1. Keith Phillips, Sr. Economist and Advisor 2013 Texas Economic Outlook: Slightly Slower But Still Good to be in Texas

2. National Economy Still Growing at a Modest Pace International weakness slowing US exports Federal government spending, Affordable Care Act restraining growth Meantime housing sector, consumer finances, and state and local government improving Q1 RGDP growth weaker than expected while May job growth slightly stronger than expected 2013 Likely another year of moderate growth

3. Home Construction Picking Up

4. Home Prices Showing Signs of Improvement

5. Lower Prices and Interest Rates Helping Housing Affordability – No Bubble Now Source: NAHB - Wells Fargo Housing Opportunity Index (Percent of homes sold for which the median family income could qualify) 1999:Q42013:Q1Low Point Date of Low Point United States6474402006 : Q3 Los Angeles43402 2006 : Q1/Q2/Q3 New York553052006 : Q3/Q4 Miami5963102007 : Q1 Austin5669502000 : Q4 Dallas6471542007 : Q3 Houston6670472007 : Q3 San Antonio6473472006 : Q3

7. Job Growth Persistently Positive but not as Strong as Typical Rebound

8. June Blue Chip Survey Projects RGDP Growth of 2.3% in 2013

9. Past Several Years Texas Economy Has Grown above Trend and Stronger than Nation In past three years growth in energy, high-tech and exports provided a stimulus to Texas. Housing market less of a drag than nationally. In last three years Texas job growth has been above trend and faster than the national average. In 2012 growth in energy and exports slowed but construction and government improved – overall job growth at 3.3%. This year manufacturing, energy and Fed. Govt. will be slower while construction continues to accelerate This year I expect job growth of about 2.0%– 3.0% - slightly weaker than 2012.

10. Texas Economy Growing Above Trend (Texas Business Cycle Index)

11. Texas was Third Fastest Growing Job Growth State in 2012

12. Texas Jobs Growing Faster Than Nation’s – Pickup in 2012

13. 2012 Texas State and Local Government Jobs Bounced Back from 2011 Fiscal Cliff

14. Texas Unemployment Rate Has Declined Sharply

15. Most industries Adding Jobs – Manufacturing Weakening

16. Texas Real Retail Sales Growing Moderately

17. Texas Construction Contract Values Slightly Picking Up

18. Home Inventories Relative To Sales Falling to Lean Levels

19. Mortgage Foreclosures Sliding, Delinquency Rates High but Falling, TX Better than US

20. Texas Mortgages Less at Risk of Default

21. Declining TX Office Vacancy Rate Suggests Office Construction May Pick Up

22. TX Manufacturing Production and Orders Generally Weak

23. Texas Exports Moving Sideways After Strong Growth in 2009 -2011

24. Drilling Rig Count Increasing Slightly

25. All Texas Metros Moved From Recovery to Expansion

26. Metros with Big Presence of Fed. Govt. and Health Care Struggling

27. Recent Increase in TLI Components Have Been Mixed

28. 2013 Job Growth Forecast is for Slightly Slower Growth - 2.0% to 3.0 %

29. Summary U.S. economy continues to grow at a moderate, disappointing pace Texas has faced similar headwinds (weak consumer spending, housing) but has grown faster due to strong growth in energy and exports and fewer problems in housing. Texas job growth picked up in 2012 to 3.3 percent mainly due to improvement in state and local government jobs. 2013 TX job growth will likely slow somewhat to between 2.0 and 3.0 percent as energy, exports and federal government slow and construction picks up. Risks to the outlook include political and international uncertainty and continued uncertainty with US fiscal spending.