Today’s Economic
Landscape and What’s on
the Other Side
July, 2009
Presented by:
Morris Segall, President
SPG Trend Advisors

THE ECONOMY

Gross Domestic Product
Q1 2001 – Q1 2009
Source: Bureau of Economic Analysis

Contributions to GDP Growth by Component
Q1 2008 – Q1 2009
Source: Bureau of Economic Analysis

Historic and Projected Real GDP Growth
2007 – 2011*
World Bank’s GDP growth projection is more dire compared to the projection by the IMF. The recovery process is expected to take
longer even with various policy efforts of governments partly because the crisis is so severe and has penetrated throughout the world.
Economies are in worse conditions than expected.
*2007/08 data are actual
Source: World Bank

Year-over-year Percentage Changes in
Corporate Profit before Tax
Q1 2001-Q1 2009
Source: Bureau of Economic Analysis

Year-over-year Percentage Changes in Non-financial
Sector Corporate Profit before Tax
Q1 2001-Q1 2009
Source: Bureau of Economic Analysis

Industrial Production
January, 2008 - May, 2009
% decline Jan. 08-
May. 09: 15%
Source: Federal Reserve Bank

Capacity Utilization by Status of Production
January, 2008 - May, 2009
Source: Federal Reserve Bank

Manufacturers Durable Goods Orders & Shipments
Excluding Transportation
January, 2008 – May, 2009
Much has been made of the increase
in orders since March. Note the
absolute low levels and the shortfall
versus shipments. Shipment levels will
decline if orders do not pick up
substantially from current levels.
Source: Census Bureau

Net Change in U.S. Jobs (Total Non-farm)
June, 2005 – June, 2009
Source: Bureau of Labor Statistics

National Nonfarm Employment by Industry Sector Groups
January, 2008 – June, 2009
Source: Bureau of Labor Statistics

National Nonfarm Employment by Industry Sector Groups
September, 2008 – June, 2009
Source: Bureau of Labor Statistics

Initial Unemployment Claims
January, 2009 – June, 2009
Reflecting the rise in unemployment, new job losses rose
dramatically in the first quarter of this year. However, the
trend of new job losses appears to have peaked at around
660,000 since March. Normally we would be prepared to
predict a peaking in unemployment is at hand based on this
trend. However, we believe a new surge in job losses is
coming over the summer as the auto industry downsizes.
Source: Department of Labor

Continued Unemployment Claims
June, 2006 – June, 2009
Source: Department of Labor

Retail Sales Less Food and Fuel Consumer Credit
May, 2007 – May, 2009 Q2 2006 – April, 2009
Since the third quarter of 2008 consumer spending has been declining and the consumer is currently paying down
outstanding debt. These trends have been negative for the economy in the short term but the reduction of consumer debt
and an increase in consumer savings is positive for the economy and the improved creditworthiness of the consumer longer
term.
Source: (Left) Census Bureau, (Right) Federal Reserve Bank

National Saving Rate
as Percentage of Personal Disposable Income
Q1 2005 – Q1 2009
Source: Bureau of Economic Analysis

Existing Home Sales v. Length on Market New Home Sales Units Sold
March, 2006 - May, 2009 v. Length on Market
March, 2006 - May, 2009
Housing remains weak but new home inventories may have peaked as new home construction , home prices and mortgage interest
rates have declined. The latter will also help the existing home market. We expect the rate of decline in housing sales to diminish
over the remainder of this year.
Source: (Left) National Association of Realtors, (Right) Census Bureau

S&P/Case-Shiller Home Price Index
2006 – April, 2009
Source: Standard and Poors

Conference Board Consumer Confidence
2005 – June, 2009
Source: Conference Board

Commercial Mortgage Backed Securities Delinquency Rates
among Major Investor Groups
January, 2008 - March, 2009
Source: Intex, Trepp (Deutsche Bank)

Real Estate Loan Delinquency Rates: All Banks
Q1 2006 –Q1 2009
Source: Federal Reserve Bank

While inflation has declined precipitously in the recession led by the collapse in energy and commodity prices, we are not in agreement
with a fear of deflation hitting the U.S. economy. Basic services, healthcare and education prices remain stubbornly high.
6 months
Changes in Consumer Price 2006 v. 2007 v. 2008 v. ended in
Index in Percentage Terms 2005 2006 2007 May 2009
All items 2.5% 4.1% 0.1% -0.4%
Food at Home 1.4% 5.6% 6.6% -4.1%
Food Away Home 3.2% 4.0% 5.0% 2.7%
Rent of Primary Res 4.3% 4.0% 3.4% 2.2%
Owners Equiv of Rent of Prim Res 4.3% 2.8% 2.1% 2.1%
Household Energy 2.4% 5.3% 5.9% -13.7%
Water/Sewer/Trash 4.8% 5.4% 6.5% 4.7%
Houshold Ops 4.4% 2.2% 6.0% -0.7%
Car Repair 3.8% 3.3% 5.9% 2.9%
Pub. Transp 0.1% 7.2% 1.8% -14.5%
Medical 3.6% 5.2% 2.6% 3.9%
Education 6.3% 5.6% 5.6% 5.5%
Energy 2.9% 17.4% -21.3% -18.1%
Source: Bureau of Labor Statistics

