1 Economic Environment: Weathering the Storm? The Fairfield County Economy, The Year Ahead December 7, 2005 Todd P. Martin Economic Services

2 US Economic Backdrop Economic growth remains respectable despite headwinds of Hurricanes, higher energy prices, and rising interest rates. Real GDP should slow to approximately a 3% pace next year. The Fed will continue to gradually tightening monetary policy to a “neutral” posture. The targeted fed funds rate is expected to rise to 4.5% by early 2006 (up from 1.0% in June 2004). Ben Bernanke replaces Alan Greenspan as chairman in late January. The yield curve continues to flattened as 10-year T-note yields have remained relatively low while short-term rates are up 300 BPs. Long-term yield should move from 4.50% currently to 5.0% by early Core Inflation remains contained, but future price concerns are heightening. Risks: Iraq - terrorism - energy prices – interest rates – housing bubble? – Longer-Term: growing budget & trade deficits – consumer leverage

3 The Fed will tighten a bit more “The cumulative rise in energy and other costs has the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.” “With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” Federal Open Market Committee Press Release – 1101/05

4 Smooth Transition at the Fed? Alan GreenspanBen Bernanke Wall Street Journal Release Date: October 24, 2005 Statement by Federal Reserve Board Chairman Alan Greenspan: "The President has made a distinguished appointment in Ben Bernanke. Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation as Chairman of the Federal Reserve Board."

5 Monetary policy works with a lag of 6-18 months Source: Bloomberg, Federal Reserve,TPM Economic Services

6 The economy expanded at a 4.3% pace in the 3rd Q ‘05 Source: The Conference Board, BEA,TPM Economic Services

7 Jobless Claims suggest continued job growth Source: Bloomberg, BLS, TPM Economic Services US Weekly Initial Jobless Claims - 4 week MA Spike due to Katrina – trend intact Similar Pattern to early 1990s?

8 CT Economic Outlook Connecticut’s economic rebound has lagged the national recovery. While job growth has improved recently, CT employment is still down 25,400 from mid CT is the only state that hasn’t seen job growth from According to NEEP, the state should add 18,200 jobs in 2005 and 17,600 in The Unemployment rate has moved above national average. Fairfield County’s economic performance is strong, but long-term viability is threatened by high cost of living, transportation woes, and energy issues. Housing remains very strong in the state. Housing permits totaled 11,837 in the strongest since Not overbuilt like the late 1980s. CT vulnerable to national (and global) economy, higher interest rates, energy prices, high cost of living, and complacency

9 CT is still down 25,400 jobs from July 2000 peak Source: CT Labor Department, BLS, TPM Economic Services [Thousands] Up 36,000 jobs from Sept low

10 Other states have more than regained jobs lost Source: The Conference Board, BLS, TPM Economic Services [Thousands]

11 CT Employment growth performance sub-par YOY% Change in payroll employment (Sept vs. Sept. 2004) Source: CT Labor Dept., TPM Economic Services

12 CT unemployment above US Rate - first time in 8 years Source: CT Labor Department, BLS, TPM Economic Services % of labor force (SA)

13 Fairfield County Unemployment rates very low CT Unemployment Rates % Bridgeport-Stamford LMA - Oct Source: CT Labor Dept., TPM Economic Services

14 CT Construction sector has seen strongest growth Source: CT Labor Department, BLS, TPM Economic Services [YOY Change - Thousands ]

15 CT FIRE employment - continued consolidation Source: CT Labor Department, BLS, TPM Economic Services [Thousands]

16 Where CT has lost jobs over the last 12 months Change in CT Non-Farm Employment Oct vs. Oct ( Not SA ) Source: CT Labor Department, TPM Economic Services

17 Where jobs were created last year Change in CT Non-Farm Employment Oct vs. Oct ( Not SA) Source: CT Labor Department, TPM Economic Services

18 Sectors with largest % change last year % Change in CT Non-Farm Employment Oct vs. Oct ( Not SA) Source: CT Labor Department, TPM Economic Services

