1. Gasket Fabricators Association “Recession in Review, Recovery in View”
September 2009
Presented By:
The Institute for Trend Research
Dr. Jeff Dietrich
check TEC number, month, name, and slide 1

2. Does this sound familiar?
“As we know, there are known knowns; there are things we know we know. We also know that there are known unknowns; that is to say there are some things we do not know. But there also unknown unknowns – which are the things we don’t know we don’t know.”
Secretary of Defense Donald Rumsfeld

3. RATE-OF-CHANGE ACTUAL MONTHLY DATA AS OF 8/09
= 1/12
3-MOS MOVING TOTAL (3MMT) AS OF 8/09
3-MOS MOVING TOTAL (3MMT) AS OF 8/08
= 3/12
Check (current month –1) slide 13
ANNUAL MOVING TOTAL (12MMT) AS OF 8/09
ANNUAL MOVING TOTAL (12MMT) AS OF 8/08
= 12/12

4. US Industrial Production to Gross Domestic Product Year-over-year Quarter to Quarter (3/12)
4Q08GDP SA annualized %
1Q09GDP SA annualized %
2Q09 GDP SA annualized - 1.0%
-3.1%
F:\\Powerpoint Charts\Tec Generic Source.xls FRBGDP3
-5.2%
-7.1%
-13.3%

5. The Eco 8 Source: ITR’s EcoTrends® Monthly Economic Report
Update monthly from ET/
PPC/Tec Generic Source/Eco 8
Source: ITR’s EcoTrends®
Monthly Economic Report

6. Global Industrial Production Indices 12/12 Rates-of-Change
F:\PowerPoint Charts\ReserveCharts\Misc2\ GlobalIP Slide 20
Source: ITR’s EcoTrends®
Monthly Economic Report

7. BRIC Industrial Production Indices 12/12 Rates-of-Change
F:\PowerPoint Charts\ReserveCharts\Misc2\ GLOBAL IP (BRIC) US

8. Major Issues Stalking China’s Future “A Tiger on Steriods”
Banking System* (Relational & ‘Not for Profit’)
Legal System* (Court of no appeals)
Government Interference/Control*
Environmental (Water, Land, Air)
Serious Health Issues from above & poor health care
Negative Demographics
Competition for Resources and ‘Cheaper’ Labor – (Philippines, India, Vietnam, Thailand, E. Europe…)
Civil Unrest (Pollution, wages, abuse, health..
Growing US/Europe sentiment (currency, dumping, closed loop)

9. US Industrial Production Index Forecast Through December 2011 Annual Average Index
Tipping Points-
Debt(s)
Interest Rates
Unemployment
Inflation
Credit “Crunch”
Stocks
International scope
Election
Housing/ Prices
Oil
% Actual
1.9% Actual
-1.0% Actual
Forecast (Median) %
+1.4%
+4.5%
F:\PowerPoint Charts\Tec Generic Source.xls TIPROF2 02/TIPROF2 02 (3) slide 2
Handout remove text numbers off
Going to talk about US Industrial Production…benchmark we use…
This shows the 12Month Moving Average
At ITR –Macro trends…3-5 years
Forecast…in our history is accurate to within 2% margin of error (all forecasts)
Takes into account – humanly possible…
China, inflation, interest rates, stock market…
Chart: Most recent activity in IP (marked by our forecasts set in Oct. 2000)
Red – Began in End 2000 and ended 2002 – including decline in Stock Market and 9/11
Forecast…range – see line cuts through it
Low actually happened in June 2002….we had forecast
Blue- chart…trough in early 2003 that we missed…
Expected rising trend would start sooner
What we did not forsee
1. Pension liability – underfunding…(every free dollar balance sheets…repay0
2. Corporate malfecience…and bankruptcy’s – not seen since GREAT DEPRESSION
3. Iraq war…would slow the economy…lost quarter growth.
we had anticipated a steeper climb out of the recession, sooner…
Green arrows- show where we are headed…we have great confidence…
Last year Brian Beaulieu was here…green…that is spot on!
1. This is one of the mildest rise in US history but rise none the less…
2. Predicted 2004 strong rise and first half of 2005…
3. Expect a soft landing in late 2005-early (soft talk about in minute)
4. Followed by recovery…through
5. Hard landing (I.e. recession in end of 2008, beginning of )
Why do we say that? Tipping Points?
*Demographics…baby boomers retiring…SSI
*Inflation…Interest rates…risen to a point slow economy
*Inventories…rise in too high
*China and WTO will come into play
* Election - Politics…keep things up (deficit spending 08)…
*Debt – if not under control
*DIICED
?SEGWAY: No man or industry doesn’t swim in macrocean…
Currents of change …ebb and flow of nations, industries, products and businesses
Fit into cycles…
We think that the industry and sectors you’re involved in…function of what is going on in the US economy.
Source: ITR’s EcoTrends®
Monthly Economic Report

