1. The Stagnation Two-Step: Pessimism and Spending Richard Curtin Research Professor and Director Surveys of Consumers University of Michigan

2. Chart 1: Consumer Sentiment Falls Back Toward Recession Lows 2011 Near All-time recession lows All time Records: Peak = 112.0 (Jan 2000); Trough = 51.7 (May 1980) Last cyclical low = 55.3 (November 2008); Recent low = 55.7 (August 2011) 2011:1 = 73.1 2011:2 = 71.9 2011:3 = 59.6 2011:4 = 62.6p

3. Chart 2 : Sentiment Signals Stagnating GDP Growth During Year Ahead Largest Post 19541958197419751980198219912009 WWII Declines:-0.7%-1.0%-0.5%-0.2%-0.2%-1.9%-0.2%-3.5%

4. Chart 3: Current Financial Situation of Consumers Remains Dismal 2011 Record Lows

5. Chart 4: Income Changes Have Remained Negative for Longer Than Ever Before Recorded 2011

6. Chart 5: Diminished Personal Financial Prospects Expected During Year Ahead 2011

7. Chart 6: Income Prospects Remain Grim: Majority Expect No Gains in Nominal Incomes 2011 Record Lows

8. Chart 7: Real Home Prices Expected to Decline Over Foreseeable Future (Three month moving averages)

9. %Higher - %Lower + 100 Chart 8: Adequacy of Retirement Savings Remains Low (Change in Probability of a Comfortable Retirement Given Current Assets Among Those Under Age 65.)

10. Chart 9: Declines in Household Debt Main Reason for Increase in Saving Rate 2011:2 = -0.6% First time absolute contraction of debt

11. Chart 10: Mortgage Debt Declines Partially Offset by Increases in Consumer Debt Mortgage Debt 2011:2 = -2.4% Consumer Debt 2011:2 = 3.4%

12. Chart 11: Mortgage Debt Still Excessive (Debt as a Percentage of Personal Disposable Income) Total Mortgage Consumer Mortgage Charge offs: 2011:2 = 1.68% Peak: 2009:4 = 2.82% Avg. 1991-2007 = 0.15% Mortgage Delinquencies: 2011:2 = 10.53% Peak: 2010:1 = 11.22% Avg. 1991-2007 = 2.24%

13. Chart 12: Personal Saving Rates Saving1940194119421943194419451946 Rate:5.7%12.2%24.1%25.6%26.1%20.4%9.6% Long Term Average = 7% Recessions: 10-12% Savings Extraordinary Wartime Savings Acted to Reverse Depression Losses Stock & Home Appreciation

14. Chart 13: One-Year Outlook for National Economy Remains Quite Negative 2011 Record Lows

15. Chart 14: Five-Year Outlook for National Economy Remains Grim 2011 Record Lows Decade Long Decline

16. Chart 15: Government Economic Policies: Lost Confidence in Obama’s Policies 2011

17. Nov-Dec 1987 Oct–Nov 2008 Sep-Oct 2009 Oct–Nov 2010 Oct–Nov 2011 Greater or Unchanged Confidence in Fed 76%41%49% 37% Less Confidence in Fed 19%5749 61 DK; NA 52222 Total 100% Chart 16: Loss of Confidence in the Federal Reserve

18. Oct–Nov 2008 Share of Households Index of Consumer Expectations Lost confidence in Obama and the Fed41%39.1 Lost confidence in Obama but not Fed1649.4 Lost confidence in Fed but not Obama2063.3 No loss of confidence in Obama or Fed2374.3 Total 100% Chart 17: Large Impact of Loss of Confidence in Economic Policies on Consumer Expectations (October – November 2011)

19. Chart 18: Year-to-Year Growth in Total Non-Farm Employment Nearly Reaches Prior Peak Slower Population and Faster Productivity Growth October 2011 = 1.2% y/y growth October 2011: +80,000 Jobs

20. Chart 19: Consumers Focus on Job Losses, Obama Focuses on Job Gains (Total nonfarm employment in millions) Jobs regained since start 2010: 2.2m or about 100k per month 8.7 million jobs lost from Dec 2007 to Dec 2009 (average monthly loss = 350k)

21. Chart 20: Consumer Reports of News about Jobs And Changes in Total Nonfarm Employment (Three month moving averages)

22. Chart 21: National Unemployment Rate Decade Averages: 1950s = 4.5% 1960s = 4.8% 1970s = 6.2% 1980s = 7.3% 1990s = 5.8% 2000s = 5.5% All Married Oct 2011: All workers Oct 2011 All Workers = 9.0% Married Workers = 5.8%

23. Chart 22: Consumers Expect No Improvement in Unemployment Rate During Year Ahead

24. Chart 23: Unemployment Decomposition: Ratio of Employed to Labor Force Participation Rates Peak = 64.7 Peak = 67.3 Participation Rate October 64.2 Employment Ratio October 58.4 Unemployment rate = 1 – (58.4/64.2) = 9.0%

25. Chart 24: Employment Population Ratios: Men and Women Age 25 - 34 Men October = 80.0% Women October = 67.0% Nearly 3 years at all time lows Under age 25 (October) Men = 47.3%Women = 45.6% Both at near record lows

26. Chart 25: Employment Population Ratios: Men and Women Over Age 55 Men October = 43.3% Women October = 32.9% Employment Ratios (10-year pt. change) MenWomen 65 – 69: 34.4 (+4.7)25.8 (+5.9) 70 – 74: 24.8 (+6.0)13.4 (+2.2) 75 +: 10.0 (+2.3)5.4 (+1.7)

27. Unemployment Rate Defined Great Depression 8.9%15.9%23.6%24.9%21.7%20.1%17.0%14.3%19.0%17.2%14.6% Chart 26: Unemployment Not Growth in Real Personal Consumption Defined Great Depression Negative Consumption in five of eleven years Note: Unemployment in 1929 = 3.2% Surge in Consumption During Depression

28. Chart 27: Modest Growth in Personal Consumption Expenditures Expected in 2012 Declines in PCE:197419802008 2009 -0.8%-0.3%-0.6%-1.9%