports The Purchasing Managers’ Index (PMI) is an indicator reflecting purchasing managers’ acquisition of goods and services. An index read- ing of 50.0 means that business conditions are unchanged, a number over 50.0 indicates an improvement while anything below 50.0 suggests a decline. The further away from 50.0 the index is, the stronger the change over the month. The chart at the bottom shows a moving av- erage of a number of PMI’s, along with standard deviation bands to show a global average. Global M−PMI − September 2015 <40.0 42.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0 >60.0 Steady ExpandingContracting Eurozone 52.0 Global PMI 50.6 TWN 46.9MEX 52.1 KOR 49.2 JPN 51.0 VNM 49.5 IDN 47.4 ZAF 47.9 AUS 52.1 BRA 47.0 CAN 48.6 CHN 47.2 IND 51.2 RUS 49.1 SAU 56.5 USA 53.1 Global M−PMI Monthly Change <−5.0 −4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0 PMI Change ImprovingDeteriorating Eurozone −0.3 Global PMI −0.1 TWN 0.8MEX −0.3 KOR 1.3 JPN −0.7 VNM −1.8 IDN −1.0 ZAF −1.4 AUS 0.4 BRA 1.2 CAN −0.8 CHN −0.1 IND −1.1 RUS 1.2 SAU −2.2 USA 0.1 Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia 04 05 06 07 08 09 10 11 12 13 14 15 3040506070 3040506070 Business Conditions Contracting Business Conditions Expanding www.lairdresearch.com October 14, 2015 Page 20
  21. 21. Global Manufacturing PMI Chart This is an alternate view of the global PMI reports. Here, we look at all the various PMI data series in a single chart and watch their evolution over time. Red numbers indicate contraction (as estimated by PMI) while green numbers indicate expansion. Sep13 Oct13 Nov13 Dec13 Jan14 Feb14 Mar14 Apr14 May14 Jun14 Jul14 Aug14 Sep14 Oct14 Nov14 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Australia India Indonesia Viet Nam Taiwan China Korea Japan South Africa Saudi Arabia Turkey Russia United Kingdom Greece Germany France Italy Czech Republic Spain Poland Ireland Netherlands Eurozone Brazil Mexico Canada United States Global PMI 51.8 52.1 53.1 53.3 53.0 53.2 52.4 51.9 52.2 52.6 52.4 52.6 52.2 52.2 51.8 51.6 51.7 52.0 51.7 51.0 51.2 51.0 51.0 50.7 50.6 52.8 51.8 54.7 55.0 53.7 57.1 55.5 55.4 56.4 57.3 55.8 57.9 57.5 55.9 54.8 53.9 53.9 55.1 55.7 54.1 54.0 53.6 53.8 53.0 53.1 54.2 55.6 55.3 53.5 51.7 52.9 53.3 52.9 52.2 53.5 54.3 54.8 53.5 55.3 55.3 53.9 51.0 48.7 48.9 49.0 49.8 51.3 50.8 49.4 48.6 50.0 50.2 51.9 52.6 54.0 52.0 51.7 51.8 51.9 51.8 51.5 52.1 52.6 53.3 54.3 55.3 56.6 54.4 53.8 53.8 53.3 52.0 52.9 52.4 52.1 49.9 50.2 49.7 50.5 50.8 50.4 50.6 49.3 48.8 48.7 49.1 50.2 49.3 49.1 48.7 50.2 50.7 49.6 46.2 46.0 45.9 46.5 47.2 45.8 47.0 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 50.3 50.6 50.1 50.6 51.0 51.0 52.2 52.0 52.2 52.5 52.4 52.3 52.0 55.8 54.4 56.8 57.0 54.8 55.2 53.7 53.4 53.6 52.3 53.5 51.7 52.2 53.0 54.6 53.6 54.1 52.2 52.5 54.0 55.5 56.2 56.0 53.9 53.