10. Recession in Review Maturity – is learning the lessons I thought I already knew
Macro-economic factors matter to everyone
Most underestimated the depths & length of this recession
Even the best got hammered
Tracking leading indicators avoids Linear Thinking
“All economists are equal. Some are more equal than others.”
Bigger is not (necessarily) better…if leveraged to the hilt
Cash is still KING in a downturn
It is not what you know that counts….
Lingering pessimism/confusion – presents opportunities
“It wasn’t raining…Keep an updated “alternative/crisis plan”
What is the “new normal” - (price, margins, credit…)
By higher inflation, taxes, fees, energy, cost of credit

11. What Signs To Watch For - Recovery
Unemployment Rates 1
What Signs To Watch For - Recovery
Majority of job losses in small to medium companies…
Addition: hours reduced, wages reduced and benefits reduced.
F:\TEC “Regional update” UNEMPR slide 4

12. Misjudging the severity of this recession…

13. Consumer Sentiment/Expectations and Retail Sales2
F:\PowerPoint Charts\Tec Generic Source.xls CONXRSD slide 55

14. Durable Goods New Orders to Durable Goods Inventories Rates-of-Change3
Forecast (New Orders)
- 27.6%
-1.3%
The gap…
F:\PowerPoint Charts\Tec Generic Source.xls NODIDRIO slide 38
-18.4

15. Nondefense Capital Goods New Orders w/o Aircraft Billions of $
3/12 3A
12/12
Forecast
-20.1%
+ 5.1%
3MMT
F:\PowerPoint Charts\Tec Generic Source.xls NDFCGXA slide 37
12MMT
Businesses still holding onto cash – for now…
Source: ITR’s EcoTrends®
Monthly Economic Report

16. US Industrial Production to Industrial Machinery New Orders 12/12 Rates-of-Change
Forecast % %
-37.4%
F:\PowerPoint Charts\Reserve Charts\FRB2.xls FRBINMACHNO slide 20
Lowest Annual Total in 15½ yrs
12/12 is a record low (y-o-y)
Nearing low…essentially flat ‘10

17. US Industrial Production to Computers & Electronic Products New Orders 12/12 Rates-of-Change
Turning up…
F:\PowerPoint Charts\Reserve Charts\FRB.xls FRBCOMELNO slide59

18. Nondefense Capital Goods New Orders w/o Aircraft to Electro Medical, Measuring, and Control Instruments New Orders 12/12 Rates-of-Change
F:\PowerPoint Charts\Reserve Charts\New Orders.xls NDFCGXA EMCINO slide 23

19. Nondefense Aircraft & Parts New Orders Billions of Dollars
3/12
12/12
F:\PowerPoint Charts\Reserve Charts\New Orders.xls AIRPNO slide 1
3MMT
12MMT

20. National Defense Expenditures to Defense Capital Goods N. O
National Defense Expenditures to Defense Capital Goods N.O. 12/12 Rates-of Change
F:\PowerPoint Charts\Tec Generic Source.xls GDPNCGNO slide 63

21. US Industrial Production to Defense Communications Equipment New Orders 12/12 Rates-of-Change
F:\PowerPoint Charts\Reserve Charts\FAB2.xls FRBDEFCOMQ slide 10
Peace Dividend

