ITR Economics’ Outlook

Brian BeaulieuCEO & Chief Economist

Fear Provides OpportunitiesAs Long as You Don’t Give In To It

Focus on:• COVID-19• Retail Sales• S&P 500• Oil• USA, China and Italy

Overview

COVID-19 IS GETTING THE HEADLINES

The economic issues associated with COVID-19 will likely pass into a place of lesser concern before the greater economic threat does…

OIL PRICE ISSUES ARE of EQUAL CONCERN from our perspective

THE FORECASTS: MAKING THE CORRECT VARIABLE AND THE TIMELINE ASSUMPTIONS

Fear Based Events2000 – Y2K2001 – Anthrax 2002 – West Nile Virus 2003 – SARS2005 – BIRD Flu2006 – ECOLI 2008 – The Bad Economy2009 – SWINE Flu 2010 – BP Oil 2012 – The Mayan Calendar 2013 – North Korea 2014 – Ebola Virus 2015 - Disney Measles and ISIS 2016 – Zika Virus 2020 - Corona Virus

From the March ITR Trends ReportA Perspective Pertaining to COVID-19

Outcomes Vary WidelyCoronavirus (COVID-19)

Sources: South China Morning Post, Johns Hopkins University, Multiple media reports

82,862recovered

206,114cases

8,757deaths

Total:

How Contagious & Deadly is It?We don’t fully know yet but it’s in this range

Sources: Centers for Disease control, WHO, New York Times

Flattening the Curve

Source: Economist

Fed Actions

HR 6201 – Families First Coronavirus Response ActPaid Job-Protected Leave Under the Family and Medical Leave Act

• The bill covers any employer with fewer than 500 employees with the right to up to 12 weeks of job-protected leave under the Family and Medical Leave Act (“FMLA”).

• H.R. 6201 requires that ten of these twelve weeks be paid at a rate of no less than two-thirds of the employee’s usual rate of pay.

• Employees must be on payroll for more than 30 days for eligibility and may use FMLA to (1) to comply with a requirement/recommendation to quarantine due to coronavirus exposure or symptoms, and cannot work from home; (2) is caring for an at-risk family member who is quarantining; or (3) is caring for the employee’s child if the child’s school or place of care has been closed due to public health emergency.

• Any individual employed by the covered employer may be eligible for emergency leave for at least 30 days after the first day of leave.

• The bill, in its current form, provides for a series of refundable tax credits for employers providing paid emergency sick leave or paid FMLA.

• Effective date and expiration. These expanded provisions will become effective within 15 days of enactment and remain in effect until December 31, 2020.

Global Economic Perspective

24.2%

15.7%

5.9%4.7%3.3%3.3%

3.2%2.4%

2.2%2.0%

2.0%

2.0%1.7%1.7%1.4%1.2%1.1%0.9%0.9%

0.8%

19.3%

United States

China

Rest of World

JapanGermanyUK

Mexico

Percent of 2018 World GDP by Country

Source: IMF, *24% are IMF Estimated Figures

*Total 2018 World GDP: $84.93 Trillion US$

Cyclical Weakness Before COVID-19 and OilBut Leading Indicators Were Turning Up

US Industrial Production Index

Source: FRB2012 = 100

0.1%0.2%

$109.3

85

95

105

115

125

135

145

155

-25

-20

-15

-10

-5

0

5

10

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

ROC MMA

12/12

12MMA

Raw

1/12

The First Half of 2020 Will Test China’s Data CredibilityChina Industrial Production Index

Source: CEIC2012 = 100

-13.5%

2.7%

$156.76

0

60

120

180

240

300

360

420

-50

-40

-30

-20

-10

0

10

20

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

ROC MMA12/12

12MMA

Raw

1/12

Updates Regarding the Economy in China

American Chamber of Commerce in China

1/3 of businesses remain in lockdown1/3 are open1/3 are mixed

CEO of China Beige Book says he expects the number of open firms and related data to improve in 2Q20

There is considerable concern because the Chinese economy is already debt heavy. We think that is more of a longer-term threat associated with the 2030 forecast.

