OSIA Wilsonville, Oregon January 25, 2013 John W. Mitchell

 Brush with Disaster  Year Four of Upturn-Modest or Moderate  12/2012 Employment 4 Million below 1/2008 but 4.78 million above 2/2010 Trough  QE4 Underway  Weakness in Europe and Japan  Net Worth Rising  Largest Increase in Domestic Oil Production in History of Industry in 2012  Less then Year to Next Stage of the Patient Protection and Affordable Care Act  Lone Ranger Returning-Twinkies GONE!

Q1Q2Q3 GDP 2%1.3%3.1% Consumption Equip & Software Non-Res Structures Residential Federal State and Local Exports Imports

 Beige Book January 16, 2013 Stable Price Pressures  Energy Commodities 8.6% in Aug, 6.7% in Sept. -.5% in October and -6.9% in November and -2.2 in December  Non-Farm Business Year over Year 1.8% Compensation and 1.7% Productivity-Unit Labor Costs.1% Q3

 Seven Years of Zero Short Term Rates ?  30 Year Mortgage 3.4% on Week Ending 1/11/13  10 Year 1.9% on Week Ending 1/11/13  Fed will tolerate 2.5% Inflation  All Treasuries Under 5 Years Yield Less than 1%  Personal Interest Income Q $1.32 Trillion by Q $975.3 Billion  Pension Obligations?  Earnings on Reserves?

 GDP Growth Fed Central Tendency % and %, % in 2014  Consensus Moving from 2% in 2013 to 2.6% in 2014  Drag from Recent Policy Actions ?  Inflation Staying Near 2% Through 2014  Fed on Hold Until at Least Mid 2015

 What happens Overseas ?  Dealing with the debt ceiling and sequesters in the next few months?  How will the actors behave ? Taxes, Healthcare, Uncertainty

 The First Cliff  Payroll Tax Holiday Ends  Bush Tax Cuts Expire for Over $450,000  Sequester Process Delayed 2 Months  New Medicare Taxes Start  Phase Outs and Deduction Limitations Back  Estate Tax Rate Bumped  AMT Fix, Doc Fix  Long Term Spending Issues-Not Addressed  Debt Ceiling Unresolved  Short Term Problem-Long Term Problem  Geithner-”And you can’t count indefinitely on the world having more confidence in our political system than is justified”

 Different Tools  Twist to the End of December-Then Buy $45 Billion of Treasuries with maturities from 4 Years to 30 Years  Continue to Buy $40 Billion Mortgage-Backed Securities Per Month  Total $85 Billion Per Month  Exceptionally low rates as long as unemployment remains above 6.5% and inflation is no more than.5 point above 2% longer run goal (12/12/12)  Will it make any difference?  How and When does one unwind it? Federal Debt Costs when rates increase?

 North Dakota 1  Utah 2  Hawaii 3  Texas 4  Arizona 5  Oklahoma 6  Colorado 7  Idaho 8  Indiana 9  Montana 10  Minnesota 11  Louisiana 12  Kentucky 13  Ohio 14  California 15  South Carolina 16  Washington 17  Georgia 18  Massachusetts 19 Job Growth Update November 2012 Data- Year over Year Change-44 States Up  Oregon 21  Florida 22  Nevada 23  Arkansas 30  Michigan 33  Alabama 34  New Jersey 38  Illinois 35  South Dakota 36  New Jersey 38  Maine 43  Connecticut 44  Mississippi 45  Alaska 46  New Hampshire 47  Rhode Island 48  New Mexico 49  West Virginia 50

Oregon Job Change Year to December, 2012 (1.3%) Employment Department

Portland Job Change Year to November, 2012 (1.5%) Employment Department

Oregon Job Growth Year to November, 2012 Source: Department of Employment MetroJob ChangePercentage Bend Corvallis Eugene/Springfield 2, Medford 1, Portland 15, Salem Coos 90.4 Douglas Lincoln Umatilla Union 60.6 Wasco 180.9

 Personal Income in Q3 Oregon up.8%, US.5%  Census Population Estimates for up 1.8% versus the US up 1.7%  PSU Oregon Population Up.7% in 2012  Brookings Institution- Q3 Portland 4 th of the top 100 Metros-Employment, Unemployment, Output, and House Prices  Preliminary Oregon Employment Data.8-.9% Gain in Annual Average Employment  Oregon Jobs Gap in October 133,000 Brookings Hamilton Project  December Data-Total Employment in Oregon down 25,546 in Year to December?

 Youth Un and Underemployment -Scarring  December U %, Mean Unemployment 38.1 Weeks, 39.1% of Unemployed more than 27 Weeks  Labor Force Participation Rate December 63.6%-The last Time it was there was December Recession Start 66%  Real Family Median Net Worth Down 38.8% Survey of Consumer Finances

 Sustainability Popular Here- Fiscal Situation is Not- The Current Path leads to sclerosis or stagnation.  How does it end? Simpson-Bowles, Confidence Collapse –Endgame-Mauldin, Rogoff and Reinhart- Slow Growth  Is December/January the best that we can do?  Do we still have the recipe for growth?

StellaFairies  The Tooth Fairy  Free Medical Services Fairy  The No New Taxes Fairy  The Rich Will Pay Fairy  The Entitlement Fairy

 Uncertainty Reduced, But Remains  Most likely Growth Near 2%  Falling Debt Burdens, Housing, Rising Income and Employment, Balance Sheets, Financial Institutions Strength, ISM, Energy Developments, Initial Claims