1. Manufacturing and the Business Cycle ROBERT FRY DuPONT ECONOMIST’S OFFICE NABE Annual Meeting Denver, Colorado October 11, 2010

2. 9/29/2016 DUPONT ECONOMIST’S OFFICE 2 Excuse me. Can you tell me where I am? You’re in a balloon.

3. 9/29/2016 DUPONT ECONOMIST’S OFFICE 3 You must be a economist. Your answer is perfectly correct and totally useless. You must be a manager. You have a great view, but don’t know where you are.

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13. 9/29/2016 DUPONT ECONOMIST’S OFFICE 13 Manufacturing and the business cycle Manufacturing has significantly underperformed GDP since 2000. The 2001 recession was more structural shift than normal cyclical downturn. Strong dollar, undervalued yuan shifted production abroad. Manufacturing (ex high-tech) leads the overall economy at peaks. Has led by at least 2 months at last 5 business-cycle peaks Has led by 11 months or more at 3 of last 5 business-cycle peaks. That makes my job harder a lot harder than forecasting GDP. High-tech always lags traditional manufacturing, even in 2001 recession. Lead implies need for “longer” leading indicators. Half of Conference Board indicators lead by 2 months or less. By splitting leading indicators into short and long, ECRI achieves longer lead.

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15. 9/29/2016 DUPONT ECONOMIST’S OFFICE 15 Prediction is very difficult, especially about the future. -- Niels Bohr

16. 9/29/2016 DUPONT ECONOMIST’S OFFICE 16 What I’ve learned Trust unit data over dollars and index numbers. Employment, housing and auto stats got the story right from the beginning. GDP, retail sales didn’t show recession until after large revisions. Industrial production looked like mid-cycle slowdown until revisions. Trust leading indicators. Don’t be afraid to forecast a recession. If you are, at least offer a downside scenario. Role of Lehman failure has been exaggerated. DuPont US sales volume fell much more before Lehman than after. We shouldn’t forget $147 oil. (Our plant workers don’t.) You can have supply constraints soon after a business-cycle trough. When capacity is “lumpy,” you don’t restart lines without big rebound in demand.

17. 9/29/2016 DUPONT ECONOMIST’S OFFICE 17 How my job has changed since 2007 I talk to Senior Management a lot more. Monthly meeting with 8 top executives on leading indicators. Semi-annual meeting with all corporate officers (VP and above). Everybody wants to talk about leading indicators. Individual businesses want help in finding leading indicators for their sales. Working with statisticians developing new leading indicator forecasting methodology.

18. 9/29/2016 DUPONT ECONOMIST’S OFFICE 18 “Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate.”

19. 9/29/2016 DUPONT ECONOMIST’S OFFICE 19 “Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate.” --Lammot du Pont II, 1937