Weekly Economic Commentary
By John Canally Chief Economic Strategist, LPL Financial
In the wake of the European Central Bank’s (ECB) decision to embark on a bond buying program (quantitative easing or QE), policymakers and investors alike are looking for signs that the program is working. Although it is still too soon to tell — QE in Europe was only just announced on January 22, 2015, and the bond purchases themselves won’t begin until next month — the economic data in Europe in recent weeks have begun to exceed lowered expectations, and market based measures of inflation expectations have moved higher. But, market participants looking for an immediate and sustained response by the Eurozone economy to QE may be disappointed. Recall that the Federal Reserve (Fed) began its first round of QE in late November 2008, and after three years (2011, 2012, and 2013) of real gross domestic product (GDP) growth near 2.0%, the economy finally found its footing in 2014, and we continue to expect that the U.S. economy may grow at 3%+ in 2015.*
Lower oil prices and a falling euro may also help to nudge Eurozone growth higher in the coming months and quarters.
As was the case in the United States in 2008 and 2009, the Eurozone economy cannot start getting better until it stops getting worse. Even before the ECB’s announcement on January 22, 2015, key readings on the economy and banking system had stabilized and had begun to turn higher, providing the Eurozone economy with a little momentum ahead of the QE. In recent weeks, several economic data reports (listed below) all suggest that the Eurozone economy had stopped getting worse in late 2014 — after another year of subpar growth. In addition, lower oil prices (Europe is a big oil importer) and a falling euro (which makes European goods and services cheaper in the global marketplace) may also help to nudge Eurozone growth higher in the coming months and quarters….Read the Full Report here: Economic Commentary 02092015
But this plunge in oil prices might only be a temporary phenomenon, according to Al-Badri and some industry specialists.
One reasons for this is that while the oil price has been falling, the industry has cut back investments in future oil production which will contract global supply in the medium to long-term. On the other hand, rising global demand (partially due to lower oil prices) will do its bit to drive up prices even faster.
Equally, despite Al-Badri’s empathetic comment, Saudi Arabia is not planning to reduce its production in the near future.
What therefore needs to happen is that the natural decline in production due to current low investments has to squeeze global oil supplies. This must happen, sooner or later.
About the Author
Stefanie Heerwig is a an international energy consultant and development economist. Her work has focused on fossil fuel subsidies and extractive industry governance in developing countries. She holds a BA (Hons) degree in economics and politics from the University of London’s School of Oriental and African Studies.
Have you ever felt that you were being “sold” to? Perhaps an over-the-top marketing campaign, or perhaps a slightly-too-pushy salesperson?
If so, then you’re not alone. The question, however, is why. And why do organizations so often encourage such off-putting activities?
Some of the obvious reasons:
The momentum of the past. (“We’ve always done it this way.”)
Management focus on current-period sales. (“We must make our numbers.”)
Overly aggressive commission plans. (“And If they don’t make their quotas, we’ll fire them.”)
Aggressive ad agencies looking to sell another campaign. (“This will drive leads so your salespeople can sell, and you can make your numbers.”)
Beyond these reasons (and many more), the main reason why organizations market and sell the way they do is because it works. But might there be another way to drive sales that is more aligned to how a prospect thinks? And might these other approaches be even more effective?
The “relationship curve” client journey model provides some clues.
The relationship curve describes the strengthening relationship between an organization and a prospect, as the prospect becomes aware of his/her need and aware of the organization, prefersthe organization over competitors, goes through a trial (or “test drive”), and ultimately commits.
From the prospect’s perspective, a simple example:
Awareness: My car just died. I need a new one.
Preference: I prefer Toyota, and specifically the Toyota Sienna minivan.
Trial: I’ll go to the dealership and take a test drive.
Commitment: I’m ready to sign the contract.
Unpacking this model yields some interesting insights. For example, how might the prospect feel at different stages of the relationship curve? What is his/her emotional state of mind?
Awareness: Annoyed — didn’t expect to replace the car.
Preference: Curious about the alternatives.
Trial: Excited to try something new.
Commitment: Nervous about the purchase, but confident in the decision.
