Recovery Hits a Temporary LullRyan Sweet, SENIOR ECONOMIST

CBIA’s 2011 Midyear Economic Update

FROM MOODY’S ECONOMY.COM 2

U.S. Forecast1

3

-50

-25

0

25

50

-6

-4

-2

0

2

4

6

70 75 80 85 90 95 00 05 10

Profits Surge and Jobs Will Follow…

Sources: BLS, BEA

Profit growth,

lagged 3 qtrs (R)

Job growth (L)

% change yr ago

4

-3

-2

-1

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11

Federal funds rate

Appropriate funds rate

Monetary Policy Remains Supportive…

Sources: Federal Reserve, Moody’s Analytics

$600 bil in additional QE

through June

5

-3

-2

-1

0

1

2

3

08 09 10 11 12

Obama-GOP tax deal Recovery act

Other stimulus Cash for clunkers

Tax rebate checks Total stimulus

…And Fiscal Policy Is Only a Small Drag

Source: Moody’s Analytics

Contribution to real GDP growth, %

6

0

1

2

3

$3.50 $3.75 $4.00 $4.25 $4.50 $4.75 $5.00

Average gas price in 2011 (x-axis)Forecast

Consumers Will Respond to Higher Gas Prices

Sources: EIA, BEA, Moody’s Analytics

Real spending excluding gasoline, % change, 2011

7

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

07 08 09 10 11F 12F 13F 14F

Moody's Analytics baseline

Slower recovery scenario

Second recession

CBO estimate of

potential GDP

It Will Take Time to Close the Output Gap

Real GDP, $ tril, SAAR

Sources: BEA, CBO, Moody’s Analytics

8

-5

-4

-3

-2

-1

0

1

2

3

4

05 06 07 08 09 10 11

Headline Core

Price Gains Need to Be Kept In Perspective

CPI, deviation from 10-yr average, % change yr-ago, ppt

Sources: BLS, Moody’s Analytics

9

2

4

6

8

10

12

14

08 09 10 11

Germany Portugal

Italy Ireland

Greece Spain

U.K.

Sources: Bloomberg, Moody’s Analytics

10-yr sovereign yields

Europe’s Debt Problems Simmer…

10

-6

-4

-2

0

2

4

6

8

10

06 07 08 09 10 11

Total CPI

Core CPI

…And Emerging Markets Threaten to Overheat

Source: National Bureau of Statistics China

Chinese consumer price inflation, % change yr ago

11

14

16

18

20

22

24

26

80 85 90 95 00 05 10

Structural

deficit

Sources: BEA, Moody’s Analytics

Federal expenditures

Policymakers Must Close This Gap

Expenditures and revenues as a % of GDP with no policy changes

Federal revenues

FROM MOODY’S ECONOMY.COM 12

Northeast Forecast2

13

States in Recession

Status as of March 2011 data

Source: Moody’s Analytics

Recovery

Recession

Expansion

At Risk

14

Metro Areas in Recession

Status as of March 2011 data

Source: Moody’s Analytics

Recovery

Recession

Expansion

At Risk

15

-6

-4

-2

0

2

4

6

Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

U.S.PennsylvaniaNew YorkNew JerseyMassachusetts

New Jersey’s Labor Market Weakness Is Stark

Real avg. hourly earnings, total private, % change yr ago, NSA

Sources: BLS, Moody’s Analytics

16

75

80

85

90

95

100

105

110

07 08 09 10 11

NYC securities brokerages

Boston securities brokerages

Wilmington banks

Hartford insurance

High-Paying Finance Growing Quickly Again

Employment indexed to peak

Sources: BLS, Moody’s Analytics

Bridgeport securities brokerages

17

-30

-25

-20

-15

-10

-5

0

Edison NYC condo

NYC Long Island

D.C. Boston Boston condo

Philly

Peak to 2010Q4 2010Q4 to trough

Biggest Declines to Come in New York City Area

Sources: Fiserv, Moody’s Analytics

Case Shiller Home Price Index, % change

18

0 2 4 6 8 10 12

Boston

New York City

Rochester, NY

Bridgeport

U.S.

Philadelphia

Baltimore

Hartford

Buffalo

Boston Most Highly Exposed to Japanese Trade

Sources: Census Bureau, International Trade Administration

Exports to Japan as % of total exports, latest year available

19

0 10 20 30 40

New Jersey

New York

Connecticut

All states

Pennsylvania

Vermont

Maine

Maryland

Delaware

Massachusetts

District of Columbia

On Average, Northeast in Better Fiscal Position

Source: Center on Budget and Policy Priorities

Projected 2012 budget gap as % of fiscal 2011 budget

*NH has no projection

20

10 12 14 16 18

HagerstownWorcesterBethesdaPeabody

Washington, D.C.Poughkeepsie

NorwichBaltimore

New HavenSpringfield, MA

ProvidenceUtica

Atlantic CityNassau-Suffolk

Boston

Dec-07

Dec-11

Cash Will Be Freed Up Most in D.C., Boston Areas

Sources: Moody’s Analytics, Equifax

Debt-service-ratio, %

21

25 35 45 55 65

Mid-Atlantic

New England

South Atlantic

West North Central

Pacific

East North Central

Mountain

East South Central

West South Central

Assoc. degree or higher, %, 2009

Share of jobs requiring assoc. degree or higher in 2015

Large Skill Gaps Will Emerge…

Sources: Census Bureau, Moody’s Analytics

% of population 25 and older

22

…But There Will Be Differences Across States

Avg. unemployment rate in 2015-2020 compared with 2003-2007

Sources: BLS, Moody’s Analytics

Lower rate

Negligible change

Higher rate

23

0.0 0.5 1.0 1.5 2.0

Washington D.C.Bethesda

WilmingtonEdison

RockinghamCamden

BostonPhiladelphiaLong Island

PeabodyCambridge

New York CityNewark

2000s

1990s

Washington, Philly Area Attract More People

Source: Census Bureau

Population growth

www.economy.comUnited States

121 North Walnut Street

Suite 500

West Chester, PA 19380

+1.610.235.5299

United Kingdom

One Canada Square

Canary Wharf

London E14 5FA

+44.20.7772.5454

Australia

Level 10

1 O'Connell Street

Sydney, NSW, 2000

Australia

+61.2.9270.8111

25

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