US Eco Q4'12 Outlook

Image page U.S. Q4’12 Economic Overview and Outlook Bloomberg BRIEF: Economics Joseph Brusuelas October 2012

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookImage page Summary Executive • Growth is tracking at 1.5 percent in the third quarter of 2012 • Q4’12 growth of 1.5 percent vs. 2 percent consensus forecast • 10-year rate likely range bound between 1.5- 2 percent • EUR/USD depreciation. $1.28 at year end • Recession risk due to approaching fiscal cliff • The U.S. economy is downshifting amid broadening global deceleration • Job growth around 100,000 per month with slight risk of unemployment rate rising to 8 percent by end of year • Risks to the outlook: • External Sector: Euro zone, Middle East tensions • Public policy: 2012 impact from 2013 fiscal cliff • Political Economy: U.S. presidential election Email jbrusuelas3@bloomberg.net or call 212-617-7664 2

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminal U.S. Q4’12 Economic Overview and OutlookImage page Cyclical Growth Scenario Remains Intact • Core Scenario: Below Trend (2.5 percent) Growth • Structural adjustment continues • Fiscal drag, household and public sector deleveraging • Elevated unemployment persists • Modest consumption and low inflation Email jbrusuelas3@bloomberg.net or call 212-617-7664 3

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminal U.S. Q4’12 Economic Overview and OutlookImage page Cyclical Growth Scenario Remains Intact • Alternative: The Long Malaise • Liquidity trap ensnares economy • Policy Mistake: Premature fiscal & monetary tightening • Persistent deflation and deleveraging • Low Probability: Cyclical Outperformance • Policy directed at 27 percent of first mortgages in negative equity or near-negative equity positions • Acceleration in hiring quickly brings down unemployment • Corporate sector deploys cash • Inflation risk Email jbrusuelas3@bloomberg.net or call 212-617-7664 4

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookBloomberg Consensus: Survey of Forecasters Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Real GDP 1.70% 1.80% 2.00% 1.90% 2.30% 2.50% 2.70% CPI 1.90% 1.60% 1.90% 1.70% 2.00% 2.10% 2.10% Core PCE 1.81% 1.70% 1.80% 1.70% 1.80% 1.90% 1.85% Unemployment 8.17% 8.07% 8.10% 8.10% 8.00% 7.90% 7.80% Central Bank Rate 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 2-Year Rate 0.30% 0.23% 0.31% 0.37% 0.45% 0.56% 0.69% 10-Year Rate 1.65% 1.63% 1.74% 1.90% 2.05% 2.21% 2.41% EUR/USD 1.27 1.29 1.28 1.27 1.26 1.25 1.25% Email jbrusuelas3@bloomberg.net or call 212-617-7664 5

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookImage page Overview U.S. Rates • Bloomberg consensus forecast indicates higher 10- and 30-year rates. • Fed Operation Twist to continue at $44 billion per month pace • Current Rates: • 2-Year: .26 percent • 10-year: 1.74 percent • 30-year: 2.97 percent • Fourth Quarter Consensus Survey Rate Forecast • 2-Year: .31 percent • 10-year: 1.9 percent • 30-year: 2.85 percent • Risk to that forecast: • Slowing U.S. economy • Euro zone sovereign crisis • U.S. fiscal cliff Email jbrusuelas3@bloomberg.net or call 212-617-7664 6

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookJobs and Growth 400 6 Q412 Growth Tracking at 200 4 Quarterly Average (Percentage) Quarterly Average (Thousands) 0 2 -200 0 -400 -2 -600 -4 -800 Total Change in Employment (LHS) Real GDP Y/Y (RHS) -1000 -6 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg R2=.77 Email jbrusuelas3@bloomberg.net or call 212-617-7664 7

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookLabor Market Slack 58 11 Employment to Population Ratio (LHS, Inverted) Unemployment Rate (RHS) 59 10 9 60 8 61 Percent Percent 7 62 6 63 5 64 4 65 3 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg USERTOT, USURTOT INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 8