22. U.S. Composite Leading Indicator 1996 = 1004
1/12
12/12
Encouraging signal for ‘10
Money Supply, Ave. Weekly Hrs (Mfg); Mfg. 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.
Actual
F:\PowerPoint Charts\Tec Generic Source.xls USLI slide 46
12MMA
Source: ITR’s EcoTrends®
Monthly Economic Report

23. Retail Sales Excluding Automobiles Adjusted for Inflation Trillions of 82-84$5
12/12
3/12
Forecast
Actual %
- 3.6%
+1.3% [+4.3%, +3.3%, +3.4%]
3MMT
12MMT
F:\PowerPoint Charts\Tec Generic Source.xls RSALES.D slide 54
Better: E-commerce, Sports, Beer/Wine, Hobbies, Grocery, Games/Toys, Small Home Improvements
Source: ITR’s EcoTrends®
Monthly Economic Report

24. Hand Tools Expenditures to Retail Sales Excluding Autos 12/12 Rates-of-Change
F:\PowerPoint Charts\Reserve Charts\PCE Expenditure.xls PCE Handtools RSALES.D slide 2

25. US Industrial Production to Appliance Market Production 12/12 Rates-of-Change
Forecast % %
F:\PowerPoint Charts\Reserve Charts\FRB.xls FRBAPLACX SLIDE 51
Bottom forming… August best mo. In 11
Consumers holding extra cash for now

26. Purchasing Managers Index Institute for Supply Management6
Ten Components: New Orders; Production; Employment; Supplier Deliveries; Inventories; Customer Inventories; Prices; Backlog of Order; Exports; Imports.
Eighth month of rise. Steady as she goes.
The sun will come out tomorrow
2010
F:\PowerPoint Charts\Tec Generic Source.xls PMIROC slide 47
Source: ITR’s EcoTrends®
Monthly Economic Report

27. US Industrial Production to Corporate Bond Prices 12/12 Rates-of-Change7
Consistent leading indicator signal…
War/peace, Republican/Democratic Congress…High/ Low Interest Rates…
F:\PowerPoint Charts\Tec Generic Source.xls FRBCBAA7.I slide 43
Source: ITR’s EcoTrends®
Monthly Economic Report

28. Stock Prices Index S&P 500,1941 – 43 = 108
1/12
12/12
F:\PowerPoint Charts\Tec Generic Source.xls SP5 slide 49
Actual
12MMA
Source: ITR’s EcoTrends®
Monthly Economic Report

29. US M2 Money Supply Trillions of 82$9
Consumers Saving +5.9%
Bank reserves are shrinking slowly
12/12
1/12
Mortgage applications up
Speculators and first timers.
Actual
F:\PowerPoint Charts\SOC A-O M2D slide 45
Stimulus $$$ only now entering the system
12MMA
Existing Homes Sales gaining monthly
Source: ITR’s EcoTrends®
Monthly Economic Report

30. Mortgage Rates to Federal Funds Raw Data
Borrow now…won’t see these rates in 2011
F:\PowerPoint Charts\Reserve Charts (also in Tec Generic)\Misc.xls MORTGR FFUNDS (in TEC) slide 53

31. President Obama’s 10-Year Deficit Projections Billions of Dollars
Debt Service ’ % Budget
Debt Service ’ % Budget
Debt Service ’ % Budget
F:\PowerPoint Charts/Alans charts/ Obama 10 year deficit projections/ Obama slide 85

32. Housing Starts Millions of Units10
Forecast % %
3/12
12/12
3MMT
12MMT
F:\PowerPoint Charts\Tec Generic Source.xls HS slide 58
Source: ITR’s EcoTrends®
Monthly Economic Report

33. US Industrial Production to Non-Residential Construction Data Trends
Lags
Decline through 2010
Office Building Construction
Private Commercial Building Construction
Industrial Building Construction
Casinos – Resorts
Hospitals – Private % & Public -1.9%
College and Universities, Tech Schools +7.8%
Health Care Buildings +6.0%
Public Education Schools +5.0%
Private Education -2.3%
Airline Terminals -0.3%
Gov’t
-12.2%
-22.4%
+27.9%
-2.3%
+6.7%
F:\PowerPoint Charts\Tech Generic Source.xls FRBCONNRESDT slide 15

