December 3, The State of The Economy In this presentation National forecasts are produced by Global Insight, Inc. State and Metropolitan forecasts are public information produced by the Division of Research and Policy, Wisconsin DOR. Information is supplied by the U.S. Bureau Of the Census, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Federal Housing Finance Authority, Federal Reserve Board of Governors, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of New York, the Wisconsin Department of Workforce Development, and various divisions of the Wisconsin DOR. Wisconsin Economics Association December 3, 2010

2 Today’s Themes 1)In the Midst of a Rodney Dangerfield Recovery Gets no respect, but Actually Stronger than the past two recoveries. 2)Why the Recovery seems worse than it is 3)What is holding back the recovery 4)Outlook for US and Wisconsin in 2010 & 2011

December 3, The Pace of the Current Recovery Stronger Than the Past Two Recoveries Real GDP Industrial Production Employment Retail Sales

December 3, An Expansion Underway Since July 2009 National Bureau of Economic Research Press Release, Sept. 20, 2010 The Business Cycle Dating Committee of the determined that a trough in business activity occurred in the U.S. economy in June The trough marks the end of the recession that began in December 2007 and the beginning of an expansion.

December 3, Real GDP Nearly Recovered

December 3, Real GDP Up Over 3% on The Year

December 3, Industrial Production Expanding Faster than Past Two Recessions Source: Federal Reserve Board of Governors

December 3, Retail Sales Growth Much Stronger Than the Last Recovery Source: U.S. Census Bureau

December 3, Private Job Growth Since End of the Recession Source: U.S. Bureau of Labor Statistics

December 3, Income Growth Since End of the Recession

December 3, Starting from a Very Low Point Production Fell to 1998 Levels Lost 15% Over 6 Quarters Source: Federal Reserve Board of Governors

December 3, Why the Recovery Seems Worse Starting from a Very Low Point Time Erodes Memory Painful Adjustment from Unsustainable to Normal Low Inflation Reveals Adjustments High Inflation Hid

December 3, Starting from a Very Low Point Real GDP Lost More Than 3 Years of Growth Source: U.S. Bureau of Economic Analysis

December 3, Starting From a Very Low Point Job Losses Matched Those of the Last Three Recessions Combined Source: U.S. Bureau of Labor Statisticsc

December 3, Starting from a Very Low Point Retail Sales Lost Four Years of Growth in Just Four Months Source: U.S. Bureau of the Census

December 3, Starting from a Very Low Point Housing Construction Down over 75% Source: U.S. Census Bureau

December 3, Starting from a Very Low Point Household Net Worth Fell Over $17 Trillion Source: Federal Reserve Board of Governors

December 3, Time Erodes Memory Unemployment Did Not Reach Record Levels Nationally

December 3, Time Erodes Memory Wisconsin’s Historic High For Unemployment was 25 Years Ago Source: U.S. Bureau of Labor Statistics

December 3, Time Erodes Memory Few States Set Record Unemployment This Recession

December 3, Painful Adjustment to Normal: Equities S&P 500 Price History

December 3, After Over-Correcting in Early 2009, Equities Have Settled In at Realistic Values

December 3, Painful Adjustment to Normal Housing Price Bubble Corrected

December 3, Painful Adjustment to Normal After the Decline, Household Net Worth Very Close To Its Long-Term Average Sources: Federal Reserve Board of Governors, U.S. Bureau of Economic Analysis

December 3, Low Inflation Reveals Painful Adjustments High Inflation Hid

December 3, Low Inflation Reveals Adjustments High Inflation Hid

December 3, Real Disposable Income Since End of the Recession

December 3, What is Holding Back the Recovery Modern Recoveries Take Longer Consumers are Deleveraging Banking Sector Still Absorbing Losses Layoffs Back to Normal, Hiring Is Not

December 3, Employment: Time to Full Recovery

December 3, Layoffs Now Back to Normal

December 3, Hiring Has Not Returned to Normal

December 3, Consumers Rapidly De-Leveraging Consumer Financial Obligations at Lowest Level in 12 years Source: Federal Reserve Board of Governors