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookEmployment Snapshot Reflects Tough Economy 250 225 200 Includes September Household Survey 175 150 125 Thousands 100 75 50 25 0 -25 -50 3-Month Average 6-Month Average 12-Month Average -75 Total Change In Employment Private Payrolls Household Survey Source: Bloomberg NFP TCH, NFP PCH, USEMNCHG INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 9

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookSlow Grind Back To Full Employment Scenario 1: Structural Break Scenario 2: Cyclical Recovery 7% NAIRU 7% NAIRU 5.5% NAIRU 5.5% NAIRUMonthly Job Gains 151,000 151,000 151,000 151,000Labor Force Participation 63.50% 63.50% 63.50% 63.50%RateAverage Annual 0.92% 0.50% 0.92% 0.50%Population GrowthYears to Full Employment 3 Years 1.5 Years 7 Years 4 Year Email jbrusuelas3@bloomberg.net or call 212-617-7664 10

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookPolicy Uncertainty 300 Policy Uncertainty Index 1985-2007 Average=95.2 European Sovereign Debt Crisis 2008-Present Average=164.3 US Debt Ceiling Dispute 250 Banking Crisis/Obama Elected Lehman Bros/TARP 9/11 200 Balanced Budget Act 2nd Gulf War Index 1St Gulf War Clinton Era Fed Rate 150 Cuts, Stimulus Black Monday LTCM 100 50 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: policyuncertainty.com Email jbrusuelas3@bloomberg.net or call 212-617-7664 11

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookProjected Path of Long- and Short-Term Rates 5.50 5.00 4.50 4.00 3.50 Percent 3.00 2.50 2.00 1.50 1.00 0.50 US 10-Year (LHS) 3-Month, 2-Year Forward (RHS) 0.00 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Source: Bloomberg USGG10YR INDEX, G0025 2Y3M BLC2CURNCY<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 12

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminal U.S. Q4’12 Economic Overview and Outlook FX OverviewImage page • Dollar appreciation versus euro- and-trade weighted basket of currencies eases: • Near-term test of $1.30 against the euro • Likely to move toward $1.28 by end of the third quarter • Euro zone recession supports modest USD appreciation • Risks to the outlook: • Fiscal concerns at year end • Weak labor market outlook • More forceful Fed action Email jbrusuelas3@bloomberg.net or call 212-617-7664 13

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookEUR/USD: Likely Test of $1.28 600 1.18 1.23 500 1.28 EUR/USD (RHS, Inverted) 400Basis Points 1.33 300 1.38 200 1.43 100 1.48 German-Italian 10-Year Spread (LHS) EUR/USD (RHS, Inverted) 0 1.53 2011 2012 Source: Bloomberg EUR Curncy, GDBR10, GBTPG10 INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 14

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookReal Trade Weighted Broad Dollar Index 115 QE 1 Begins QE 2 QE 3 110 105 Index 100 95 90 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg USTWBROA INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 15

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminal U.S. Q4’12 Economic Overview and OutlookImage page U.S. Manufacturing Outlook • Manufacturing growth slowing • Noticeable pullback in capital expenditures • Slower external demand • US fiscal cliff • Global production decelerating • Weak U.S. aggregate demand • European recession • China recession Email jbrusuelas3@bloomberg.net or call 212-617-7664 16

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookManufacturing Growth Slowing Noticeably Industrial Production and Growth 6.0 10.0 5.0 Y/Y Percentage Change (Quarterly Average) 4.0 5.0 3.0 Y/Y Percentage Change 2.0 0.0 1.0 0.0 -5.0 -1.0 -2.0 -3.0 -10.0 -4.0 GDP CYOY Industrial Production -5.0 -15.0 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg IP YOY, GDP CYOY INDEX<GO> R2=.76 Email jbrusuelas3@bloomberg.net or call 212-617-7664 17

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookSlower Manufacturing Growth ISM Manufacturing, Services and Growth 65.0 6.0 5.0 60.0 4.0 3.0 GDP Y/Y Percentage Change Index (Quarterly Average) 55.0 2.0 1.0 50.0 0.0 -1.0 45.0 -2.0 -3.0 40.0 -4.0 ISM Manufacturing Survey (LHS) Weighted ISM Manufacturing & Non-Man (LHS) -5.0 GDP Y/Y (RHS) 35.0 -6.0 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg NAPMPMI, GDP CYOY INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 18

