Where to From Here? Dr. Steven P. Lanza Executive Editor The Connecticut Economy CREUES Commercial Real Estate Conference November 11, 2009

RISK PREMIUMS: A RETURN TO NORMALCY TED Spread = 3-month LIBOR minus 3-month Treasury Bill Rate

Existing home sales on the rise NAR Indexed Sales 2006 = 100

Cutting the overhang of Supply Month’s Supply

Stocks regain some lost ground + 40%

New unemployment claims drop sharply “Normal”

Factories start humming again PMI Manufacturing Index

GDP marks a turnaround Contributions to GDP Growth +3.5% -2.7% -0.7% Percentage Points at Annual Rates -2.7% -0.7% -5.4% -6.4%

“V” RECOVERY: IS HISTORY DESTINY? This Recession, at Historical Average Average Quarterly Growth During Equivalent Period of Expansion Average Quarterly Contraction During Recession

Employers pared workforces aggressively Total Recession Job Losses, in Thousands 2007-Q4 through 2009-Q2 1 Million

CONSUMER CONFIDENCE IS RETURNING Index 1985 = 100 Future +118% Overall +77% Current -5%

MOST* STIMULUS SPENDING IS YET TO COME Spent $150 Billion 25% 75% Unspent $650 Billion * AS OF 11/11/09

RETURNING TO LATEST TREND WILL TAKE TIME $18 $16 $15 $13 $12 $11 $10 $9 Annual Growth Quarters to Trend 11.8% 5 7.1% 9 1.9% n.a. U.S. GDP, in Trillions 3.4% Trend = 2.9% since 2001, 3.4% 1947-present

HOUSEHOLDS ARE SOCKING AWAY MORE INCOME Avg Personal Saving as a Percent of Disposable 1950 1970 1990

DESPITE REBOUND, CONFIDENCE SUBDUED Index 1985 = 100

LENDERS TIGHTEN STANDARDS AT SLOWER PACE, BUT LOANS REMAIN HARD TO GET Consumer Net Percent of Banks Tightening Standards

AND LOAN DEMAND IS STILL WEAK Consumer Business Net Percent of Banks with Stronger Loan Demand

TRILLIONS IN HOME EQUITY HAS DISAPPEARED Billions of Dollars -37%

CT JOBS UNDER DIFFERENT RECOVERY PATHS GDP Growth 7% 5% Thousands 3% 2%

PATHS FOR CT INCOME COULD BE SMOOTHER GDP Growth 7% 5% 3% 2% Billions of 2005 Dollars

BUT JOBLESS RATE WILL BE HARD TO TAME GDP Growth 2% 3% 5% Percent Unemployed in Connecticut 7%