1. Copyright © 2007 Global Insight, Inc. The U.S. Economic Outlook Nigel Gault Group Managing Director North American Macroeconomic Services Office of State Management and Budget Annual Conference October 17, 2007 Raleigh, North Carolina

2. Copyright © 2007 Global Insight, Inc.2 10/2007 (Real GDP, annualized rate of growth) Growth Resilient So Far Despite Housing Bust

3. Copyright © 2007 Global Insight, Inc.3 10/2007 (Residential structures investment, percent of GDP) Residential Construction Adjustment – Much More to Come

4. Copyright © 2007 Global Insight, Inc.4 10/2007 The Most Overvalued Markets are on the West Coast and in Florida Q2 2007

5. Copyright © 2007 Global Insight, Inc.5 10/2007 Price Declines Widespread in California, Florida, Michigan Q2 2007, annual rate

6. Copyright © 2007 Global Insight, Inc.6 10/2007 Bloated Supplies of Homes for Sale (Months supply at current selling rate, single-family homes)

7. Copyright © 2007 Global Insight, Inc.7 10/2007 (Million units) Housing Starts Dip Further, Prices to Fall (Year/year percent change)

8. Copyright © 2007 Global Insight, Inc.8 10/2007 (Percent of disposable income) Mortgage Equity Withdrawal Has Been Fueling Consumer Spending, and Is Fading Source: Federal Reserve - Kennedy/Greenspan data updated as of September 2007 H1

9. Copyright © 2007 Global Insight, Inc.9 10/2007 Some Rebuilding of Savings Is Likely (Percent growth, real)

10. Copyright © 2007 Global Insight, Inc.10 10/2007 (Percent change from a year earlier, real spending) The Business Capital Spending Cycle: Construction Has Taken the Lead

11. Copyright © 2007 Global Insight, Inc.11 10/2007 U.S. Export Growth Is Catching Up with World Trade Growth Helped By the Falling Dollar (Percent change, real)

12. Copyright © 2007 Global Insight, Inc.12 10/2007 (Ex-food and energy, percent change from a year earlier) Core Consumer Inflation Falling Below 2%

13. Copyright © 2007 Global Insight, Inc.13 10/2007 (Percent) The Fed Has Room To Cut Interest Rates Again

14. Copyright © 2007 Global Insight, Inc.14 10/2007 (Percent change unless otherwise noted) U.S. Economic Growth by Sector 2006200720082009 Real GDP2.92.0 2.9 Consumption3.13.02.32.7 Light Vehicle Sales (Millions) 16.5 16.1 16.016.3 Residential Investment-4.6 -16.8-17.96.2 Housing Starts (Millions) 1.81 1.34 1.12 1.40 Business Fixed Investment6.63.82.43.7 Government1.81.92.00.7 Exports8.47.39.58.4 Imports5.92.33.45.2

15. Copyright © 2007 Global Insight, Inc.15 10/2007 (Percent unless otherwise noted) Other Key Indicators 2006200720082009 Employment (Percent growth)1.91.30.71.2 Unemployment Rate4.6 5.04.9 CPI Inflation3.22.71.8 Oil Prices (WTI, US$/bbl)66.1268.8874.2574.33 Core PCE Price Inflation2.22.01.71.8 Federal Funds Rate4.965.034.254.57 10-year Government Bond Yield4.794.694.585.05 Dollar (Major Currencies, 2000=1)0.810.770.71

16. Copyright © 2007 Global Insight, Inc.16 10/2007 Bottom Line Sluggish growth at best; housing has further to fall, the consumer will be cautious. A deeper slowdown is the main risk (recession risk: 30%). The Fed has room to cut interest rates again. Downside Risk (1): Credit contagion worsens, spills over more severely to the U.S. and global economies Downside Risk (2): Vulnerability to another energy shock remains high Downside Risk (3): Mutual Assured Destruction: Protectionism at home, buyers strike against Treasuries by China

17. Copyright © 2007 Global Insight, Inc.17 10/2007 Thank You! Visit our Web site at www.globalinsight.com