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCapital Expenditures Falling: Slower Growth Capital Goods Orders Excluding Aircraft 25 20 15 Year Over Year Percentage Change 10 5 0 -5 -10 -15 -20 -25 Recessions Capital Goods New Orders Non-Defense Excluding Aircraft and Parts -30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg CGNOXAY% INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 19

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookGlobal Manufacturing Cools 65 1 60 0 Y/Y Percentage Change (Index) 55 0 50 Index 0 45 0 40 0 35 MSCI World Index (RHS) US ISM (LHS) China PMI (LHS) 30 Euro Zone PMI (LHS) JP Morgan Global PMI (LHS) -1 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 20

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookFinancial Conditions Overview • Forceful action by ECB and Fed behind improved financial global financial conditions • Improved pace of credit creation • Both demand and supply of credit is improving • This has not resulted in an increase in monetary velocity Email jbrusuelas3@bloomberg.net or call 212-617-7664 21

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookBloomberg Financial Conditions Indices Financial Conditions Turn Easing 2 1 0 -1 Index(Z-Score) -2 -3 -4 -5 US Financial Conditions Index EU Financial Conditions Index -6 2010 2011 2012 Source: Bloomberg BFCIUS, BFCIEU INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 22

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCredit Markets Healing Private Credit Creation & Nominal Growth 20% Nominal GDP Total Credit Creation Private Financial Instiutions 15% Year Over Year Percentage Change 10% 5% 0% Adjusted R2=.64 -5% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 Source: Federal Reserve, Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 23

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCredit Markets Healing, Not Translating to Rising Velocity Velocity of Money 2.2 M2 2.1 2 1.9 1.8 1.7 1.6 1.5 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: Bloomberg VELOM2 INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 24

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookHousing Outlook and Overview • Modest cyclical recovery • Recovery in starts driven by demand for multifamily dwellings • Prices have stabilized • Some metro-areas experiencing price appreciation • Overall housing recovery still years away • Inventory • Pricing • Tight credit • Attractive rates support sales albeit at historically low levels Email jbrusuelas3@bloomberg.net or call 212-617-7664 25

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookHousing Outlook • Shadow inventory rising. • Pace of foreclosures key to recovery • Housing drag on economy persists • 23.7 percent of homeowners have negative equity • 4.9 percent near-negative equity • Shadow inventory a drag on recovery • Negative equity and overhang of supply is blocking the monetary transmission mechanism • Likely to need a policy response to target underwater homeowners and the shadow inventory to move back toward growth path Email jbrusuelas3@bloomberg.net or call 212-617-7664 26

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookHousing Starts Stabilize 2.5 Multi-Family Starts Single Family Starts 2 Millions (Annualized Pace) 1.5 1 0.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg NHSPS1, NHSPS5 INDEX<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 27

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookTraditional Buyers Re-entering Market Percentage of Existing Home Sales 35 Aug-11 Aug-12 30 25 20 15 10 5 Distressed Sales Foreclosures Short Sales First Time Buyers All Cash Investors Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 28

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCentral Bank Policy Outlook and Overview • Five C’s of U.S. Monetary Policy • Communications • Commitment • Conditionality • Composition • Credibility Email jbrusuelas3@bloomberg.net or call 212-617-7664 29

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCentral Bank Policy Outlook and Overview • Forward guidance to remain unchanged • Maturity extension program continued through 2014 • Possible unsterilized treasury purchases due to fiscal cliff Email jbrusuelas3@bloomberg.net or call 212-617-7664 30

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookMonetary Policy at the Zero Bound FOMC Projections of Year-End Levels of the Fed Funds Rate (Median Projections as of January, June and September 2012) 4.5% January Median FOMC Projection 4.00% 4.0% June Median FOMC Projection Sept. Median FOMC Projection 3.5% 3.0% 2.5% Percent 2.0% 1.5% 1.00% 1.0% 0.5% 0.25% 0.25% 0.25% 0.0% 2012 2013 2014 2015 Longer Run Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 31

