1. PBCTPBCT 1 Economic Overview “ No Double-Dip?” September 2002 Todd P. Martin 1st VP & Chief Economist People’s Bank 203.338.4826 tpmarti@peoples.com

2. PBCTPBCT 2 US Economic Outlook Economy still expanding, but recovery is losing momentum. Consumers continue to spend but job growth and capital spending remain weak. Fed likely to leave fed funds at 40 year lows through mid-2003 -- increased risks of economic weakness due to volatile financial markets and uncertainty surrounding corporate reporting and governance. Current data do not suggest a “Double-Dip” - Retail sales & housing are strong, initial jobless claims trending lower. Risks to the downside: Collapse of stock market bubble -- falling investor, business & consumer confidence -- widening Federal & State budget deficits -- weaker dollar -- Latin America -- Middle East -- Iraq -- more terrorist attacks? Mild recession last year = moderate and vulnerable recovery this year

3. PBCTPBCT 3 Revisions show weaker economic growth in 2001 Source: BEA, Conference Board People’s Bank Real Chain Weighted Gross Domestic Product Growth - % change SAR 3rd Q 2002-4th Q 2003 are forecast

4. PBCTPBCT 4 Bubble Bursts: Lots of wealth lost Source: Bloomberg, People’s Bank NASDAQ Index

5. PBCTPBCT 5 Stocks undervalued based on “The Fed Model” Source: Yardeni.com, Federal Reserve

6. PBCTPBCT 6 Fed to leave rates at 40-year lows through mid-2003? Source: Conference Board, Bloomberg, People’s Bank 10 Year Treasury Note Yield vs. Targeted Fed Funds Rate %

7. PBCTPBCT 7 “Real” interest rates are historically low Source: Conference Board, Bloomberg, People’s Bank Targeted Fed Funds Rate less YOY% change in CPI - %

8. PBCTPBCT 8 The Yield Curve has steepened Source: Bloomberg, People’s Bank US Treasury Yields % -- 3 month T-bills to 30 year T-bonds

9. PBCTPBCT 9 But has flattened since March 2002 Source: Bloomberg, People’s Bank US Treasury Yields % -- 3 month T-bills to 30 year T-bonds

10. PBCTPBCT 10 Confidence falling: Stocks - Scandals - War? Source: Conference Board, People’s Bank

11. PBCTPBCT 11 Consumer continues to spend - at a slower pace Source: Conference Board, BEA, People’s Bank Real Personal Consumption Expenditures - Quarterly % change AR

12. PBCTPBCT 12 Jobless Claims starting to move higher again?  Source: BEA, Stone & McCarthy Research

13. PBCTPBCT 13 Layoffs down from highs, but rising again Source: Challenger Gray & Christmas, SMRA, People’s Bank

14. PBCTPBCT 14 The economy is not creating a lot of jobs yet Source: Conference Board, BLS, People’s Bank monthly change (thousands) SA

15. PBCTPBCT 15 Unemployment the highest since 1994 Source: Conference Board, BLS, People’s Bank

16. PBCTPBCT 16 ISM index shows manufacturing losing steam Source: Conference Board, ISM, People’s Bank Institute of Supply Management Survey (formally NAPM)

17. PBCTPBCT 17 Home Sales slowing some - but still very strong Source: Conference Board, People’s Bank (SAAR) in millions

18. PBCTPBCT 18 Mortgage refinance hits a new high Source: MBA, People’s Bank

19. PBCTPBCT 19 State Tax Revenues are down sharply Source:Stone & McCarthy Research, Rockefeller Inst. Of Gov..

20. PBCTPBCT 20 People's Bank Business Barometer stalls Source: People’s Bank, Centerprise Advisors

21. PBCTPBCT 21 PBBB YOY shows mild recession in CT last year Source: People’s Bank, Centerprise Advisors

22. PBCTPBCT 22 Quarterly change in PBBB - CT not out of the woods yet Source: People’s Bank, Centerprise Advisors

23. PBCTPBCT 23 Summary No “Double-Dip”, but growth likely to be sub-par Fed on hold through mid-2003 - but short-term rates should rise by year-end 2003 Economy has been remarkably resilient last 12- months - Risks are to the downside Watch: Jobless Claims - employment - purchasing managers’ index - LEI - consumer confidence

24. PBCTPBCT 24 For more information... Please check out our web site at www.peoples.com for Economic Perspectives and other bank products & services