December 3, Wealth Effects on Consumption Are Channeled Through Changes in Savings Rate Sources: Federal Reserve Board of Governors, U.S. Bureau of Economic Analysis

December 3, Consumers Still Paying Down Credit Cards Revolving Credit Has Been Dropping Rapidly Since Feb 2009 Source: Federal Reserve Board of Governors Last Month Plotted: August 2010

December 3, Bank Failures At A 20-Year High Source: Federal Deposit Insurance Corporation

December 3, Bank Charge-Offs At All Time High Source: Federal Reserve Board of Governors

December 3, Real Estate Charge-Offs Have Peaked Source: Federal Reserve Board of Governors

December 3, Banks Also Writing-Off Bad Debt On Credit Cards Source: Federal Reserve Board of Governors

December 3, Delinquency Rates Still Rising Source: Federal Reserve Board of Governors

December 3, Wisconsin Bank Charge-Offs Lower than US Source: FDIC-Division of Insurance and Research, Federal Reserve

December 3, Wisconsin Banks Reporting Net Losses Source: FDIC-Division of Insurance and Research, Federal Reserve

December 3, Wisconsin Banks Loan Volume Declining Source: FDIC-Division of Insurance and Research, Federal Reserve

December 3, Industry Matters Strength of Recovery Varies Widely

December 3, Industry Matters Strength of Recovery Varies Widely

December 3, Industry Matters Strength of Recovery Varies Widely

December 3, Industry Matters Strength of Recovery Varies Widely

December 3, Industry Matters Strength of Recovery Varies Widely

When the Recovery Will Be Complete Are We There Yet? Just A Little Further V-Shape Recoveries in Many Sectors None at All in Others Decline Continues in Another

December 3, Corporate Profits Have Already Recovered to Pre-Recession Levels

December 3, Corporate Cash Holdings At A Record High

December 3, Consumption Spending Now Ahead of Pre-Recession Levels

December 3, Investment: Split Decision

December 3, Investment Nearly Recovered In Equipment and Software

December 3, Investment: No Recovery in Business or Residential Structures

December 3, Government: Federal Purchases Rising

December 3, Government: State and Local Purchases Down

December 3, Exports Have Recovered to Pre- Recession Levels

December 3, Full GDP Recovery Will Not Be Complete By Next Quarter Sources: US Bureau of Economic Analysis, Global Insight Actual Forecast 2007Q4 Real GDP

December 3, Job Recovery Takes Even Longer Employment Will Not Return to Pre-Recession Levels Until 2013 Sources: US Bureau of Labor Statistics, Current Employment Statistics (CES); US Bureau of Economic Analysis, Global Insight Actual Forecast

December 3, Time to Recover to Pre-Recession Levels

Wisconsin Outlook in 2010 and 2011

December 3, Hit Hard Mid-Recession, Wisconsin Now Outpacing US Economy

December 3, Hit Hard Mid-Recession, Wisconsin Now Outpacing US Economy

December 3, Net Hiring Resumed 1 st Qtr 2010 Source: Wisconsin DOR, Wisconsin Economic Outlook

December 3, Wisconsin Adding Employment

December 3, Wisconsin Unemployment Below US and Trending Down

December 3, Wisconsin Unemployment Significantly Below US

December 3, Wisconsin Outpacing Nation in Recovery Source: U.S. Bureau of Labor Statistics

December 3, Wisconsin Personal Income Growth Outpaced US for Past 7 Quarters

December 3, Real Personal Income in Recession and Recovery

December 3, Real Personal Income in Recession and Recovery

December 3, Wisconsin Exports Back on the Rise

December 3, GDP: Wisconsin Outperforms US in 2011 Source: Wisconsin DOR, Wisconsin Economic Outlook

December 3, Wisconsin Employment Prospects Improve in 2010 and 2011 Source: Wisconsin DOR, Wisconsin Economic Outlook

December 3, Wisconsin Leading Index Shows Expansion Continuing