1. The U.S. Consumer Spending Outlook Presented to: Global Insight Outlook Seminar Atlanta, Georgia April 29, 2003 Presented by: Sara Johnson Managing Director, Global Macroeconomics Group Copyright © 2003 Global Insight, Inc.

2. 2 A Slowdown in Consumer Spending The recession that began in March 2001 was the first on record without a decline in real consumer spending. Real consumption growth will slow from 3.1% in 2002 to 2.3% this year, its smallest gain since 1991. Job losses and depleted equity wealth have forced household to restrain spending and augment savings. The war affected real spending through higher energy costs, reluctance to travel, and postponed hiring. An upturn in employment, moderate income tax cuts, and falling energy prices will spark a 3.8% gain in real consumer spending in 2004.

3. Copyright © 2003 Global Insight, Inc.3 Real Consumer Spending and Confidence (Annual percent change, 1996$)(Michigan Index, 1967=1.0)

4. Copyright © 2003 Global Insight, Inc.4 Disposable Income Supports Consumer Spending (Percent change) Income tax cuts added 2.9 percentage points to disposable income growth in 2002.

5. Copyright © 2003 Global Insight, Inc.5 Consumers Are Worried About Finances Real wage income stopped growing in early 2001. Government transfer payments and federal income tax cuts have supported disposable income. Debt service burdens are high but manageable for most households. Yet, record bankruptcies, credit card delinquencies, and mortgage foreclosures indicate financial stress. Pensions look less secure after the stock market collapse and a wave of corporate bankruptcies. With households saving more, net worth is beginning to recover from its summer 2002 low.

6. Copyright © 2003 Global Insight, Inc.6 A Lagging Recovery in Employment The U.S. lost over 2 million jobs from March 2001 to March 2003. (Percent change, annual rate)

7. Copyright © 2003 Global Insight, Inc.7 Wage Gains Have Slowed in a Slack Job Market (Year-over-year percent change)

8. Copyright © 2003 Global Insight, Inc.8 Real Equity and Net Worth per Household ($Thousands per household, 2002 dollars)

9. Copyright © 2003 Global Insight, Inc.9 Bank Card Delinquency Rate Reaches New High (Percent)

10. Copyright © 2003 Global Insight, Inc.10 Consumer Debt Service Burdens Decreasing (Percent of disposable income)

11. Copyright © 2003 Global Insight, Inc.11 Consumer Spending Trends in 2003 What’s Hot Recreational Vehicles Musical Instruments Cell Phones Internet Services Cable TV Health Care and Drugs Domestic Services Gambling Investment Counseling Private Education What’s Not Cars Luggage Video Rentals Telephone Services Intercity Transportation Bowling Pet Services except Vets Brokerage Services Dry-cleaning, Laundries Barbers

12. Copyright © 2003 Global Insight, Inc.12 Consumer Spending Will Shift to Health, Recreation, and Information (Percent change, current dollars) Spending on Energy: -3.4% in 2002, +11.1% in 2003, and -4.3% in 2004.

13. Copyright © 2003 Global Insight, Inc.13 Light Vehicle Sales Responded to Incentives (Millions of units)

14. Copyright © 2003 Global Insight, Inc.14 Auto Incentives Peaked in Late 2002 (Incentives as a percent of manufacturers’ suggested retail price)

15. Copyright © 2003 Global Insight, Inc.15 Growth in Real Spending on Home Furnishings and Apparel Will Slow in 2003 (Percent change, 1996 dollars)

16. Copyright © 2003 Global Insight, Inc.16 Home-Building Will Gradually Decrease as Interest Rates Rise (Housing starts, millions of units)

17. Copyright © 2003 Global Insight, Inc.17 Allocation of Cash-outs from Home Refinance (Percent of total, January 2001-June 2002)

18. Copyright © 2003 Global Insight, Inc.18 Median Existing Home Price Inflation, 1999-2002 (Annual percent change)

19. Copyright © 2003 Global Insight, Inc.19 Tourism: Dismal Present, Brighter Future A sluggish world economy, the Iraq war, and SARS have delayed the recovery in tourism markets. Current trips are of shorter duration, to closer locations. Spending per trip has fallen sharply. Travelers are flying less and booking late. Faster economic growth, easing of geopolitical tensions, and pent-up demand will boost travel in 2004. Long-term prospects are bright; rising incomes and an aging population will increase travel demand.

20. Copyright © 2003 Global Insight, Inc.20 Spending on Travel & Recreation Will Rebound (Percent change, 1996 dollars)

21. Copyright © 2003 Global Insight, Inc.21 The U.S. Economic Service: Comprehensive Forecasts of the Consumer Environment Real and nominal consumer spending and price deflators for 35 distinct categories Personal income by source, disposable income Households, population by age groups Household financial situation Assets and liabilities by type, net worth, stock prices Credit card delinquency rate, mortgage foreclosure rate, personal bankruptcies, interest rates, debt service Housing and automotive market activity Sales, prices, affordability, stocks, construction Consumer sentiment, labor market indicators We forecast 1,900 U.S. economic indicators at a quarterly frequency, updated monthly.

22. Copyright © 2003 Global Insight, Inc.22 Consumer Spending Categories Forecasted New autos Used autos New trucks Tires Other vehicles & parts Computers Software Furniture & appliances Medical devices All other durables Clothing & shoes Food groceries Food at restaurants Free food consumed on farms Heating fuels Motor gasoline Drugs Tobacco products All other nondurables Household domestic services Household electricity Household natural gas Telephone services Water & sewer services Other household operation services Housing services Medical care Free financial services Other personal business services Recreation services Intercity transportation Purchased local transportation Motor vehicle leases Other user-operated transportation All other services

23. Copyright © 2003 Global Insight, Inc.23 Current U.S. Hispanic Market Studies Population and income forecasts Hispanic population, households, immigration Labor force characteristics: educational attainment, unemployment rates Forecasts linked to Global Insight’s national and regional forecasts U.S., States, Metro Areas, Counties, DMAs Hispanic spending for custom categories and store types Financial services: Credit cards, mortgage lending, wealth management Electronics & Appliances Stores Entertainment Automotive

24. Copyright © 2003 Global Insight, Inc.24 U.S. Hispanic Market: Growing in Size and Purchasing Power 20022022 Hispanic Population 38.5 million66.1 million Percent of U.S. Population 13.4%19.5% Hispanic Households 10.4 million20.7 million HH Disposable Income, 2002 $ $51,500$79,100 Household Income, % of U.S. Avg. 77%82% Adults with College Degree 11.2%23.5% Adults without High School Degree 42.3%25.8%

25. Copyright © 2003 Global Insight, Inc.25 Hispanic Spending Will Outpace U.S. Total (Percent change, constant dollars, 2002-12)

26. Copyright © 2003 Global Insight, Inc.26 Consumer Markets Service Consumer Markets Monthly Briefing Forecasts and insights on consumer economic drivers and purchase behavior Coverage of 35 markets Nominal and real spending, prices Long-Term Household Demographics Forecast By Life Stage By Age Group and Generation By Income Class Active Client Support

27. Copyright © 2003 Global Insight, Inc.27 Consumer Markets Monthly Briefing Coverage The Economy Consumer Incomes Consumer Finances Retailing Autos Apparel Food Home Goods Leisure Health Care Personal Care

28. Copyright © 2003 Global Insight, Inc.28 Thank you! Visit our web site at www.globalinsight.com