State of the Economy May 27, 2008 Jose Sanchez Maria Rodarte Mandi Tom Emerson Figueroa Omar Barragan

HOUSING SECTOR New Permits- New Permits- Housing Starts Housing Starts New Home Sales New Home Sales Existing Home Sales Existing Home Sales 10 Year U.S. Treasury Interest Rates 10 Year U.S. Treasury Interest Rates

Issued Permits

Housing Starts

New Home Sales

Existing Home Sales

10 Year Treasury Interest Rates

GDP In 2001 In 2001 Real GDP increased 0.3%. Real GDP increased 0.3%. Real GDP in private services- producing industries increased 1.7% Real GDP in private services- producing industries increased 1.7% Real GDP in private goods- producing industries decreased 4.2%. Real GDP in private goods- producing industries decreased 4.2%. Manufacturing was the hardest hit by the 2001 recession. Manufacturing was the hardest hit by the 2001 recession. Its real GDP decreased 6.0%. Its real GDP decreased 6.0%. Durable-goods manufacturing decreased 5.2 %. Durable-goods manufacturing decreased 5.2 %. nondurable-goods manufacturing decreased 7.1% nondurable-goods manufacturing decreased 7.1% In First Quarter 2008 Real GDP increased 0.6% Price Index increased 3.5% Personal Consumption Expenditures increased 1% In Manufacturing Durable goods decreased 6.1% Nondurable goods decreased 1.3%

GDP

GDP

Consumer Price Index CPI is up 3.9% from a year earlier CPI is up 3.9% from a year earlier Core CPI is still increasing at a 2.3% annual rate Core CPI is still increasing at a 2.3% annual rate For the past three months, core prices rose at a 1.2% seasonally adjusted rate. For the past three months, core prices rose at a 1.2% seasonally adjusted rate.

Consumer Price Index Measure of Prices Measure of Prices Increase 0.3% in March increase 0.2% in April Gasoline Costs Gasoline Costs rose 5.8% government’s formula adjusted gain to a 0.2% drop

Consumer Price Index Food Prices up 5% in the past 12 months Food Prices up 5% in the past 12 months Bread Bread Fruit Fruit Coffee Coffee Other consumer staples Other consumer staples Health care costs increased 4.3% in the past 12 months Health care costs increased 4.3% in the past 12 months Up 0.2% in April Up 0.2% in April

Consumer Price Index Areas where prices decreased Areas where prices decreased Loading costs 1.9% Loading costs 1.9% Vehicles 0.2% Vehicles 0.2% Recreation 0.1% Recreation 0.1%

Consumer Price Index Slightly increasing trend during 2007 and 2008 Slightly increasing trend during 2007 and Growing at a faster pace 2001 Growing at a faster pace Inflation Risks: Inflation Risks: Rising Fuel Costs Rising Fuel Costs Loosening of Monetary Policy Loosening of Monetary Policy

Personal Income and Outlays

Savings and Investments

Government Receipts and Expenditures

Labor Sector Lagging economic indicator Lagging economic indicator The impact is after the event The impact is after the event Is still important because it confirms trends Is still important because it confirms trends Reports are released monthly, at the end of the month Reports are released monthly, at the end of the month

Mass Layoffs

Job openings and Labor Turnovers US Private Industry

Job Openings and Labor Turnover US Public Industry

Employment – Population Ratio

Unemployment Rate (Percentage)

Trending Mass layoff is consistent with historical past, January has highest postings. Mass layoff is consistent with historical past, January has highest postings. Compared to the recession in , the economy is not in recession, but a natural economic slowdown. Compared to the recession in , the economy is not in recession, but a natural economic slowdown. Economy will continue to slow down and I believe we will be in recession if unemployment claims increase. Economy will continue to slow down and I believe we will be in recession if unemployment claims increase.

Manufacturing Sector ISM Index ISM Index Manufacturing & Trade Inventories & Sales Manufacturing & Trade Inventories & Sales Manufacturing Shipments, Inventories & Orders Manufacturing Shipments, Inventories & Orders Advanced Reports on Durable Goods Advanced Reports on Durable Goods Kansas City Fed Manufacturing Survey Kansas City Fed Manufacturing Survey Richmond Fed Manufacturing Survey Richmond Fed Manufacturing Survey

ISM Index

Manufacturing & Trade Inventories & Sales

Manufacturing Shipments, Inventories & Orders

Manufacturing

Manufacturing Advanced Report on Durable Goods Advanced Report on Durable Goods 1.4% Decrease for March, following 0.9% decrease for the previous month. 1.4% Decrease for March, following 0.9% decrease for the previous month.