Medical: over half the hospitalized patients in the outbreak province have reportedly been discharged, reducing the number of remaining cases to 35,000

293 clinical trials underway / a vaccine in in trials also with a projected timeline of 6 – 8 months (very fast)

The province of Zhejiang leads the country with 90% of its large industrial firms reopened

President Xi said that it is time for companies to reopen where the virus is no longer a big danger

Port delays/congesting are easing

27%

16%

7%9%

10%

4%2%4%

2%

19% China

Mexico

Canada

Japan

Germany

South Korea

Taiwan

Italy

United Kingdom

Rest of World

US Top Machinery Imports by Country

Source: United States International Trade CommissionPercent

28%

17%

17%

8%

6%

6%4%

2%2%10%

Mexico

Canada

Japan

Germany

China

Korea, Rep.

United Kingdom

Italy

France

Rest of World

US Imports of Transportation by Country

Source: World Integrated Trade Solution (WITS)Percent

US Imports of Chemicals by Country

Source: World Integrated Trade Solution (WITS)Percent

18%

10%

8%

8%

8%4%4%

4%4%

4%4%2%

22% IrelandGermanyCanadaSwitzerlandChinaIndiaUnited KingdomJapanSingaporeFranceItalyNetherlandsRest of World

Economic Fundamentals Were ImprovingWorld Industrial Production Index to G7 Leading Indicator

-6

-4

-2

0

2

4

6

-15

-10

-5

0

5

10

15

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

World IP

Indicator

IndicatorWorld IP

1/1212/12

Sources: CPB Netherlands Bureau For Economic Policy Analysis, OECDRates-of-Change

People

Fear

Government Intervention

Retail Sales

What People Are DoingWhat do you plan to do because of the coronavirus?

NOTE Percentages do not add to 100 because multiple answers were possible; SOURCE USA TODAY/Ipsos Poll of 1,005 adults taken online March 10 and 11; credibility interval +/- 3.5

percentage points; GRAPHIC George Petras/USA TODAY

30%

5%

6%

7%

12%

13%

17%

18%

25%

59%

0% 10% 20% 30% 40% 50% 60%

None of the above

Cancel a business trip

Make changes to a 401(k) retirement account

Stop attending religious services

Start a rainy-day fund

Consider delaying a major purchase/spending

Cancel a personal trip

Shift shopping from physical stores to online

Stop attending social events

Wash hands more frequently

Some Economic Fundamentals

U.S. Economic Leading IndicatorsIndicator Trend Comments Lead Time

(months)ITR Consumer Activity Leading Indicator Rise Potential April 2019 low expected to hold 14

ITR Financial Leading Indicator Rise August 2019 low; danger of losing 14JPMorgan Global PMI Decline Jan 2019 1/12 r-o-c; lost the low 12OECD Leading Indicator Rise August 2019 1/12 low holding but data delayed 10G7 Leading Indicator Rise August 2019 low is holding for now 10Purchasing Managers Index (PMI) Rise September 2019 1/12 low holding thru Feb 9ITR Leading Indicator Rise October 2019 low looks likely to hold 8Wilshire Total Market Cap Rise Feb 2019 low holding through Feb but in danger 8US Leading Indicator Rise Dec 2019 low likely will lose the low 8Single-Family Housing Starts Rise 12/12 Aug 2019 low expected to hold 8Total Industry Capacity Utilization Rise Jan 2020 low threatened assume we lose the low 6US Exports – World Rise Jun 2019 3/12 low viability is threatened 4

22Sources: ITR Economics, Institute for Supply Management, OECD, Yahoo Finance, The Conference Board, US Census Bureau, FRB

Retail Sales Typically Provides a BackstopUS Total Retail Sales to US Industrial Production Index

Sources: US Census Bureau, FRB12/12 Rates-of-Change

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23

Retail Sales

Index

All indicators are shifted along the horizontal axis to reflect their cyclical relationship to US Total Retail Sales Retail Sales.