Post-commitment: Satisfied, with some possible uncertainty (buyer’s remorse).
At each stage, the prospect has a number of questions: if answered satisfactorily, the prospect will move up the relationship curve:
Awareness: How do I decide what to get?
Preference: Does Toyota make a minivan?
Trial: I wonder if I will like it? Does it really meet my needs?
Commitment: Should I get it here? Or somewhere else? Can I really afford it? Should I buy or lease?
Using these concepts, the questions for marketers should be different:
How might we develop campaigns or initiatives focused on each of awareness, preference, trial and commitment?
How might we remove friction along the curve, to make it easier for the prospect to go from one stage to another?
How might we address the prospect’s mindset and emotional state at each stage of the journey?
How might we create content to answer the prospect’s likely questions at each stage of the journey?
Here’s the challenge: look at your current marketing and sales plans — what changes need to be made to answer these questions and move prospects up the curve, instead of down it?
If you feel that you are being sold to, it is either because the marketing is aimed at answering the wrong question, or because the marketing activities do not take your emotional needs into account.
Said another way: Answer the right questions and address the emotional needs at each stage of the relationship curve, and the buying process will be consummated, seemingly all by itself. There really isn’t a need to “sell,” if you spend your time helping prospects help themselves through the buying process.
Randall Craig is the author of seven books, including the recently-released “Everything Guide to Starting an Online Business.” He is the president of consulting firm 108 ideaspace, and speaks on digital marketing, social media strategy and risk. More at www.RandallCraig.com.
The watchdog in the United States for medical devices is the esteemed government agency known as the Food and Drug Administration (FDA). The FDA, however, is flummoxed about how to handle 3-D printing of medical devices.It’s not that the FDA has lost its smarts, it’s just that the 3-D printing technology has spread so quickly, they are behind the curve.
In summer of 2014, the FDA approved the first 3-D-printed medical device for use in the United States. However, the agency never mentions the manufacturing technology in its approval letter. Instead, the device was reviewed as a 501(k) approval.
All Oxford Performance Materials, the maker of the OsteoFab Patient-Specific Cranial Device did was to prove it was “substantially equivalent” to similar devices on the market. Before this device was approved, 3-D-printed medical devices were approved on a patient-by-patient basis.
For now, the FDA plans to continue approval of 3-D-printed medical devices as if they were devices manufactured using more traditional methods. Susan Laine, an FDA spokesperson, told LiveScience at the end of the summer of 2013 the following:
“We evaluate all devices, including any that utilize 3-D printing technology, for safety and effectiveness, and appropriate benefit and risk determination, regardless of the manufacturing technologies used. In some cases, we may require manufacturers to provide us with additional data, based on the complexity of the device.”
In late 2013, the FDA announced that it planned to publish approved guidance for this new technology by 2015. It appears that the regulators have an initial favorable reaction to the 3-D printing, which they prefer to call additive manufacturing.
At this point, it seems unlikely that the agency will make its self-imposed 2015 deadline for approval guidance. They are still in the stage of collecting data from all stakeholders.
During an interview with Plastics Today, Steven K. Pollack, Ph.D., director of the FDA’s Office of Science and Engineering Laboratories, talked about the FDA’s challenges in regulating 3-D printing in the medical device field.
“3-D-printing techniques have different technical considerations than standard manufacturing, with each type of 3-D printing technology having its own specific set of considerations,” Pollack said. “However, devices constructed using 3-D-printing technology are subject to the same regulatory review standards as devices constructed using traditional manufacturing practices.”
For now, manufacturers can continue to apply under the existing 501(k) approval system. Changes in processes move through the FDA at a snail’s pace, but once approved, new processes come into being fast. Makers of 3-D medical devices must stay informed to stay in business.
About the Author
Alan Kelsky is a freelance writer with a master’s degree in business administration from Xavier University with a specialty in healthcare management. Alan was formerly a hospital CEO with an active emergency room and was the CEO of an urgent care center in Pompano, Florida. He is also formerly the owner of Electric Control Services. His company worked with manufacturers and commercial building owners by offering energy audits, energy efficiency technology sales, installation and follow-up monitoring.
