1. Economic Outlook Dr. Don Schunk Research Economist BB&T Center for Economic & Community Development Coastal Carolina University Presented to the Government Finance Officers Association of South Carolina October 13, 2008

2. Overview of Economic Conditions The current financial crisis: –How did we get here, and where are we? Thoughts on the ‘Bailout’ Recent and Projected U.S. Conditions Recent and Projected S.C. Conditions

3. U.S. New Home Sales – The Double Correction 1970Q1 – 2008Q3

4. Key Housing Indicators

5. The Storm Surge: 2000 - 2006 The push for ever-increasing homeownership rates Ongoing financial innovation Record low interest rates NINJA loans The spread of mortgage-backed assets and mortgage derivatives

6. The Surge Recedes: 2006 - ? Homeowners default Mortgage-backed assets lose value Balance sheets weaken Abrupt shift in the appetite for risk Mark-to-market accounting without a market Credit market stops functioning Stock markets slide

7. SaversBorrowers The Financial Infrastructure Financial Markets

8. The TED Spread Sept 17

9. Where are we now? Banks are unwilling to lend Households and businesses are shifting out of deposits These decisions are causing the money multiplier to move in the wrong direction – we are witnessing deposit contraction rather than deposit creation

10. The impacts The credit freeze is preventing individuals and businesses from borrowing to finance productive economic activities The economy was already precarious – frozen credit markets have made a recession unavoidable

11. The intentions of the “bailout” Remove uncertain assets from the banking system – increase the willingness to lend to households and businesses by increasing the willingness of banks to lend to each other Keep more funds in the form of bank deposits

12. Recent U.S. Trends 2000Q1 – 2009Q4

13. U.S. Net Exports 1970Q1 – 2009Q4

14. U.S. Real GDP Growth 2000Q1 – 2009Q4 20003.7% 20010.8% 20021.6% 20032.5% 20043.6% 20052.9% 20062.8% 20072.0% 20081.4% 20090.4% 20102.0%

15. Job Growth: SC and US 1991Q1 – 2008Q3

16. Employment: Total and Selected Sectors 2000Q1 – 2008Q3

17. S.C. Employment Growth 2000Q1 – 2009Q4 20001.6% 2001-1.9% 2002-1.0% 20030.2% 20041.4% 20051.8% 20062.2% 20072.3% 20080.3% 2009-0.3% 20100.8%

18. Unemployment: S.C. and U.S. 1976Q1 – 2009Q4