Crude Oil Spot Prices in U.S. Dollars
June, 2004– June, 2009
Source: Energy Information Administration

Nominal Broad Dollar Index*
June, 2000 – June, 2009
* Broad Dollar Index: a weighted average of the foreign Source: Federal Reserve Board
exchange value of the U.S. dollar against the currencies
of a broad group of major U.S. trading partners.

THE GOVERNMENT’S
RESPONSE

Money Supply (M2):
January, 2007 – June, 2009
Source: Federal Reserve Bank

Federal Budget Deficit
(exclusive of Social Security Trust funds)
FY 2006 – May, 2009
Source: FMS, U.S. Treasury Department

U.S. Federal Budget Deficit, 1995-2011*
*2009-2011 data are projections
Source: Congressional Budget Office

Federal Reserve Balance Sheet: Reserve Bank Credit
June, 2008 – June, 2009
Source: Federal Reserve Bank

Federal Fund Rates, 3-month LIBOR rates lent in $US
January, 2008 - June, 2009 January, 2008 - June, 2009
The Fed and European Central Bank have cut interest rates to the banking systems here and abroad thus
driving down the cost of bank funds to facilitate bank lending.
Source: (Left) Federal Reserve Bank, (Right) British Banker’s Association

What’s on the other side?
2009 - Recession Bottoms with Housing and Unemployment
Housing bottoms late this year
Bank loan losses start to peak at the end of this year
Unemployment peaks at the end of this year
Lower Energy Prices alleviate pressure on consumer spending – but
virtually no economic growth or recovery
Obama Administration
Increased economic stimulus spending programs will begin to help
economy in the second half of 2009
Increased spending on energy, healthcare and education will result in
increased federal budget deficits and higher taxes and fees going forward

What’s on the other side? (cont.)
2009 – Business
Cost of goods declines from current levels as interest rates, labor costs and
commodity prices decline but business is facing zero consumer and business
demand.
Corporate profits in decline for most of this year.
Weak consumer spending but pent-up demand building
2010 – Economy Makes Gradual Cyclical Recovery
Increased employment = increased consumer spending
Increased Corporate Sales = increased corporate profits = increased capital
spending
Increased interest rates and rising prices from higher demand, less
accommodative Fed policy and continuing federal budget deficits

Where are the opportunities?
Healthcare – National Water Conservation – New
Program Supplies and Recycling
Education U.S. Government
Agriculture Procurement and
Energy Conservation Outsourcing – Base
Realignment Program
Environmental Solutions (BRAC)
Electric Power Real Estate – Recycle and
Transportation – Increase Rehab Existing
Mass Transit Commercial and
Exports Residential Property

Conclusions
We have been in a deep and protracted recession that began in the
fourth quarter of 2007. It began in housing and has spread through the
entire U.S. and overseas economies. Economic weakness intensified
through 2008 and has worsened through the first quarter of 2009. The
first quarter should be the nadir of the economic contraction in the
current recession cycle but there will be no economic recovery this year.
Continuing near term economic pressures include:
high cost and reduced availability of credit
lower corporate profits
increased unemployment
continued weak levels of corporate capital and consumer spending

Conclusions continued
Severe reductions in State and Local Government
spending and eroded municipal financial strength
Weak exports as overseas economies continue in
recession
Continued credit pressures in residential housing
and consumer lending spread to commercial real
estate markets and corporate lending

Conclusions continued
However, a bottoming of the housing cycle and a peaking in
unemployment late this year, aided importantly by increased federal
stimulus spending in the second half of this year, should set the
stage for cyclical capital markets and economic improvements in
2009 and 2010. Indeed, capital markets in the U.S. and abroad have
already staged a large recovery off what we believe are market cycle
lows in the first quarter.
After an expected cyclical recovery in 2010-2012, we believe the
longer term socio-economic issues facing this country will result in
slower future economic growth for the United States.
The availability and cost of credit, particularly to consumers, will be
more restricted and expensive in the future.

Thank You
You can always reach me at msegall@spgtrend.com
Also, if you need us in a hurry, we are at
410.522.7243
Please contact us when you require economic and
capital markets research & policy analysis.
Further information available at www.spgtrend.com