STEVEN FELDMAN JOINS HILCO INDUSTRIAL (MDNA member firm)AS SENIOR VICE PRESIDENT OF ASSET SALES
(January 15, 2015) – Hilco Global announced today that Steve Feldman is returning to its Hilco Industrial operating unit as Senior Vice President of Asset Sales. Feldman, who has been running his own firm SJF Auctions LLC since 2013, returns to Hilco, where he spent 11 years as a Senior Vice President, Manager of Machinery & Equipment Appraisals from 2001 through 2012.
In his new role, Mr. Feldman will be responsible for sourcing and managing asset acquisition and disposition transactions and developing and executing initiatives designed to enhance Hilco’s visibility to companies looking to maximize their return on underutilized machinery and equipment.
“We’re thrilled to have Steve re- join the team at Hilco Industrial. His background in business operations and his deep expertise in asset sales and auctions as well as his collaborative personal style will help us continue to grow our organization”, said Steve Wolf – CEO of Hilco Industrial.
Steve’s experience spans several industries, including metals, construction, and many more. He has worked extensively with large corporations and institutions designing and executing on capital asset disposition projects in dozens of industry verticals. Feldman has 30 years of experience in asset valuation, auctions and liquidations throughout the world. He has also served as a consultant to financial institutions on asset-based loans and recovery and is regularly called upon to testify as an expert witness in litigation. Prior to joining Hilco, Steve worked at Norman Levy Associates / DoveBid Appraisal Services, from 1993 to 2001 as Vice President, Manager of Machinery & Equipment Appraisals, and, from 1979 to 1993 at Industrial Plants Corporation / IPC Levy as Vice President, Manager of Auction Services and an Auctioneer.
Steve earned a Bachelor’s degree at Syracuse University. He is a member of the National Auctioneers Association since 1980, as well as the Machinery and Dealers National Association (MDNA) since 1975 and a member of the Association of Machinery and Equipment Appraisers (AMEA).
About Hilco Industrial: Hilco Industrial (hilcoind.com) provides industrial asset disposition services, specializing in machinery, equipment and inventory auctions and negotiated sales. It sells the broad range of industrial assets found in manufacturing, wholesale and distribution companies. Hilco Industrial performs dispositions through on-site, online and combination webcast auction sale events as well as negotiated (private treaty) sales. In addition to providing services on a fee or commission basis, Hilco Industrial has capital to put at risk and often acquires assets or provides guarantees.
Hilco Industrial is part of Northbrook, Illinois based Hilco Global (hilcoglobal.com), the world’s leading authority on maximizing the value of business assets by delivering valuation, monetization and advisory solutions to an international marketplace. Hilco Global operates twenty specialized business units offering services that include asset appraisal, retail and industrial inventory acquisition and disposition, real estate repositioning and renegotiation, strategic advisory, operational consulting and strategic capital equity investments.
Burt White Chief Investment Officer, LPL Financial
Jeff Buchbinder, CFA Market Strategist, LPL Financial Member FINRA/SIPC
Unlike the footballs that the New England Patriots used in the AFC Championship game against the Indianapolis Colts, the U.S. dollar has remained well inflated. The dollar, which has been trending higher for nearly four years now, rose 13% in 2014 and is up another 5% so far in 2015. The latest leg up has been driven by anticipation and arrival of quantitative easing (QE) by the European Central Bank (ECB). Bold stimulus from the ECB, and other central banks around the world including the Bank of Japan, has put substantial downward pressure on the euro, the yen, and other currencies, while boosting the dollar. In general, more supply of a currency drives down its value. In this week’s commentary, we discuss some of the causes of the strong U.S. dollar and some of the most important implications for investors.
The dollar, which has been trending higher for nearly four years now, rose 13% in 2014 and is up another 5% so far in 2015.
WHY SO STRONG?