US IPRetail Sales

Trends Are Overall Holding Up WellJohnson Redbook Weekly Indexes for the US

Sources: CEIC, US Census BureauRaw Data

8.5%

-5.3%

14.8%

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Total

Dept. Stores

Discount Stores

-18

-12

-6

0

6

12

18

-45

-30

-15

0

15

30

45

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Stock Prices - 1/12Retail SalesRetail Sales Forecast

Retail SalesStock Prices

12/12

1/12

Stock Prices Don’t Drive the Retail TrendUS Stock Prices Index to US Total Retail Sales

Sources: Wall Street Journal, US Census BureauRates-of-Change

ITR Leading Indicator Expected to Bend but not BreakUS Total Retail Sales to ITR Consumer Activity Leading IndicatorTM

Sources: US Census Bureau, ITR Economics12/12 Rates-of-Change

-15

-10

-5

0

5

10

15

-15

-10

-5

0

5

10

15

'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 '18 '19 '20 '21 '22 '23

Retail Sales - 12/12

Retail Sales Forecast - 12/12

Indicator - Monthly

IndicatorSales

Monthly 12/12

Analysis suggests near-term decline in the ITR indicator is not probable

It is normal for Retail Sales to move unfettered relative to oil

Supporting Trend for 2020 and 2021US Total Retail Sales to US Personal Savings as Percentage of Disposable Personal Income

Sources: US Census Bureau, Bureau of Economic Analysis 12/12 Rates-of-Change

0

2

4

6

8

10

12

-15

-10

-5

0

5

10

15

'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 '18 '19 '20 '21 '22 '23

Retail Sales - 12/12Retail Sales Forecast - 12/12Savings Rate - 12MMA

Savings RateRetail Sales

12MMA 12/12

Financial MarketsDuration shorter and magnitude of

decline less in the USA vs. Overseas

Expectations: this will be a relatively short decline and the

rebound will be normal

Stock Market Cyclical Pressure Remains NegativeUS Stock Prices Index

-15.4%7.6%

2959.2

500

1100

1700

2300

2900

3500

4100

4700

5300

-150

-125

-100

-75

-50

-25

0

25

50

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

MMAR-O-C1/12

12/12

Raw12MMA

Source: Wall Street Journal1941-43=10

Bear Markets Occur Even When Retail Sales Are RisingUS Stock Prices Index to US Total Retail Sales

Source: Wall Street Journal, US Census BureauData Trend

1

2

3

4

5

6

7

8

9

10

0

400

800

1200

1600

2000

2400

2800

3200

3600

'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 '18 '19 '20 '21 '22 '23

S&P 500 - Raw

Retail Sales - 12MMT

Retail SalesS&P 500

1

10

100

1000

10000

1

500

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22

SP5 - Raw

Domestic Profits - 3MMA

ProfitsSP5

Big Question to Resolve is Now or Later for the FundamentalsUS Stock Prices Index to US Domestic Corporate Profits with

Capital Consumption Adjustments

Source: Wall Street Journal, Bureau of Economic AnalysisData Trend

Our analysis suggests the current decline is taking some of the pressure off the potential magnitude of decline associated with the next macro business cycle

Global equity markets have powered through past viral outbreaksMSCI ACWI index levels

Searching for the BottomS&P500 Stock Prices Index

1001980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Raw

Source: Wall Street JournalData Trends

March 18, 2020 close 2,398.1

-15

-10

-5

0

5

10

15

-45

-30

-15

0

15

30

45

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Stock Prices - 1/12

Index - Monthly

IndexStock Prices

Retail Sales Trend is in a Better PlaceUS Stock Prices Index to Johnson Redbook Index

Sources: Wall Street Journal, Redbook Research Inc.Rates-of-Change

Monthly

1/12

-45

-30

-15

0

15

30

45

-45

-30

-15

0

15

30

45

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Stock Prices - 1/12

Assets - 3/12

AssetsStock Prices

Corporate Liquid Assets Were in Cyclical AscentUS Stock Prices Index to US Nonfinancial Corporate Business Liquid Assets