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookMonetary Policy at the Zero Bound Federal Reserve SOMA Maturity Distribution 300,000 9/22/2011 (Wt Avg Years to Maturity 6.09) 10/3/2012 (Wt Avg to Maturity 9.48) 250,000 200,000 Millions 150,000 100,000 50,000 0 2011 2024 2042 2012 2013 2021 2022 2014 2017 2023 2027 2031 2032 2033 2034 2037 2041 2015 2025 2035 2019 2029 2039 2016 2020 2026 2030 2036 2018 2028 2040 2038 Source: Bloomberg DEBT FED<GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 32

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookMonetary Policy at the Zero Bound Diminishing Wealth Effects from Fed Purchases 1500 End of QE1 End of QE2 1400 Standard and Poors 500 1300 1200 1100 1000 900 800 S&P Gains 80% S&P Gains 30% S&P 500 Gains 22% During 700 Operation Twist I & II 600 2009 2010 2011 2012 Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 33

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookMonetary Policy at the Zero Bound Taylor Rule Model Estimates of the Fed Funds Rate 8 Fed Funds Rate Hawks Baseline Taylor Rule Estimate Doves Sept. Median FOMC Projection Baseline Rudebusch Model 6 4 2 Percent 0 -2 -4 -6 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 34

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookFiscal Drag • Medium-term policy shift • Discretionary spending declining • Potential fiscal shock in first quarter of 2013 • Q1’13 GDP -2.2 percent • Q2’13 GDP -1.3 percent Email jbrusuelas3@bloomberg.net or call 212-617-7664 35

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookFiscal Cliff Impact Estimated Impact Tax Changes Spending Changes Bush Tax Cuts -221 Automatic Sequestration -65 2% Cut in Payroll Tax -95 Expiration of Emergency Unemployment -26 Benefits Partial Expensing of Investment -65 Scheduled Reduction in Medicare Payment -11 Rates Tax Provisions: Affordable Health Care Act -18 Other Revenue Increases/Spending -105 Reductions Impact of Tax Changes -400 Impact of Spending Changes -207 Gross Impact on Spending Changes -607 Less Secondary Effects on Economy 47 Net Impact on Fiscal Deficit -560 Potential Hit on GDP 4% Source: CBO, Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 36

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookGrowth Cliff 3.0 2.7 Bloomberg Consensus Forecast Bloomberg Brief GDP Estimate With Fiscal Cliff 2.5 2.3 2.0 2.0 2.0 1.9 1.9 1.5 1.5 1.3 1.0 Percentage 0.5 0.0 -0.5 -1.0 -1.3 -1.5 -2.0 -2.2 -2.5 Q312 Q412 Q113 Q213 Q313 Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 37

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookEmployment and the Fiscal Cliff Unemployment Rate Likely to Rise 10.0 Bloomberg Consensus Forecast 9.8 Bloomberg Brief Forecast With Fiscal Cliff 9.6 9.4 9.2 9.0 8.8 Percentage 8.6 8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0 2010 2011 2012 Q312 Q412 Q113 Q213 Q313 Source: Bloomberg Email jbrusuelas3@bloomberg.net or call 212-617-7664 38

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCompeting Fiscal Visions Competing Fiscal Visions 26 Obama Plan Actual Forecast CBO Baseline 25 CBO Alternative Federal Spending as Percentage of GDP Ryan Plan 24 23 22 21 20 19 18 17 1990 1994 1998 2002 2006 2010 2014 2018 2022 Source: CBO, OMB, House Budget Committee Email jbrusuelas3@bloomberg.net or call 212-617-7664 39

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookCompeting Fiscal Visions Entitlement Spending vs. Net Fixed Business Investment 16 Net Business Fixed Investment Actual Forecast Mandatory Entitlement Spending 14 Spending as a Percentage of GDP 12 10 8 6 4 2 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 Source: Bloomberg, CBO Email jbrusuelas3@bloomberg.net or call 212-617-7664 40

