b'ECONOMIC UPDATEMacroeconomic OutlookIndustry Snapshots US Real Gross Domestic Product in the second quarter came in Industry Analysis 2.6% above the prior year. However, while consumer and business-Arrow denotes 12-month moving total/average direction. to-business spending trends are above the year-ago level, the RETAIL SALES WHOLESALE TRADEeconomy is slowing. Annual US Total Retail Sales totaled $8.2 billionUS Total Wholesale Trade in the 12 monthsthrough June was up 3.5% from the same periodin July, 5.2% above the year-ago level We anticipate that the headwinds currently facing the economy will RETAIL SALES one year ago Prior inflation has negatively impacted eventually prevail. Our expectation is for a mild recession for the consumers purchasing power; when adjustedParticularly in the case of durable goods,overall economy in 2024. Industrial Production will generally decline for inflation, accumulated savings are declining distributors are seeing growing excessnext year, and we anticipate two quarters of real GDP contraction WHOLESALE TRADE inventoriesin 2024 as well. The signs of upcoming decline are varied andSome decline in annual Retail Sales in 2024 is widespread. Interest rates, at their highest level in decades, areWholesale Trade of Nondurable Goods maylikely creating higher borrowing costs, which is contributing to slowing be more insulated from decline in 2024 thanDurable Goods, given the nondiscretionarymacroeconomic demand. On the consumer side, which makes up nature of some nondurable markets such asAUTO PRODUCTION more than two-thirds of US Real Gross Domestic Product, finances foodare weakening. Excess savings, which were built up during the pandemic, have been eroded by general spending and rising prices; AUTO PRODUCTION MANUFACTURINGconsumers are leaning more heavily on debt to fund their spending.Annual North America Light Vehicle ProductionAnnual US Total Manufacturing Production isMANUFACTURING While metrics like credit card delinquency rates are rising, they through June was up 14.8% from last year mildly decliningremain well below the levels leading up to the Great Recession, which supports our expectation that the downturn next year willInventories are increasing as demand slowsAnnual Total Manufacturing New Orders havenot be a repeat of that period. High borrowing costs will hinder some consumer ticked down mildly in recent months, signalingROTARY RIG further decline for Production is likelydemand for large, financed purchases; We anticipate that the headwinds currently facing the Production decline is likely in 2024Elevated interest rates will continue to hampereconomy will eventually prevail.CAPITAL GOODS the manufacturing sector into 2024Decline next year will not be felt evenly. Industries which rely more heavily on financing, such as construction machinery or larger capital investments, are likely to pull back more sharply than those ROTARY RIG CAPITAL GOODS NEW ORDERSNONRESIDENTIAL CONSTRUCTION industries for which demand is relatively inelastic, such as foodThe US Rotary Rig Count was 11.1% below theAnnual US Nondefense Capital Goods Newor medical. Industries which have government backing, such as year-ago level in July Orders (excluding aircraft) were 3.7% above thedefense, semiconductors, infrastructure, and renewable energy, are year-ago level in June Tightening credit conditions will put downside also likely to fare relatively well during the upcoming downturn.RESIDENTIAL CONSTRUCTIONUnfilled orders trends signal elevated butpressure on the Rig Count plateauing backlogs; the loosening supply chainWe are beginning to see green shoots from the housing market.Demand for oil and gas will decline amid will allow businesses to fill orders more quicklySince this industry leads the macroeconomy by roughly one year, upcoming macroeconomic weakness, putting recovery in the residential construction sector bodes well forRisk of order cancellation is higher on the backfurther downside pressure on the Rig Count recovery in the broader economy in late 2024. We continue to side of the business cycleSteepMild Rise Flat MildSteepmonitor this and other leading indicators for signs of recovery and Rise Decline Decline rise in late 2024 and beyond. TOTAL NONRESIDENTIAL CONSTRUCTION TOTAL RESIDENTIAL CONSTRUCTION Annual US Total Nonresidential ConstructionAnnual US Total Residential Construction in Junetotaled a record $996.4 billion in June, up 14.5% dropped below year-ago levels for the first timefrom last year since before the pandemic Downward movement in corporate profitsDecline is stemming from single-familysuggests Construction will transition to a slowing constructiongrowth trend in the near termIn June, annual US Private Single-Family Declining prices will put downside pressure on Residential Construction was 13.6% below thedollar-denominated Construction year-ago level, while annual Private Multi-FamilyResidential Construction rose to 13.7% above theyear-ago levelITReconomics.com 2023 All Rights ReservedITReconomics.com 2023 All Rights Reservedwww.mrca.orgMidwest Roofer 11'