19 Sectors with the strongest % job growth % Change in CT Non-Farm Employment Oct vs. Oct ( Not SA) Source: CT Labor Department, TPM Economic Services

20 Job gains & losses in SW CT – last 12 mo. Change in Employment, Bridgeport-Stamford LMA – Oct vs. Oct NSA Source: CT Labor Department, TPM Economic Services

21 CT fastest growing jobs through 2012 Projected % Change in CT Employment – Source: CT Labor Department, TPM Economic Services

22 CT jobs with largest growth through 2012 Projected Change in CT Employment – Source: CT Labor Department, TPM Economic Services

23 Highest paid, fastest growing CT occupations Average CT Salaries in 2003 Source: CT Labor Department, TPM Economic Services Salaries N/A

24 Housing is booming – Is there a Bubble? Source: Conference Board, Census Bureau, TPM Economic Services

25 Overvalued Housing Markets Source: Wall Street Journal, PMI Mtg. Insurance Co. Home prices, percent overvalued relative to long-term trend

26 Riskiest Housing Markets Source: Wall Street Journal, PMI Mtg. Insurance Co. Risk Index = biggest chance of housing price declines over the next two years

27 Housing still affordable, but falls to 14 year low Source: Conference Board, WEFA, NAR, TPM Economic Services

28 Housing is not overbuild like the mid-1980s Source:CT DECD, New England Economic Partnership, TPM Economic Services Total housing permits authorized in CT in units is forecast

29 Fairfield County Permits up about 5.5% YTD % Change in Housing Permits Authorized (Jan-Oct 2005 vs. Jan-Oct 2004) Source: CT DECD, TPM Economic Services Excludes: Brookfield, Darien, New Fairfield, Redding, Sherman, Weston & Wilton

30 Teardowns in Fairfield

31 Teardowns in Fairfield (cont.)

32 Teardowns in Fairfield (cont.)

33 Teardowns in Fairfield (cont.)

34 Fairfield County Home Prices Average & Median Sold Price (1/01/05 – 9/30/05) Source: CMLS & Darien, Greenwich & New Canaan MLS, TPM Economic Services

35 Fairfield County Home Prices still rising Average % change in sold price (Jan-Sept 2005 vs. Jan-Sept 2004) Source: CMLS & Darien, Greenwich & New Canaan MLS, TPM Economic Services

36 Transportation is a major concern

37 Impact of Higher Energy Costs

38 Gas prices drop to pre-Katrina levels Source:

39 Tax revenues total $2.6 billion YTD Source: State of CT Dept. of Revenue Services Year-to-Date CT Tax Revenues ( FY 05-06, July – Oct. $millions ) +$210 million, or 8.8% +$73.5 million or 7.0% +$29.6 million or 3.7% +$26.4 million or 26.4% +$30.1 million or 66.4% +$10.3 million or 22.5%

40 Focus on the Big Picture Ten Forces Flattening The World 1. 11/9/ /9/95 3. Work Flow Software 4. Open-Sourcing 5. Outsourcing 6. Offshoring 7.Supply-Chaining 8. Insourcing 9. In-Forming 10. The Steroids

41 CERC Benchmarking Study

42 Summary US Economic growth is expected to moderate to 3.0% - 3.5% in 2006 (Hurricanes, energy, interest rates) – job growth improving, but remains sub-par, Inflation pressures building Fed moving short-term interest rates toward ‘neutrality’ Connecticut job growth has lagged the US – NEEP expects 18,200 jobs in Rising taxes, higher costs, scandals have not helped recovery. Budget battles will continue – 2006 Election Year. Fairfield County: remarkably prosperous – Longer-term challenges: transportation, affordable housing, energy problems, high business costs, dealing successfully with the ‘Flattening World’

43 Economic Environment: Weathering the Storm? The Fairfield County Economy, The Year Ahead December 7, 2005 Todd P. Martin Economic Services