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 55.7 56.6 56.2 56.9 55.1 57.5 56.8 55.8 57.1 54.6 56.7 53.6 53.8 53.1 53.4 54.4 53.2 55.4 55.9 54.0 52.0 50.8 50.3 49.4 49.0 49.5 51.2 53.2 52.8 55.2 55.1 54.8 54.0 52.4 54.3 54.5 51.1 50.9 50.7 50.9 48.6 50.8 52.2 52.5 52.8 52.7 52.9 54.6 53.9 52.8 52.6 52.6 54.7 53.8 54.7 54.2 54.3 54.2 55.8 54.5 53.6 53.2 51.7 53.4 54.5 55.4 54.7 55.9 56.5 55.5 56.5 57.3 54.7 56.5 54.3 55.6 54.4 55.6 53.3 56.1 55.6 56.1 54.7 55.5 56.9 57.5 56.6 55.5 50.8 50.7 51.4 53.3 53.1 52.3 52.4 54.0 53.2 52.6 51.9 49.8 50.7 49.0 49.0 48.4 49.9 51.9 53.3 53.8 54.8 54.1 55.3 53.8 52.7 49.8 49.1 48.4 47.0 49.3 49.7 52.1 51.2 49.6 48.2 47.8 46.9 48.8 48.5 48.4 47.5 49.2 47.6 48.8 48.0 49.4 50.7 49.6 48.3 50.6 51.1 51.7 52.7 54.3 56.5 54.8 53.7 54.1 52.3 52.0 52.4 51.4 49.9 51.4 49.5 51.2 50.9 51.1 52.8 52.1 51.1 51.9 51.8 53.3 52.3 47.5 47.3 49.2 49.6 51.2 51.3 49.7 51.1 51.0 49.4 48.7 50.1 48.4 48.8 49.1 49.4 48.3 48.4 48.9 46.5 48.0 46.9 30.2 39.1 43.3 56.3 56.5 58.4 57.3 56.7 56.2 55.3 57.3 57.0 57.5 55.4 52.5 51.6 53.2 53.5 52.5 53.1 54.1 54.4 51.9 52.0 51.4 51.9 51.6 51.5 49.4 51.8 49.4 48.8 48.0 48.5 48.3 48.5 48.9 49.1 51.0 51.0 50.4 50.3 51.7 48.9 47.6 49.7 48.1 48.9 47.6 48.7 48.3 47.9 49.1 54.0 53.3 55.0 53.5 52.7 53.4 51.7 51.1 50.1 48.8 48.5 50.3 50.4 51.5 52.2 51.4 49.8 49.6 48.0 48.5 50.2 49.0 50.1 49.3 48.8 58.7 56.7 57.1 58.7 59.7 58.6 57.0 58.5 57.0 59.2 60.1 60.7 61.8 59.1 57.6 57.9 57.8 58.5 60.1 58.3 57.0 56.1 57.5 58.7 56.5 49.1 51.5 51.6 50.5 50.3 51.5 50.3 47.4 44.3 46.6 45.9 49.0 50.7 52.7 50.5 50.2 49.8 50.0 51.6 51.5 50.1 49.2 48.9 49.3 47.9 52.5 54.2 55.1 55.2 56.6 55.5 53.9 49.4 49.9 51.5 50.5 52.5 51.7 52.4 52.0 52.0 52.2 51.6 50.3 49.9 50.9 50.1 51.2 51.7 51.0 49.7 50.2 50.4 50.8 50.9 49.8 50.4 50.2 49.5 48.4 49.3 50.3 48.8 48.7 49.0 49.9 51.1 51.1 49.2 48.8 47.8 46.1 47.6 47.9 49.2 50.2 50.9 50.8 50.5 49.5 48.5 48.0 48.1 49.4 50.7 51.7 50.2 50.2 50.4 50.0 49.6 49.7 50.7 49.6 48.9 49.2 49.4 47.8 47.3 47.2 52.0 53.0 53.4 55.2 55.5 54.7 52.7 52.3 52.4 54.0 55.8 56.1 53.3 52.0 51.4 50.0 51.7 52.1 51.0 49.2 49.3 46.3 47.1 46.1 46.9 51.5 51.5 50.3 51.8 52.1 51.0 51.3 53.1 52.5 52.3 51.7 50.3 51.7 51.0 52.1 52.7 51.5 51.7 50.7 53.5 54.8 52.2 52.6 51.3 49.5 50.2 50.9 50.3 50.9 51.0 50.5 50.1 51.1 52.4 52.7 52.7 49.5 50.7 49.2 48.0 47.6 48.5 47.5 46.4 46.7 47.1 47.8 47.3 48.4 47.4 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6 53.3 54.5 52.9 51.2 52.1 51.3 52.6 51.3 52.7 52.3 51.2 51.7 53.2 47.7 47.6 46.7 48.6 47.9 44.8 49.2 48.9 50.7 47.3 46.5 49.4 50.1 46.9 49.0 45.4 46.3 48.0 52.3 44.2 50.4 51.7 52.1 www.lairdresearch.com October 14, 2015 Page 21
  22. 22. OECD International Trade Data The OECD calculates import and export values for member coun- tries. Figures are seasonally adjusted and measured in billions of US dollars. Red lines indicate exports, while blue lines indicate imports. Green lines indicate the zero level. The top part of the graph shows the changes in exports and imports on a year-over-year basis, while the bottom part shows the difference between exports and imports for that given month (i.e. the trade bal- ance) China (Mar 2015) YoYChange −40 −20 0 20 40 60 80 Balance 08 09 10 11 12 13 14 15 0 20 40 60 80 100 Germany (Feb 2015) YoYChange −40 −20 0 20 Balance 08 09 10 11 12 13 14 15 0 5 10 15 20 25 30 Japan (Feb 2015) YoYChange −30 −20 −10 0 10 20 Balance 08 09 10 11 12 13 14 15 −15 −10 −5 0 5 10 South Korea (Feb 2015) YoYChange −15 −10 −5 0 5 10 15 Balance 08 09 10 11 12 13 14 15 −4 −2 0 2 4 6 8 10 www.lairdresearch.com October 14, 2015 Page 22
