1. U.S. and Michigan Economic Outlook Passages Through a Sea of Uncertainty Robert A. Dye Chief Economist, Comerica Bank January, 2013

2. Mare Incognitum…The Sea of Uncertainty 2

3. EPUI Explains Persistent Weak Business Confidence 3 Economic Policy Uncertainty index (L) NFIB Business Optimism, (R) Components of NFIB Survey Employment plans Current job openings Capital outlay plans Inventory plans Current inventory Expectations about economy Expectations about sales Expected credit conditions Good time to expand Earnings

4. The Fiscal Cliff, Happy New Year! Obama era payroll tax cut has expired for everyone Increased income, capital gains, dividend taxes for the wealthy 1% Will add up to about $160 billion in additional revenue in 2013 RDPI set to fall 3.5-4.0 percent annualized 2013Q1 Debt ceiling debate still to come $110 budget sequester still unresolved Long-term entitlement spending still unresolved 4

5. Recent U.S. Data Is Mixed 2012Q3 real GDP 3.1%, Q4 weaker Dec. payroll employment +155,000 Unemployment rate stable at 7.8% House sales Home prices Home construction Dec. auto sales 15.4 million unit rate Dec. ISM MF Survey 50.7 percent 5 Home Sales Trending Up Existing, ths (L) New, ths (R)

6. 2012Q4 Helped by Household Sector, Hurt by Uncertainty Consumer confidence improving Vehicle sales, Sandy Housing sector strengthening Other credit fueled purchases Labor markets Asia U.S. policy uncertainty Europe continues to melt 6 Auto Sales and Consumer Confidence Auto Sales, millions SAAR (L) Confidence Index (R)

7. Consumer Deleveraging...And Releveraging 7 Non-revolving cons. credit, pchya (L) Financial Obligations Ratio, (R)

8. Job Creation Is Key to Sustaining the Economy 8 Monthly Job Creation, ths Unemployment Rate, percent

9. Forecast for 2013, Fiscal Tightening Trumps Monetary Easing 9 History Forecast

10. Interest Rates Face Upward Pressure As Flight to Quality and Financial Repression Eventually Unwind 10 Fed Funds 10-Year Treasury

11. Forecast Risks Downside Risks Consumer spending Job growth Biz investment Federal Spending Eurozone and Asia More “transitory” factors/oil prices Housing market languishes Healthcare costs Upside Risks QE3 gains traction Equity markets rally Jobs! Construction Households unleash pent-up demand Low interest rates/investment boom Energy/manufacturing renaissance Technology 11

12. Most Michigan Labor Markets Cooled 2012H2 Payroll Employment, pchya

13. Robert A. Dye Subscribe www.comerica.com/economics Follow on Twitter @Comerica_Econ 13