Manufacturing Kansas City Fed Manufacturing Survey Kansas City Fed Manufacturing Survey Production, Shipments 0, New Orders, Export Orders, Inventory, Employment (3 rd Month in a row) Production, Shipments 0, New Orders, Export Orders, Inventory, Employment (3 rd Month in a row)

Manufacturing Richmond Fed Survey Richmond Fed Survey Shipments Shipments New Orders Job Index (still negative) Inventory 0 Overall Manufacturing Index

Prices Consumer Price Index (CPI) Consumer Price Index (CPI) Producer Price Index (PPI) Producer Price Index (PPI) Productivity and Costs Productivity and Costs Employment Cost Index (ECI) Employment Cost Index (ECI) Federal Open Market Committee (FOMC) Federal Open Market Committee (FOMC)

INFLATION Inflation : An increase in the price level of goods and services. A rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. Inflation : An increase in the price level of goods and services. A rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. Core Inflation : The rate of inflation excluding certain sectors whose prices are most volatile, specifically food and energy. Core inflation is a measure of inflation which excludes certain items that face volatile price movements.

Consumer Price Index (CPI) It’s the most popular measure of price inflation in retail goods and services. It determines how much consumers pay for goods and services. It affects the cost of doing business, and causes chaos with personal and corporate investments It’s the most popular measure of price inflation in retail goods and services. It determines how much consumers pay for goods and services. It affects the cost of doing business, and causes chaos with personal and corporate investments Frequency: Monthly Frequency: Monthly Market Sensitivity: Very High Market Sensitivity: Very High

CPI CPI CPI Minimum 0.7 IN YEAR 1959 Minimum 0.7 IN YEAR 1959 Maximum 13.5 IN YEAR 198 Maximum 13.5 IN YEAR 198 NUMBERS FROM THE PAST FOUR MONTHS: 4.3, 4, 4, 3.9. NUMBERS FROM THE PAST FOUR MONTHS: 4.3, 4, 4, 3.9. CORE CPI Minimum 1.2 IN YEAR 1965 Maximum 12.4 IN YEAR 1980 NUMBERS FROM THE PAST FOUR MONTHS: 2.5, 2.3, 2.4, 2.3.

Producer Price Index (PPI) Measures the changes in prices that manufacturers and wholesalers pay for goods during various stages of production. Any hint of inflation here could eventually be passed on to retail level. Measures the changes in prices that manufacturers and wholesalers pay for goods during various stages of production. Any hint of inflation here could eventually be passed on to retail level. Frequency: Monthly Frequency: Monthly Market Sensitivity: Very High Market Sensitivity: Very High

PPI PPI PPI Minimum -1.4 IN YEAR 1986 Minimum -1.4 IN YEAR 1986 Maximum 15.4 IN YEAR 1974 Maximum 15.4 IN YEAR 1974 NUMBERS FROM THE PAST FOUR MONTHS: 7.4, 6.4, 6.9, 6.5. NUMBERS FROM THE PAST FOUR MONTHS: 7.4, 6.4, 6.9, 6.5. CORE PPI Minimum 0.1 IN YEAR 2002 Maximum 11.4 IN YEAR 1974 NUMBERS FROM THE PAST FOUR MONTHS: 2.3, 2.4, 2.7, 3.

Productivity and Costs Productivity is the output in goods and services employees produce for each hour of labor worked. It serves as a way of measuring how well companies are using their employees and their physical capital. Productivity is the output in goods and services employees produce for each hour of labor worked. It serves as a way of measuring how well companies are using their employees and their physical capital. Productivity is by far the most important determinant in the long-term health and prosperity of an economy. Productivity is by far the most important determinant in the long-term health and prosperity of an economy. Labor costs account for some 70% of all business expenses, so if companies are not using workers efficiently, it’s an enormous waste of resources. Labor costs account for some 70% of all business expenses, so if companies are not using workers efficiently, it’s an enormous waste of resources. Frequency: Quarterly Frequency: Quarterly Market Sensitivity: Medium Market Sensitivity: Medium

Employment Cost Index (ECI) This is the most comprehensive measure of labor costs. It tracks changes in the cost of labor, the single biggest expense companies face. This is the most comprehensive measure of labor costs. It tracks changes in the cost of labor, the single biggest expense companies face. Labor-related outlays on wages, salaries, and the range of benefits (vacations, health insurance, and social security) account for 70% of the cost of making the product. Labor-related outlays on wages, salaries, and the range of benefits (vacations, health insurance, and social security) account for 70% of the cost of making the product. Frequency: Quarterly Frequency: Quarterly Market Sensitivity: Medium to high. Market Sensitivity: Medium to high.

The Federal Open Market Committee (FOMC) This is a press release that announces its decision on where the crucial federal funds rate has been set. This is a press release that announces its decision on where the crucial federal funds rate has been set. Frequency: Formally the get together 8 times a year but in the most extraordinary circumstances they would meet sooner. Frequency: Formally the get together 8 times a year but in the most extraordinary circumstances they would meet sooner. Market Sensitivity: VERY HIGH Market Sensitivity: VERY HIGH

Conclusion U.S. is experiencing an economic slowdown U.S. is experiencing an economic slowdown Some inflation concerns, rising energy prices Some inflation concerns, rising energy prices We decided that rates should stay the same We decided that rates should stay the same Previous rate reductions still having effect Previous rate reductions still having effect Stimulus Package Stimulus Package