34. US Industrial Production Index to Foods Production 12/12 Rates-of-Change
Forecast % %
F:\PowerPoint Charts\Reserve Charts\FRB.xls FRBFOODX slide 20

35. US Industrial Production to North America Light Vehicle Production 12/12 Rates-of-Change
Retail Sales Autos in August rose 10.8%
Forecast % %
F:\PowerPoint Charts\Reserve Charts\FAB.xls FRBAUTPRNA SLIDE 37
Making about the same # of cars in 2009 as we did in 1982 (8.632 million units)

36. US Industrial Production to Civilian Aircraft Equipment Production 12/12 Rates-of-Change
Decelerating growth through 2010
Forecast % %
F:\PowerPoint Charts\Reserve Charts\FAB2.xls FRBAIRNECX slide63

37. Four Phases Expansion Bankrupt
n/a slide 23 remove text from handout (expansion/bankrupt)
Bankrupt

38. Phase Management ObjectivesTM:
Phase Late D – Recession Early A - Early Recovery
Training Programs (Technicians, Sales)
2. Enter or renegotiate long-term leases
3. Develop advertising & marketing programs
4. Look for additional vendors
5. Capital expenditures & acquisitions considered in light of market-by-market potential
6. Make acquisitions – use pessimism to your advantage
Lead with optimism and “can do” attitude
Connect with clients
Improve technology and efficiencies
n/a slide 24

39. Phase Management ObjectivesTM :
Phase Late A - Recovery:
1. Positive leadership modeling (culture turns into behavior)
2. Establish goals: tactical goals which lead to strategic achievement
3. Develop a system for measurement and accountability re: #2
4. Align compensation plans with #2 and #3
5. Be keenly aware of the BE point and check it regularly
6. Judiciously expand credit
7. Check distributions systems for readiness to accommodate increased activity
8. Review and uncover competitive advantages
9. Invest in customer market research (know what they value)
10. Improve efficiencies with investment in technology and software
n/a slide 25

40. Phase Management ObjectivesTM :
Phase Late A - Recovery:
Part 2
11. Start to phase out low margin work
12. Add sales staff
13. Build inventories (consider lead time and turn rate)
14. Introduce new product lines
15. Capital equipment orders
16. Increase advertising and sales promotions
17. Hire "top" people
18. Implement plans for facilities expansion
19. Implement training programs
n/a slide 25

41. Phase Management ObjectivesTM :
Phase Early B - Growth:
Accelerate training
Check the process flow for possible future bottlenecks
3. Continue to build inventory
4. Increase prices
Consider outside manufacturing sources if internal
pressures becoming tight
6. Find the answer to “What next?”
7. Open distribution channels (your own or outsource)
8. Use improved cash flow to improve corporate operations
9. Use cash to create new competitive advantages
10. Watch your debt-to-equity ratio and ROI
11. Maintain/pursue quality: don’t let complacency set in
n/a slide 26

42. Find a way to do business in the “counter-cyclical” or largely unaffected areas:
Energy
Green
Water
Canada / Exports
Higher Education
Health Care Practices
Leisure
Pets
Funeral Services
Government
Security/Military
Legal Services (Diversified)

43. Demographics Winning Demographics Negative Demographics
USA ~ Million grows to 400 – 500 Million
India
Indonesia
Australia
Negative Demographics
China
Europe
Japan
Russia
Source: United Nations

44. GOODS & SERVICES AS A PERCENT OF GDP (real) w/o structures
F:\PowerPoint Charts\Tec Generic Source.xls G&S slide 10

45. GDP, Bils of US $, Current Prices Percent of World GDP
Tec\World GDP\2005 slide 70 Yellow #’s not on handouts
Source: IMF Year: 2006 Preliminary Data

46. “What is behind us and
what lies before us
are tiny matters
compared to what
lies within us.”
Ralph Waldo Emerson