1. FEI Canada Conference Presentation

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3. Capital markets sending mixed signals about economic strength
NTM P/E multiples¹
Yield curves for the U.S. and Canada²
Source: Bloomberg, U.S. Department of the Treasury, Oanda
1 Takes the average of the daily NTM P/E multiple for the respective index over the course of the year; 2 Data as of 05/29/2019

4. J.P. Morgan’s recession forecast model highlights this risk
Probabilities for a U.S. recession based on an economic factor model
Probabilities for a U.S. recession from financial market models
Near-term indicators
Medium-term indicators
Indicator
Consumer sentiment
Nonmanufacturing sentiment
Manufacturing sentiment
Residential building permits
Auto sales
Payrolls
Unemployment rate
Initial claims
Senior loan officer opinion survey
Indicator
Unemployment rate
Unemployment gap
Compensation growth
Prime-age male labor force participation
Margin drawdown from 5-year peak
Durables and structures share of GDP
Financial indicator
Probability1
A / BBB spreads (bp)
31%
S&P 500 drawdown from peak (%)
24%
Yield curve
(10yr minus 3mo, bp)
58%
Spread and S&P together
28%
Spread, S&P, and yield curve
59%
Composite 1-year probability: 29%
Composite 1-year probability: 50%
42%
Source: J.P. Morgan; Data as of 05/30/2019; ¹ Implied 12-month recession probability

5. Tariffs remain a risk to growth
U.S. tariffs as a % of total imports
Log scale
Effective tariff rate assuming proposed tariffs on Mexico1
Long-term average: 9.9%
2018 level
Average U.S. tariffs increased by ~130% in 2018, which makes it the largest single-year increase recorded since 1892
Source: U.S. International Trade Commission, Peterson Institute of International Economics, NY Times, “International Trade” by Esteban Ortiz-Ospina and Max Roser, US Census, JPMAM
¹ Maximum bound estimate for effective tariff rate assuming proposed 25% tariff on Mexico for $350bn worth of goods. Estimate assumes no change in U.S. import demand from targeted foreign exporters

6. Firms in both the U.S. and Canada are relying more on debt to fund themselves
Total debt / EBITDA over time
Source: FactSet; Note: Sample set excludes financial and real estate companies

7. U.S. firms are more focused on returning capital to shareholders
Spending as a % of operating cash flow¹
Source: Bloomberg; Note: Sample set for the United States consists of firms in the S&P 500. Sample set for Canada consists of firms in the S&P / TSX Composite Index
¹ Uses median values. Values calculated using metrics as of YE 2018

8. Investment has declined in relative terms in both the U.S. and Canada
R&D and capex spending as a % of sales for the U.S.
R&D and capex spending as a % of sales for Canada
(5.5%)
(2.2%)
Source: Bloomberg; Note: Sample set for the United States consists of firms in the S&P 500. Sample set for Canada consists of firms in the S&P / TSX Composite Index. Values based on medians

9. Firms around the world have increasingly been seeking growth through acquisitions and increased scale
Average LTG differential, global deals >$100mm
Average LTG differential, global deals >$1bn
Comparison between 2013 and 2018 buyer-target industry relation in the U.S.
2013
2018
Source: Dealogic, FactSet, Bloomberg as of 12/31/2018; Note: LTG differential (long-term growth differential) denotes difference in estimated CAGR of earnings for targets relative to acquirers over next business cycle (three to five years)

10. The U.S. and Canada remain global leaders in terms of innovation and startups…
Number of startups per country
Startups per country
1–300
300–1,000
3rd
Canada
1,000–2,500
1st
USA
2,500–6,500
6,500–40,000
40,000–47,000
Source: Startup Ranking
World’s most innovative economies
3rd
Finland
South Korea, Germany lead the index in 2019
7th
Sweden
20th
Canada
Innovation score
10th
France
1st
South Korea
8th
USA
4th
Switzerland
9th
Japan
Lowest
Highest
2nd
Germany
6th
Singapore
5th
Israel
Source: 2019 Bloomberg Innovation Index

11. U.S. replacement rate: 2.1 births1
…but in the long run, demographic shifts might start to create unprecedented economic challenges…
Percentage of working age population (ages 15-64)
Fertility rate (births per woman)
U.S. replacement rate: 2.1 births1
Source: World Bank national accounts data, and OECD National Accounts data files, OECD Productivity Statistics: GDP per capita and productivity growth, United Nations Population Division, Census reports and other statistical publications from national statistical offices Bloomberg, UN Department of Economic and Social Affairs, CDC
¹ Level of estimated fertility that is necessary for a population to reproduce itself assuming no immigration

12. …productivity gains might not be able to completely offset these demographic shifts…
10-year growth rate in the productivity per capita¹
Source: World Bank national accounts data, and OECD National Accounts data files, OECD Productivity Statistics: GDP per capita and productivity growth, United Nations Population Division, Census reports and other statistical publications from national statistical offices Bloomberg; 1 Productivity per capita defined as GDP in $USD divided by hours worked

13. …putting pressure on global growth
Real GDP growth rate
For each of these countries over the last 6 years, GDP growth has remained below the long-term average
Source: World Bank national accounts data, Bloomberg