1. September 2006 “Projecting When Business Cycles Will Change” Presented By: The Institute for Trend Research Dr. Jeff Dietrich jeff@ecotrends.org www.ecotrends.org

2. 2 Xerox (Scientific Data Systems) Message to Sigma 2 users, (1969) We have not succeeded in answering all your problems. Indeed we sometimes find we have not completely answered any of them. The answers we have found only serve to raise a whole new set of questions. In some ways we feel that we are as confused as ever, but we believe we are confused on a much higher level and about more important things. We have not succeeded in answering all your problems. Indeed we sometimes find we have not completely answered any of them. The answers we have found only serve to raise a whole new set of questions. In some ways we feel that we are as confused as ever, but we believe we are confused on a much higher level and about more important things.

3. 3 US Industrial Production Index Forecast Through December 2008 Annual Average Index Source: ITR’s EcoTrends TM Here today Tipping Points- Hard Landing – 2009-2010 Forecast – y-o-y 2006 3.6% 2007 3.7% Historical Perspective: 1950’s 5.2%1980’s1.9% 1960’s 5.5%1990’s3.1% 1970’s 3.0%2000’s1.7*%

4. 4 ANNUAL MOVING TOTAL (12MMT) AS OF 8/06 ANNUAL MOVING TOTAL (12MMT) AS OF 8/05 = 1/12 3-MOS MOVING TOTAL (3MMT) AS OF 8/06 3-MOS MOVING TOTAL (3MMT) AS OF 8/05 = 3/12 = 12/12 ACTUAL MONTHLY DATA AS OF 8/06 ACTUAL MONTHLY DATA AS OF 8/05 RATE-OF-CHANGE

5. 5 US Industrial Production to Gross Domestic Product 3/12 Rates-of-Change

6. 6 US, California & the West Annual GSP Growth Rate

7. 7 Global Industrial Production Indices 12/12 Rates-of-Change

8. 8 Retail Sales Excluding Automobiles Trillions of 82-84$ 12MMT 3MMT 3/12 12/12 Source: ITR’s EcoTrends TM Forecast 2006 5.9% 2007 4.9% 2008 1.2% Revenues Rates of Change

9. 9 Nondefense Capital Goods New Orders w/o Aircraft Billions of $ 12MMT 3MMT 3/12 12/12 Source: ITR’s EcoTrends TM Forecast: 2006 6.4% 2007 11.1%

10. 10 Nondefense Capital Goods New Orders to Electrical Equipment New Orders 12/12 Rates-of-Change Forecast – Electrical NO 20068.1% 2007 9.4%

11. 11 Unemployment Rates

12. 12 Construction Markets 12/12 Rates-of-Change Annual Data Trend -Non- residential construction looks positive through 2008

13. 13 US Industrial Production Index Forecast Through December 2010 Annual Average Index Source: ITR’s EcoTrends TM Here today Tipping Points- Hard Landing – 2009-2010 Debt Interest Rates Demographics Inflation Inventories China Elections Oil Home Prices

14. 14 Housing Starts Millions of Units 12MMT 3MMT 3/12 12/12 Source: ITR’s EcoTrends TM Negative into 1H09

15. 15 U.S. Composite Leading Indicator 1996 = 100 12MMA Actual 12/12 1/12 Source: ITR’s EcoTrends TM Money Supply, Ave. Weekly Hrs (Manuf); Manuf. N.O. (Consumer Goods & Nondefense Capital Goods); Building Permits (New Private Housing units); Stock Prices (500 common stocks); Interest rate spread; Consumer Expectations; Ave. Weekly Unemployment Claims.

16. 16 Federal Budget Analysis 1974 2.6%

17. 17 Consumer Loan Delinquency Rate Source: ITR’s EcoTrends TM 13 - year low

18. 18 Interest Rate Comparison

19. 19 Durable Goods New Orders to Durable Goods Inventories Rates-of-Change Caution in 2008

20. 20 US Industrial Production to US Oil & Gas Extraction Production Annual Data Trends Price of Oil per barrel: 1998 2003 2004 % Oil Imports 1973 - 2005 - $18 $28 $34 28% 63%

21. 21 Fuel Costs* Oil Price at which Alternative Energy Sources Become Viable $20Conventional Oil $40Tar Sands; Cane-based ethanol »Gas to liquids; coal to liquids $50Shale Oil $60US corn-based ethanol $80Biodiesel * Excludes tax credits Cambridge Energy Research Associates, The Economist, 4/22/06

22. 22 Exports by Nation Percentage of Total World Exports of Goods and Services Source: IMF 10.4 5.9 4.8 4.7 3.8 3.4 9.5 5.7 0 2 4 6 8 10 12 USGermanyChinaJapanFranceUKItalyCanada 0 2 4 6 8 10 12