The U.S. dollar is strong for a number of reasons, all of them good things. Relatively strong U.S. economy. Our economy has been outperforming most international economies in recent years — especially the developed economies that are our biggest trading partners in Europe and Japan. A relatively good (even if not great) economy has helped boost U.S. financial markets and made the U.S. a more attractive destination for foreign capital. Improving trade balance. The U.S. trade balance has improved dramatically, thanks in large part to the boom in U.S. energy production and resulting drop in oil prices that has reduced U.S. imports and increased exports. By keeping more dollars here at home, a smaller trade gap is bullish for the dollar.
Improving budget deficit. The measures that the United States has taken — in some cases painfully — to reduce the deficit by cutting….
John Canally Chief Economic Strategist, LPL Financial
The outlook for global growth is important to investors, since it defines the ultimate pace of activity that creates value for countries, companies, and consumers. As investors digest the S&P 500 earnings reports for the fourth quarter of 2014, we provide an update on how consensus estimates for economic growth for 2015 and 2016 — in the United States and worldwide — have evolved over the past few years, and in particular, since oil prices peaked in mid-2014.
The International Monetary Fund (IMF) cut its global growth forecasts for both 2015 and 2016 last week (January 19 – 23, 2015). While the IMF raised its estimate for growth in 2015 for developed economies, all of the increase to that estimate came in the United States; the IMF lowered its estimates for all other developed economies, except the United Kingdom where 2015 growth estimates were unchanged. The IMF sharply lowered its 2015 growth estimate for emerging markets (EM), with oil-producing, EM nations like Russia, Saudi Arabia, Mexico, Brazil, Venezuela, and Nigeria seeing the largest markdowns in growth.
Typically, when the IMF releases a forecast, the majority of financial market participants
take little notice of the report, and that was generally the case last week, as markets
focused more on the price of oil and the European Central Bank (ECB), than on the IMF.
Why? Because consensus forecasts for global gross domestic product (GDP) growth are available monthly from sources like Bloomberg News, and because markets constantly react to changes in projected paths of economic growth amid the daily, weekly, and monthly drumbeat of economic data and global events.
WHY GLOBAL GDP GROWTH MATTERS
In the past, prospects for U.S. economic growth garnered the most attention from market participants, but in recent years markets have focused more on the prospects for global GDP growth. Why does global GDP growth matter? As we have noted in prior Weekly Economic Commentaries, financial markets — especially equity markets — focus intently on earnings. Broadly speaking, earnings growth is driven by “top-line” growth, or revenue growth, less the costs incurred earning that revenue, with labor accounting for….
The thermoforming process typically consists of heating thermoplastic sheet, film or profile to its softening point and then forcing the hot, flexible material against the contours of a mold in three ways:
pneumatic means — differentials in air pressure are created by pulling a vacuum between the plastic and the mold, or the pressure of compressed air is used to force the material against the mold
mechanical means — plug, matched mold, etc.
a combination of pneumatic and mechanical means
Recent advances in thermoforming have come in both software and machinery. For example, injection molders are not the only plastic processors that can benefit from process simulation software. Accuform SRO has developed T-SIM, a thermoforming simulation software package. A consortium of 11 European thermoforming companies supported the development of the software.
T-SIM simulates positive or negative forming with or without plug assist. The software predicts the final wall thickness distribution based on the specified processing parameters (the pressure level, the speed of tools, the sheet temperature distribution, etc.). Time-dependent sheet sagging is included.
T-SIM is also able to predistort images for printing them on the flat sheet, so that once thermoformed, the images appear true. An image projection manager enables projection of multiple images using various projection methods (planar, cylindrical and spherical projection).
Let’s delve further starting with custom thermoformers like the Profile Plastics Corporation, who are specialists in heavy-gauge, custom-molded, highly engineered plastic parts manufactured via vacuum, pressure and twin-sheet thermoforming processes. The company has prospered for 50-plus years by steadily investing in and innovatively applying the latest technology.
Profile’s use and development of an unconventional vacuum-forming machine from Geiss Thermoforming USA is an example. The unit was one of the first halogen-heated, in-line closed-chamber-style machines in the U.S.
Profile specializes in large, technical parts for medical, analytical and electronic equipment, as well as appliances and materials-handling components. The acquisition of the Geiss machine with its halogen heating has helped Profile to maintain its momentum by extending its use of heat-sensitive materials.
