Gina Martin Wachovia Economics Economic Outlook Oil, the Fed, and Housing – Oh My! National Marine Bankers Association September 13, 2005

Economic Growth Slowing Down

What’s Behind Slower Growth in 2006? Business Cycle – Expansion Sets In Oil Prices - $65 and $2.50 (or more!) Housing – ATM Starting to Run Low Autos – Borrowing from Future Sales Rates – 250 bps in 14 months, More to Come Long Rates – Where Do Rates Go From Here?

Income Keeps Consumers Spending Personal Income and Spending Both Series Are Year over Year % Change of 3 Month Moving Average

Income Keeps Consumers Spending Part II

Consumers Indeed Better Off Household Net Worth, Billions of Dollars 2000 Peak: $43.5 Trillion Current: $48.8 Trillion

Homeowners Equity and Mortgage Debt

Past Declines in Housing Prices

Corporate Profits Revive Business Sector (In Billions of Dollars, SAAR)

Low Rates Have Helped Clean Up Balance Sheets Merrill Lynch Corporate Bond Index less Merrill Lynch Government Bond Index

Businesses Have Cash To Burn Both Series Are Year over Year % Change Corporate is Net Cash Flow with Inventory Valuation and Capital Consumption Adjustments, 12 quarter moving average

Steady Employment Gains Boost Income Nonfarm Employment Growth Monthly Change, In Thousands, Seasonally Adjusted 169,000

Longer Term Challenges Remain U.S. Unemployment Rate by Education Level

Short Rates Still Accommodative, But the Gap is Closing

Fighting Future Inflation Productivity and Unit Labor Costs

Oil – Will Energy Inflation Pass Through? Personal Consumption of Gasoline and Oil as a Percent of Disposable Income Spot Price of a Barrel of Oil

Refined Product Prices Continue to Trend Higher

What About Long Term Rates? 10-Year and Inflation10-Year and Growth

A Little Help Net Purchases of U.S. Treasuries by the Rest of the World

Twin Deficits Remain a Weight Federal Budget Deficit as % of GDPCurrent Account Deficit as % of GDP

Government Expenditures Seasonally Adjusted Annual Rates, Billions of $

Entitlements: A Major Threat Going Forward Social Security, Medicare, and Medicaid Spending as a Percent of GDP Percent of GDP Note: Social Security and Medicare projections based on the intermediate assumptions of the 2004 Trustees’ Reports. Medicaid projections based on CBO’s January 2004 short-term Medicaid estimates and CBO’s December 2003 long-term Medicaid projections under mid-range assumptions. Source: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration, Office of the Actuary, Centers for Medicare and Medicaid Services, and the Congressional Budget Office. Medicare Medicaid Social Security