© 2009 The Conference Board, Inc. 0 Ken Goldstein The Conference Board Trusted Insights for Business Worldwide LONG SLOW SLOG

© 2009 The Conference Board, Inc. 1 Overview: Recession Over Rear Recovery Next Spring Ditto Global economy (-1.4% now – a still slow 2.5% in 2010) Energy prices: Going back up again Housing market bottom near Post Recession  Dampened Expansion

© 2009 The Conference Board, Inc. 2 WHAT IS NOT CHANGING 1)DEMOGRAPHICS 2)PRODUCTIVITY 3)PRICE/COST 4)INTERNATIONALIZATION

© 2009 The Conference Board, Inc. 3 WHAT IS CHANGING 1)LOWER MPC 2)CAPITAL AVAILABILITY & COST 3)MORE REGULATION 4)HIGHER TAXES

© 2009 The Conference Board, Inc. 4 All Regions Are Slowly Turning Notes: Shaded areas represent U.S. recessions Source: The Conference Board

© 2009 The Conference Board, Inc. 5 Spending Power & Spending At Bottom Sources: BEA, BLS, TCB PCE - PERSONAL CONSUMER EXPENDITURE Notes: DPI - DISPOSABLE PERSONAL INCOME Rebate checks WOW

© 2009 The Conference Board, Inc. 6 SPENDING POWER WILL CONSISTENTLY RISE FASTER THAN SPENDING

© 2009 The Conference Board, Inc. 7 HIGHER GAS PRICES DRIVE DEMAND FOR FUEL EFFICIENCY

© 2009 The Conference Board, Inc. 8 SLOWER HOME CONSTRUCTION  SLOWER DEMAND FOR HOUSEHOLD GOODS

© 2009 The Conference Board, Inc. 9 Progress, Slow Progress

© 2009 The Conference Board, Inc LONG SLOW HOUSING RECOVERY

© 2009 The Conference Board, Inc MATERIAL COST NOT A PROBLEM POST-RECESSION

© 2009 The Conference Board, Inc Source: TCB, Freddie Mac “Conventional Mortgage Home Price Index” South Atlantic POST HURRICANE CONTRACTION

© 2009 The Conference Board, Inc Source: TCB, Freddie Mac “Conventional Mortgage Home Price Index” Mountain SOFTENED CONFIDENCE / JOB DECLINE

© 2009 The Conference Board, Inc Losers and winners in manufacturing and services often the same Detroit Los Angeles Atlanta Birmingham Minneapolis Boston Philadelphia Baltimore Chicago Nashville Phoenix Kansas City St. Louis San Diego Miami Denver Seattle San Francisco New York City Dallas Houston Sources: BLS, The Conference Board

© 2009 The Conference Board, Inc Service jobs decline less percentage-wise, but recovery may take longer Administrative services Recreation Professional services Construction Accommo- dations Other services Management services Financial services Mining Retail trade Wholesale trade Utilities Manufacturing Sources: BLS, The Conference Board

© 2009 The Conference Board, Inc Wealth destruction phase Cresting? Note: Shaded areas represent U.S. recessions. Sources: FRB, The Conference Board

© 2009 The Conference Board, Inc MISSED MARKET SIGNAL: FIREWORKS NOT YET EXHAUSTED Aug ‘09 Forecast S&P 500, PE ratio PE implied by 10-year Treasury Bonds PE ratio

© 2009 The Conference Board, Inc Financing Gap: Danger Signal

The US Consumer Lynn Franco Director, Consumer Research Center September 2009

© 2009 The Conference Board, Inc Rapid consumer recovery remains an unlikely scenario as demand constraints persist  Supply constraints are improving as inventories, production, trade and employment numbers are coming in better  … but demand side remains constrained as discrepancy between willingness and ability to spend persists  Most channels for rapid recovery of consumer demand are clogged as rise in compensation and income and access to credit remain weak  Holiday season likely to be a challenging one for retailers

© 2009 The Conference Board, Inc Present Situation and Expectations Indexes suggest the worst is behind us

© 2009 The Conference Board, Inc Income expectations remain quite negative

© 2009 The Conference Board, Inc Household net worth has declined dramatically

© 2009 The Conference Board, Inc Consumers saving more, but for how long?

© 2009 The Conference Board, Inc The era of rapid home equity extraction has ended

© 2009 The Conference Board, Inc Credit conditions have eased, but remain tight Credit Cards Other Consumer Loans

© 2009 The Conference Board, Inc The Conference Board Employment Trends Index™ signals end of massive job cuts

© 2009 The Conference Board, Inc Compensation is expected to grow very slowly

© 2009 The Conference Board, Inc Recovery in consumer spending is slow compared to previous recoveries

© 2009 The Conference Board, Inc No clear leaders in pickup on consumer spending  Volatility of spending will remain with consumers' low ability to spend  Bargain-hunting mode will prevail for remainder of 2009, and especially for holiday season  As economy improves, spending on “affordable” discretionary items will likely lead the way  But large ticket items will remain slow as long as personal balance sheets remain weak – exception “cash for clunkers”  Rise in gas and commodity prices can hold consumers back further