  23. 23. Canadian Indicators Retail Trade (SA) YoYPercentChange −50510 median: 4.68 Jul 2015: 1.78 Total Manufacturing Sales Growth YoYPercentGrowth −2001020 median: 4.00 Jul 2015: −2.77 Manufacturing New Orders Growth YoYPercentGrowth −30−100102030 median: 4.40 Jul 2015: 1.51 10yr Government Bond Yields 0246810 median: 5.72 Sep 2015: 1.45 Manufacturing PMI 49515355 Sep 2015: 48.60 Sales and New Orders (SA) YoYPercentChange −2001020 Sales New Orders (smoothed) Tbill Yield Spread (10 yr − 3mo) Spread(Percent) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −101234 median: 1.32 Sep 2015: 1.02 Inflation (total and core) YoYPercentChange 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −101234 median: 1.92 Aug 2015: 1.27 Total Core Inventory to Sales Ratio (SA) Ratio 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.31.41.51.6 median: 1.35 Jul 2015: 1.40 www.lairdresearch.com October 14, 2015 Page 23
  24. 24. 6.6 6.8 7.0 7.2 7.4 7.6 1.31.41.51.61.71.81.9 Beveridge Curve (Mar 2011 − Jun 2015) as.numeric(can.bev$ui.rate) as.numeric(can.bev$vacancies) Mar 2011 − Dec 2012 Jan 2013 − May 2015 Jun 2015 Unemployment Rate JobVacancyrate(Industrial) Ownership/Rental Price Ratio RatioofAccomodationOwnership/RentRatio 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 90100110120130140150 Calgary Montreal Vancouver Toronto Note: Using prices relative to 2002 as base year Ownership relatively more expensive vs 2002 Rent relatively more expensive vs 2002 Unemployment Rate (SA) Percent 345678910 Canada 7.1% Alberta 6.5% Ontario 6.9% Debt Service Ratios (SA) Percent 246810 Total Debt: 6.4% Mortgage: 3.3% Consumer Debt: 6.1% Housing Starts and Building Permits (smoothed) YoYPercentChange 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −40−2002040 Permits Starts www.lairdresearch.com October 14, 2015 Page 24
  25. 25. European Indicators Unemployment Rates Percentage 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 051015202530 Business Employment Expectations Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −40−20010 Industrial Orderbook Levels Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −60−40−20020 Country Employment Expect. Unempl. (%) Bond Yields (%) Retail Turnover Manufacturing Turnover Inflation (YoY %) Industry Orderbook PMI Series Dates Sep 2015 Sep 2015 Sep 2015 Aug 2015 Aug 2015 Aug 2015 Sep 2015 Sep 2015 France -7.7 I 10.8 I 1.01 K 105.7 J 110.4 J 0.1 J -15.1 J 50.6 I Germany -1.1 K 4.5 J 0.65 I NA 114.4 J 0.1 K -9.6 I 52.3 J United Kingdom 1.6 J 5.5 J 1.85 J 112.3 J NA 0.0 J -10.5 J 51.5 J Italy -1.0 J 11.9 J 1.92 I 101.2 I NA 0.4 I -11.6 I 52.7 J Greece -16.4 I 25.0 K 8.54 J 69.6 J NA -0.4 I -47.2 J 43.3 I Spain 7.6 I 22.2 J 2.02 I NA NA -0.5 J -3.3 I 51.7 J Eurozone (EU28) -1.2 J 9.5 K 1.26 J 106.4 J 111.1 J 0.0 J -12.2 J NA www.lairdresearch.com October 14, 2015 Page 25
