b'26 ECONOMIC OUTLOOKMacroeconomic OutlookIndustry Snapshots The majority of leading indicators that we trackincluding the ITR Leading Indicator, the US ISM PMI (Purchasing Managers Index), Arrow denotes 12-month moving total/average direction. and the US Total Industry Capacity Utilization Ratesignal that many sectors of the US economy will continue to trend on the back side of the business cycle. These sectors include US Industrial Production, US Total Retail Sales, and US business-to-business (B2B) RETAIL SALES spending. Our analysis of the inverted 10-year to 3-month Treasury yield curve, which reaches further out, suggests that these sectors will reach cyclical lows around late 2024. The magnitude of the cyclical downturn will differ by sector, but it will be generally mild WHOLESALE TRADE relative to historical trends.Rising interest rates, alongside economic uncertainty, are hindering some firms capex investments. This will contribute to ongoing AUTO PRODUCTION slowing growth and eventual contraction in B2B spending. We expect annual US Nondefense Capital Goods New Orders (excluding aircraft), a measure of B2B spending, to peak in mid-2023 and then MANUFACTURING declineapproximately 5% altogetherthrough the end of 2024. Annual US Total Manufacturing Production, which accounts for almost 80% of US Industrial Production, has edged downward ROTARY RIG in two of the last three months, and we expect decline to be the overarching trend into the latter half of 2024. By contrast, overall Industrial Production, which is benefiting from mining activity, is hovering around record-high levels. Annual Industrial Production CAPITAL GOODS will peak in the latter half of this year and then declineabout 2.7% in allinto the end of 2024. Industrial sector decline will be cushioned by elevated backlogs and near-term reshoring trends.Dedicated to keeping its members at the forefront in their industryNONRESIDENTIAL CONSTRUCTION We expect annual US Total Retail Sales to peak around the end of this year, then decline, about 1% or less, into the latter half of 2024. Consumer financials are stable, with credit delinquencies below the RESIDENTIAL CONSTRUCTION 2019 level and US Real Personal Income (excluding current transfer receipts) at record highs. However, savings are not keeping pace with inflation; we are monitoring this downside risk to the outlook.Rising interest rates, alongside economic uncertainty, are hindering some firms capex investments.SteepMild Rise Flat MildSteep Rise Decline Decline Our outlook for relatively mild macroeconomic, industrial, and retail sales downturns in 2024 assumes that the inversion of the yield curve will not extend beyond this year. Recent comments by Federal Reserve Chair Jerome Powell suggest that the Fed could maintain a hawkish stance for longer than originally expected, which could jeopardize that assumption. If so, the economy would face higher hurdles, which could result in more severe or longer-lasting downturns than we are currently forecasting. We are closely monitoring the Feds actions and the potential risks to our forecasts.ITReconomics.com 2023 All Rights ReservedThe InsulatorApril 2023'