Of the successive operations (clamping, heating, forming, cooling and trimming) carried out to produce a thermoformed part, heating appears to be the critical step. The sheet has to be evenly heated at the proper temperature.
Heating is conventionally performed by means of medium-wave (quartz) or long-wave (ceramic) radiators, but the Philips infrared halogen lamp is providing a great improvement in the heating process. For a given installed power, infrared halogen lamps are more efficient as they create a higher irradiance at a given distance from the plastic sheet, compared to both quartz and ceramic.
Although it takes minutes for quartz and ceramic radiators to reach their operating output, infrared halogen lamps (short wave emitter) only require a few seconds to get the same level of energy. Infrared halogen lamps also generally give a better temperature gradient over the plastic thickness. This is due to short wave radiation, a unique feature of infrared halogen lamps that has been shown to be more penetrating than long wave or even medium wave radiation.
Infrared halogen lamps can be instantly adjusted to the optimized heat level by simple dimming. Adaptation to various kinds of shapes and colors is not a problem. Infrared halogen lamps are 100 percent dimmable, which allows fine tuning of the process.
Profile’s goal is to thermoform parts equal to injection molding in look, quality and precision, while outdoing them in design ingenuity and economy. Such an objective was not feasible 20 years ago, as it was not possible to trim parts with precision equal to injection molding, and it was difficult to measure part dimensions to guarantee quality on a repeatable basis.
Multiaxis CNC routers provided a way to address trim-speed and precision, and Profile pioneered their use in thermoforming. All of Profile’s parts are now CNC-trimmed. Profile also addressed the need for precision measurement by investing in coordinate-measuring machines, computer-aided devices for measuring critical part parameters on a repeatable basis. The move allowed Profile to pursue more demanding applications.
Next, Berry Plastics Corporation’s original purchase of Landis Plastics Inc. has turned out over time to bring Berry a larger injection molding/packaging base. It also gave Berry Landis’ polypropylene (PP) thermoforming technology. Putting the companies together brought together Berry’s state-of-the-art technology for deep-draw, post-trim thermoforming and Landis’ PP trim-in-place thermoforming technology that is also state-of-the-art.
Within the plastics industry, it was believed that PP could not be drawn deeper than 4 inches, but Berry developed a new PP thermoform drink cup line that draws just over 8 inches deep, yielding drink cup sizes of 22-44 ounces.
A polypropylene drink cup that unlike other materials won’t crack, leak or break is attractive to consumers, while retailers are also interested in a value-added product that provides premium image potential yet is cost competitive with traditional plastic, paper and foam cups. Barry’s new technology provides the fountain industry with a drink cup that can be crushed and straightened out and will still hold liquid.
The new drink can also spell profits for retailers who have discovered that reusable polypropylene drink cups — viewed as premium products by consumers — are a cost-effective alternative to traditional paper, plastic or foam cup materials.
Other companies are thermoforming PP, too. PP is expected to grow 9.1 percent in thermoforming applications. Less than 100 million pounds of PP was used in thermoforming 10 years ago, and about 750 million pounds is expected to be used this year. By combining its deep-draw PP thermoformed product with PP trim-in-place thermoforming technology, Berry is advancing in all sorts of single-service products including ready-to-eat packages, salad packages and snack containers.
Finally, custom thermoformer, Kintz Plastics — a recognized leader in heavy-gauge thermoforming — offers three thermoforming processes:
vacuum forming (with design flexibility at reduced tooling costs)
pressforming (a cost-effective alternative to injection molding)
twin-sheet forming (which compares favorably to blow molding, in both function and cost).
The company, which produces plastic parts for the medical, computer and transportation industries, has installed the largest thermoforming machine in North America. Partly customized in-house, the four-station rotary machine dubbed “jumbo” makes parts of up to 9-by-13-by-5 feet from a single sheet of plastic.
Kintz forms a full range of large parts with the machine, including products such as exterior vehicle panels, spas, pool stairs, office tabletops, kiosk and vending machine panels. Some captive thermoformers make parts of equal or larger size, such as truck bed and refrigerator liners.