23. 23 India Industrial Production Index to China Industrial Production Index 12/12 Rates-of-Change

24. 24 China Industrial Production Source: ITR’s EcoTrends TM

25. 25 Major Issues Stalking China’s Future “ A Tiger on Steriods” Banking System* (Relational & ‘Not for Profit’) Banking System* (Relational & ‘Not for Profit’) Legal System*(Court of no appeals) Legal System*(Court of no appeals) Government Interference/Control* Government Interference/Control* Environmental (Water, Pollution) & Health Issues Environmental (Water, Pollution) & Health Issues Negative Demographics Negative Demographics Competition for Resources and ‘Cheap’ Labor – (Philippines, India, Vietnam, Thailand, E. Europe…) Competition for Resources and ‘Cheap’ Labor – (Philippines, India, Vietnam, Thailand, E. Europe…) Civil Unrest(Pollution, wages, abuse, health.. Civil Unrest(Pollution, wages, abuse, health.. Increasing US protectionism sentiment (currency) Increasing US protectionism sentiment (currency)

26. 26 US Industrial Production to Japan Industrial Production 12/12 Rates-of-Change Source: ITR’s EcoTrends TM

27. 27 GOODS & SERVICES AS A PERCENT OF GDP (real) w/o structures 2Q06 –after tax profits percentage increase Retail Sales 19.9% Wholesale Profits 21.5% Manufacturing Profits 27.7%

28. 28 Did You Know? US ranked first in technology and innovation First in technological readiness First in the quality of research institutions First in productivity First in profits »Source: World Economic Forum, Newsweek June 12, 2006

29. 29 Four Phases Bankrupt Expansion US Economy Zero Percent Growth

30. 30 “It is not necessary to change. Survival is not mandatory” W. Edwards Demming

31. 31 US Industrial Production to Commercial Aircraft Production & Civilian Aircraft Equipment Production 12/12 Rates-of-Change Forecast – Civilian Aircraft 2006 15.3% 2007 9.3%

32. 32 Nondefense Aircraft & Parts New Orders Billions of Dollars 12MMT 3MMT 3/12 12/12

33. 33 US Industrial Production to Defense Communications Equipment New Orders 12/12 Rates-of-Change Opportunities likely into 2008

34. 34 National Defense Expenditures to Defense Capital Goods N.O. 12/12 Rates-of Change

35. 35 US Industrial Production to Electric Utility Generation Production 12/12 Rates-of-Change Lags Overall Economy Speaks to opportunities into 2008

36. 36 US Industrial Production Index to Electrical Equipment Production 12/12 Rates-of-Change

37. 37 US Industrial Production to Pharmaceutical & Medical Production 12/12 Rates-of-Change Lags US economy by 10-12 mo Expected to be positive into 2008

38. 38 Nondefense Capital Goods New Orders w/o Aircraft to Electro medical, Measuring, and Control Instruments New Orders 12/12 Rates-of-Change 2007 4.9%

39. 39 US Industrial Production to General Purpose Machinery Production 12/12 Rates-of-Change Positive through 2007 into 1H08

40. 40 US Industrial Production Index to Engines Production 12/12 Rates-of-Change Forecast – Engines 2006 4.2% 2007 7.1%

41. 41 Computer & Electronic Products New Orders Rates-of-Change

42. 42 US Industrial Production to NA Automobile Production Data Trends Forecast: 2006 -0.7% 2007 9.3%

43. 43 US Industrial Production to Auto Parts & Allied Goods Production 12/12 Rates-of-Change

44. 44 Hand Tools Expenditures to Retail Sales Excluding Autos 12/12 Rates-of-Change

45. 45 Nondefense Capital Goods New Orders to Refrigeration & HVAC Equipment New Orders 12/12 Rates-of-Change

46. 46 US Industrial Production to Corporate Bond Prices 12/12 Rates-of-Change Source: ITR’s EcoTrends TM

47. 47 Preparing for a Hard Landing Sell – top of the business cycle Conserve cash, cut and consolidate Watch inventories to New Orders Diversify…more specialized ‘UnChina’ –Engineering and Technical… –High Tech – High Touch… –Smaller - more specialized runs

48. 48 GDP, Bils of US $, Current Prices Percent of World GDP California China Wal-Mart Mexico Russia Brazil

49. 49 “ There is no freeway to the future. No paved highway from here to tomorrow. There is only wilderness. Only uncertain terrain. There are no roadmaps. So pioneering leaders rely upon a compass and a dream”. The Leadership Challenge James M. Knouzes & Barry Z. Posner