Economic Analysis September 29 th, 2009

Stay the Course Rally has been strong but corrections will occur –Relatively Minor –October Key Point- Business cycle is driven by interest rates –FED Raising rates will signal change Consumers are paying off debt- therefore not spending Weakness in durables- autos –Personal consumption expenditures will be weak but not harmful % growth Enough to sustain U.S. Economy Q-Insight

Capital Goods may lead recovery. –No evidence yet Exports are picking up sharply –Should boom unless U.S. starts a protectionist trade war Personal Consumption expenditures will not drag the economy Capital Goods and Exports need to lead economy Expects Average Hours worked to improve. –Friday- Employment Situation Q-Insight

Conference Board Leading Economic Index rose 0.6% in August –0.8% in June, 0.9% in July University of Michigan/Reuters consumer confidence index rose to 73.5% in September, up from 65.7% Consumer expectations sub-index rose to 73.5% from 65% –Highest in 2 years Economic Indicators

Existing home sales fell 2.7% in August –Had risen for 4 straight months New home sales up 0.7% –Estimated to be +1.6% Orders for durable goods fell 2.4% Core capital good fell 0.4% FOMC met this past week and decided to keep the Fed Fund target at 0-.25% Initial unemployment claims down 21,000 to 530,000 from prior week (3.8%) More Indicators

Flow of Funds 2 nd Qtr 2009 Total Net Lending- 241 Billion Household Billion State Govt Billion Fed Govt Billion Monetary Authority 1,196.1 Billion Commercial Banks Billion