The machine can be operated in vacuum, pressure or twin sheet modes. Kintz foresees considerable potential in large twin-sheet hollow parts, such as underground storm water drainage vessels.
Another market of significant interest to Kintz is unpainted decorative parts. This market segment is experiencing high growth utilizing Bayer MaterialScience’s and Sabic Innovative Plastics’ weatherable, high-gloss sheet products. These applications also benefit from a push to replace thermoset fiberglass composites in various recreational and agricultural vehicles, riding mowers, spas and showers, and also window and siding profiles.
About the Author
The Plastics Institute of America (PIA) at the University of Massachusetts Lowell is a not-for-profit educational and research organization dedicated to providing service to the plastics industries since 1961. The PIA is led by Prof.-Dr. Aldo Crugnola, executive director; Prof.-Dr. Nick Schott, secretary and director of educational programs; and Dr. Donald Rosato, publications chairman (pictured).
John Canally Chief Economic Strategist, LPL Financial
Last Friday, January 9, 2015, the United States Bureau of Labor Statistics (BLS) released its monthly Employment Situation report, providing financial markets and the public at large with the state of the labor market as 2014 ended. The U.S. economy created another 252,000 net new jobs in December 2014 and 3 million over the course of 2014. More net new jobs were added in 2014 than in any year since 1999 [Figure 1]. The unemployment rate fell to 5.6% in December 2014, the lowest reading since mid-2008.
Although the labor market has improved markedly over the past year or so, it still has a long way to go to get back to “normal,” and the Federal Reserve (Fed) is unlikely to begin raising rates until a broad range of labor market indicators are back to normal or on track to get back to normal. In our Outlook 2015: In Transit, we noted that Fed Chair Janet Yellen and the other members of the Federal Open Market Committee (FOMC) are tracking a “broad range” of labor market indicators. (See pages 10 – 11 of the Outlook for details.) Eleven of these indicators were updated with last Friday’s release, with six of them improving versus November 2014, four deteriorating, and one remaining the same.
In an otherwise solid report, one of the big disappointments was the deceleration in wage growth as measured by the year-over-year change in average hourly earnings. Hourly earnings decelerated from 1.9% year over year in…
Burt White Chief Investment Officer, LPL Financial Jeff Buchbinder, CFA Market Strategist, LPL Financial
Earnings season is here and, as we wrote in our earnings preview last week (“A Tale of Two Earnings Seasons”), low oil prices and the energy sector will be the market’s main focus. Energy companies begin to report earnings this week, as energy services provider Schlumberger releases results on Thursday, January 15, 2015, although most of the sector’s results will come the last week of January and first week of February. While we try to gauge the energy sector outlook, we will also pay close attention to sectors and industries that potentially benefit the most from cheap oil, particularly in the consumer discretionary sector and the transportation industry, or the transports. (This week’s Weekly Economic Commentary, “Drilling into the Labor Market,” discusses energy’s impact on U.S. and state economies and labor markets.)
Depending on your assumptions, savings for the average American
from lower energy prices could reasonably be estimated at
over $1,000 per year.
IT STARTS WITH THE CONSUMER
The obvious place to start when analyzing beneficiaries of cheap oil is the consumer discretionary sector. The “tax cut” from lower prices at the pump is significant. U.S. consumers purchase about 140 billion gallons of gas annually, so a $1.00 drop in gasoline is a net savings of $140 billion (or about 1% of gross domestic product [GDP]). Each household that has been spending about $2,500 per year on gasoline (roughly the national average) will see a drop of perhaps $600 annually, based on U.S. Energy Information Administration (EIA) forecasts. For someone making the median income in the United States (about $52,000), that’s almost an extra week’s paycheck. And the total does not include home heating costs, where additional savings are captured, as the decline came just ahead of the coldest winter months (the sharp drop in natural gas prices is also helping). Depending on your assumptions, savings for the average American from lower energy prices could reasonably be estimated at over $1,000 per year, which for many, is like getting a raise. Keep in mind the consumer represents two-thirds of the U.S. economy.