On November 10, 2011, the chapter hosted Dr. Dick Stevie, Chief Economist for Duke Energy, and Dr. George Vredeveld, Alpaugh Professor of Economics at the University of Cincinnati and founder and Director of its Economics Center.

1. 2011 Economic Outlook
NATIONAL INVESTOR RELATIONS INSTITUTE
RICHARD STEVIE
NOVEMBER 2011

2. Outline
2
 National Outlook
 Review current indicators
 Discuss trends
 National economic forecast
 Local Outlook
 Comparison to national trends
 Local economic outlook

3. Current Status
3
• Shows depth of the decline and how far back we have come.
• And how much further we need to go to get back to pre-recession levels.

4. Current Status
6
 GDP estimated to be up 3.0% in 2010,
but up only 0.8% through the first half of 2011 and
2.5% in the 3rd quarter of 2011
 High oil prices affected consumer spending
 Housing market still struggling to recover
 Employment growth is slow
 Commercial activity slowly improving
 Manufacturing has been the sector to observe
 Political dysfunction raised uncertainty and
increased market volatility / S&P downgrade

5. Volatility in the Dow Jones
5

6. Who Said This?
“Anyone who isn’t confused really doesn’t
understand the situation.”
a. Bill Cosby
b. Edward R. Murrow
c. Will Rogers

7. Consumer Debt Obligations
7

8. Who Said This?
“Credit is a system whereby a person who can
not pay gets another person who can not pay to
guarantee that he can pay.”
a. Charles Dickens
b. Jimmy Buffet
c. Oscar Wilde

9. Retail Sales Net of Gasoline
9

10. Retail Sales: Net of Inflation
10

11. Vehicle Sales
11

12. New Homes for Sale
12

13. Who Said This?
“Catch a man a fish, and you can sell it to
him. Teach a man to fish, and you ruin a
wonderful business opportunity.”
a. Warren Buffett
b. Karl Marx
c. Al Capone

14. Total Employment
14

15. Initial Claims for Unemployment Insurance
15

16. Manufacturing Activity
16

17. Manufacturing Employment
17

18. Industrial Production
18

19. Industrial Production
19

20. Industrial Production
20

21. Who Said This?
“Today, there are three kinds of people: the
have’s, the have-not’s, and the have-not-paid-
for-what-they-have’s.”
a. Alan Greenspan
b. Jay Leno
c. Columnist, Earl Wilson

22. Money Supply
22

23. Interest Rates
23

24. TED Spread
24

25. European Debt Crisis
25
 Borrowing running above 100% of GDP in
Portugal, Italy, Greece, Spain, and Ireland.
 Issues include balancing budgets and the
ability to roll-over debt at rates that are
sustainable.
 Why do we care?
 Banks in the U.S. have loans to PIIGS of about $150 B
– about 1% of U.S. GDP.
 Integration of loans across European banks is
massive.
 Loans by banks in the U.S. to organizations in Europe
represents roughly 10% of U.S. GDP.

26. European Debt Crisis
26
 Greece’s debt is about 400 B Euros.
 Current interest rate is over 25%.
 Even still, this one appears to be solvable.
 Italy’s debt is about 2 Trillion Euros or
roughly $2.6 Trillion.
 Current interest rate is approaching 7.5%.
 Concern is Italy’s debt is not too big to fail, but too
big to save.
 France has a major exposure equivalent to about
15% of France’s GDP.
 Major concern is write-downs of debt and
impact on bondholders and interest rates.

27. European Debt Crisis
27
 Midwest Exposure to Europe
 Exports to Europe runs about 4% of regional GDP
(Ohio, Ky, Indiana).
 By comparison, exports to Asia are about 3% of
regional GDP.
 And exports to Canada are just above 4% of
regional GDP.
 Europe has to find a way to grow faster.
 European Central Bank needs to take a
more proactive role in the debt issue as
well as restructuring of the financial
positions in these countries.

28. International Balance
28

29. Exchange Rate
29

30. Price of Gold
30

31. Federal Deficit
31

32. Who Said This?
“Blessed are the young, for they shall inherit
the national debt.”
a. Michelle Bachman
b. Herbert Hoover
c. Jon Stewart

33. Five Long-Term Themes
33
 Mercantilism
 Dysfunctional politics
 Education / Skill Development
 Oil Price Volatility
 Demographics

34. Oil Price Volatility
34

35. Demographics
35

36. Monetary and Fiscal Policy
36
 Monetary policy is very loose
 Fed funds target 0% to 0.25%
 Printing money and Buying Bonds
Quantitative Easing II
Operation “Twist”
 Fiscal policy is expansionary
 Federal deficit is HUGE!
 Running at about $1.5T annual rate

37. What Does It All Mean?
37
 Economy is still struggling to recover from
the Great Recession.
 Housing is still weak, though making progress
 Inflation remains low
 Interest rates will remain low unless
inflation accelerates
 European debt is a global economic risk
 Key positives are consumer spending,
business investment, and manufacturing;
but there are signs of weakness

38. National Outlook
38
Outlook Summary
2011 2012
Real GDP 1.7% 2.4%
Retail Sales 8.0% 5.5%
Employment 0.9% 1.2%
Mfg. Employment 1.5% 0.8%
Unemployment Rate 9.0% 8.8%
Inflation 2.8% 2.0%
3 Mo T-Bill 0.07% 0.2%
10 Year Treasury 2.9% 3.0%

39. ECRI
39

40. National Outlook Summary
40
 Downside / Headwinds
– Unwinding of government stimulus slows economy / payroll tax
– Cuts in state and local government spending
– Consumer spending affected by higher oil prices
– Dollar decline causes interest rates to rise
– Political / regulatory climate / international turmoil
 Upside
– Employment growth accelerates providing support for growth in
consumer spending
– Energy prices stabilize
– Financial markets calm down
– Manufacturing activity continues to improve
– Political climate improves leading to budget solutions

41. Local Economic Outlook
National GDP vs. Regional Product
41

42. Total Employment
National vs. Regional
42

43. Manufacturing Employment
National vs. Regional
43

44. Local Outlook Drivers
44
 Key Drivers Affecting the Local Economy
– Strong linkage to the national economy
– Greater Cincinnati airport
– Slow growth in population & labor force
– Revitalization of downtown
– Major construction projects
– Banks and Casino
– ISM for Cincinnati very strong indicating
continued expansion:
– October 2011 at 56.9

45. Housing Prices
45

46. Local Outlook
46
Outlook Summary
2011 2012
Regional GDP 1.5% 2.3%
Employment 1.1% 2.2%
Mfg. Employment 4.0% 2.3%
Unemployment Rate 9.1% 8.8%
Residential Dwelling Units 4,000 5,000
Non-residential Construction 7,000 8,000
(Thousand square feet)

47. Local Outlook: Negatives
47
 Manufacturing Employment has taken a
significant reduction this business cycle
 Down approximately 14%
 Environmental constraints to plant location
 Shortage of population in young
entrepreneurial age group (Ages 22-34)
 Slow population growth
 Erosion of urban core
 Loss of population and jobs
 Airport activity has dramatically declined

48. Local Outlook: Positives
48
 Low cost of business
 Airport as potential future focus
for economic development
 Downtown & Fountain Square
 Strong core businesses
 Diversity of industry
 Consumer research center

49. Who Said This?
“A word to the wise ain’t necessary – it’s the
stupid ones that need the advice.”
a. Bill Cosby
b. Oscar Wilde
c. Noel Coward

50. 50
QUESTIONS?
dick.stevie@duke-energy.com