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookFiscal Drag Federal Government Spending 12.0 Actual Projected 11.0 10.0 9.0 Percentage of GDP 8.0 7.0 6.0 5.0 4.0 3.0 Defense Nondefense Total 2.0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 Source: Congressional Budget Office Email jbrusuelas3@bloomberg.net or call 212-617-7664 41

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookDeficit Dynamics Federal Deficit: Baseline vs. Alternative -11.0 Deficit or Surplus Actual Forecast -10.0 Alternative Fiscal Scenario -9.0 -8.0 -7.0 Percentage of GDP -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 1972 1978 1984 1990 1996 2002 2008 2014 2020 Source: CBO Email jbrusuelas3@bloomberg.net or call 212-617-7664 42

Published by Bloombergs Economics Newsletter - Take a free trial at Bloombergbriefs.com or enter BRIEF <GO> on Bloomberg terminalU.S. Q4’12 Economic Overview and OutlookDebt Dynamics Federal Debt: Baseline vs. Alternative 120 Debt Alternative Fiscal Scenario Actual Forecast 110 100 90 Percentage of GDP 80 70 60 50 40 30 20 1940 1950 1960 1970 1980 1990 2000 2010 2020 Source: CBO Email jbrusuelas3@bloomberg.net or call 212-617-7664 43

Free Trial Offer to Bloomberg’s Economics BriefThis is an exclusive presentation from Bloomberg Brief Economics by JosephBrusuelas.Bloomberg BRIEF Economics is a new, groundbreaking publication written by leading economists in US, Europe andAsia, published by Bloomberg, the premier source of data and analytics in the financial world.Bloomberg BRIEF Economics is already read by thousands every morning and you’ll soon see why – the EconomicsBrief provides a clear, concise snapshot every morning of all the key information you need to know:• Valuable insight and independent analysis from our renowned economists whove spent decades on Wall Street including Joseph Brusuelas, Michael McDonough, Tamara Henderson, Richard Yamarone, David Powell and Niraj Shah.• Proprietary data and commentary that gets beneath the numbers with eye catching charts.• Guest columnists from top-tier firms.• Exclusive publications such as the Orange Book, Quarterly Economic Overviews, The Economist Notepad, Daily EconomicOutlook Videos and much more!Your time is valuable. Maximize it by switching to Bloomberg BRIEF Economics today.Take a free 30 day trial today!Or visit www.bloombergbriefs.com for more information.

Bloomberg Joseph Brusuelas, Senior Economist Bloomberg, LP jbrusuelas3@bloomberg.net Joseph Brusuelas is an analyst who writes for the Bloomberg Economic Brief. The observations he makes are his own. Bloomberg is a leading source of data, news, and analytics for financial and legal professionals, corporations, media organizations and private individuals around the globe. The BLOOMBERG PROFESSIONAL® service and Bloomberg’s media services provide real-time and historical pricing, indicative data, reporting, research, estimates, analytics, portfolio management tools, electronic trading and order management systems, multimedia events and electronic communications to Bloomberg clients in more than 150 countries, 24 hours a day. bloomberg.com Frankfurt London San Francisco Singapore Tokyo +49 69 9204 1210 +44 20 7330 7500 +1 415 912 2960 +65 6212 1000 +81 3 3201 8900 Hong Kong New York São Paulo Sydney +852 2977 6000 +1 212 318 2000 +55 11 3048 4500 +61 2 9777 8600The BLOOMBERG PROFESSIONAL service, BLOOMBERG Data and BLOOMBERG Order Management Systems (the "Services") are owned and distributed locally by Bloomberg Finance L.P. ("BFLP") and itssubsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the "BLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg L.P. ("BLP"). BLP provides BFLP with allglobal marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. The Services include electronic tradingand order-routing services, which are available only to sophisticated institutional investors and only where the necessary legal clearances have been obtained. BFLP, BLP and their affiliates do not provideinvestment advice or guarantee the accuracy of prices or information in the Services. Nothing on the Services shall constitute an offering of financial instruments by BFLP, BLP or their affiliates.BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG BONDTRADER, BLOOMBERGTELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS and BLOOMBERG.COM are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries.

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US Eco Q4'12 Outlook

by Bloomberg Briefs on Oct 09, 2012

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