Sources: Wall Street Journal, Federal Reserve BoardRates-of-Change

3/12

1/12

Downward pressure on profits certainly a concern

Cash is king; plan accordingly

Fed’s $1.5 trils intervention and QE5 are very timely

In the Aftermath of the 7 Pertinent Precedents:

1. Market rebounds for a duration of 11 to 26 months or slightly longer

2. Market rebounds 56.5% to 85.5%

3. Length of rebound not a determining factor in magnitude of the rise

4. Median gain all cases is 60.8%

Note the Lower Troughs for the EU 3/12US S&P 500 Stock Prices Index to Europe (EU27) Stock Market Index

Sources: Wall Street Journal, Yahoo Finance3/12 Rates-of-Change

-50

-25

0

25

50

-50

-25

0

25

50

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

SP 500 - 3/12Europe - 3/12

EuropeSP 500

Note the Lower Troughs for China’s 3/12…US S&P 500 Stock Prices Index to China Stock Market Index

Sources: Wall Street Journal, The Economist3/12 Rates-of-Change

-100

-50

0

50

100

-50

-25

0

25

50

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

SP 500 - 3/12China - 3/12

ChinaSP 500

More Stable Relationship on More OccasionsUS S&P 500 Stock Prices Index to Canada Stock Market Index

Sources: Wall Street Journal, The Economist3/12 Rates-of-Change

-50

-25

0

25

50

-50

-25

0

25

50

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23

SP 500 - 3/12

Canada - 3/12

CanadaSP 500

Oil Prices

Saudis and Russia Flooding the MarketUS Crude Oil Futures Prices to OPEC Crude Oil Production

Sources: Wall Street Journal, EIA3/12 Rates-of-Change

-30

-20

-10

0

10

20

30

-90

-60

-30

0

30

60

90

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24

Oil Price - 12/12

Production - 3/12

ProductionOil Price

Inventory Trend Favorable for a Future Price RiseUS Crude Oil Futures Prices to Crude Oil Inventories Cushing OK

Sources: Wall Street Journal, EIA 3/12 Rates-of-Change

-120

-90

-60

-30

0

30

60

90

120-90

-60

-30

0

30

60

90

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24

Oil Price - 12/12

Inventories - 3/12

InventoriesOil Price

“When” Is a Key Issue to Our ForecastsUS Crude Oil Futures Prices to

JP Morgan Global Manufacturing Purchasing Managers Index

Sources: Wall Street Journal, Markit EconomicsRates-of-Change

-30

-20

-10

0

10

20

30

-90

-60

-30

0

30

60

90

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24

Oil Price - 12/12

JP Morgan - 1/12

JP MorganOil Price

- 3/12

1/123/12

The Metal With a PhD Is Not PanickingUS Crude Oil Futures Prices to US Copper Futures Prices

Source: Wall Street Journal3/12 Rates-of-Change

-90

-60

-30

0

30

60

90

-90

-60

-30

0

30

60

90

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24

Oil Price - 12/12Copper Price - 3/12Copper Price Forecast - 3/12

Copper PriceOil Price

The Turnaround Will Provide a Great OpportunityUS Crude Oil Futures Prices to Energy Sector ETF

Sources: Wall Street Journal, Yahoo FinanceRates-of-Change

-90

-60

-30

0

30

60

90

-90

-60

-30

0

30

60

90

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24

Oil Price - 12/12

Energy ETF - 1/12

Energy ETFOil Price

1/12

3/12

- 3/12

Forecast: Price Ultimately Comes Back When the Economy DoesUS Crude Oil Futures Prices

Source: Wall Street JournalQuarterly Data Trends in Dollars per Barrel

0102030405060708090100110120130140

0102030405060708090

100110120130140

'83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23

Crude Oil Future Prices

Forecast

Stays below $50 until approx3Q-2021

Track the Leading Indicators With ITR

Any Questions?