  26. 26. Government Bond YieldsLongTermYields% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0246810 Economic Sentiment Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 60708090110130 Consumer Confidence Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −100−60−20020 Inflation (Harmonized Prices) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 1.90 Aug 2015: 0.10−1 0 1 2 3 4 5 6 7 Euro Area US Harmonized Inflation: Jul 2015 AUT 0.9% BGR −0.8% DEU 0.1% ESP −0.5% FIN −0.2% FRA 0.1% GBR 0.0% GRC −0.4% HRV −0.1% HUN 0.1% IRL 0.2% ISL 1.1% ITA 0.4% NOR 1.8% POL −0.4% ROU −1.7% SWE 0.6% <−1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% >7.0% YoY % Change in Prices PMI: September 2015 <40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0>60.0 Steady ExpandingContracting BRA 47.0 CAN 48.6 DEU 52.3 ESP 51.7 FRA 50.6 GBR 51.5 GRC 43.3 IRL 53.8 ITA 52.7 MEX 52.1 POL 50.9 SAU 56.5 TUR 48.8 USA 53.1 RUS 49.1 PMI Change: Aug − Sep <−5.0−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0 PMI Change ImprovingDeteriorating CAN −0.8 DEU −1.0 ESP −1.5 FRA 2.3 GBR −0.1 GRC 4.2 IRL 0.2 ITA −1.1 POL −0.2 TUR −0.5 USA 0.1 RUS 1.2 www.lairdresearch.com October 14, 2015 Page 26
  27. 27. Chinese Indicators Tracking the Chinese economy is a tricky. As reported in the Fi- nancial Times, Premier Li Keqiang confided to US officials in 2007 that gross domestic product was “man made” and “for reference only”. In- stead, he suggested that it was much more useful to focus on three alter- native indicators: electricity consumption, rail cargo volumes and bank lending (still tracking down that last one). We also include the PMI - which is an official version put out by the Chinese government and differs slightly from an HSBC version. Finally we include the Shanghai Composite Index as a measure of stock performance. Manufacturing PMI 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4045505560 Sep 2015: 47.20 Shanghai Composite Index IndexValue(MonthlyHigh/Low) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0100030005000 Oct 2015: 3287.66 Electricity Generated 100MillionKWH(logscale) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1000200030005000 Aug 2015: 5155.00 Electricity Generated Long Term Trend Short Term Average Consumer Confidence Index Index 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 98100102104106108110 median: 103.85 Aug 2015: 104.00 Exports YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −20020406080 median: 18.40 Sep 2015: −3.70 Retail Sales Growth YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 101520 median: 13.00 Aug 2015: 10.80 www.lairdresearch.com October 14, 2015 Page 27
  28. 28. Global Climate Change Temperature and precipitation data are taken from the US National Climatic Data Center and presented as the average monthly anomaly from the previous 6 months. Anomalies are defined as the difference from the average value over the period from 1971-2000 for the tem- perature map and over the 20th century for the global temparature chart. Average Temperature Anomalies from Mar 2015 - Aug 2015 <−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 >4.0 Anomalies in Celcius WarmerCooler Anomalies in Celcius −4 −2 0 2 4 Historic Global Temperature Deviations DegreesCelciusDeviations −0.50.00.5 Aug 2015: 0.88 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 www.lairdresearch.com October 14, 2015 Page 28

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