1. Economic Outlook January 2013 Financial Executives International – Annual Economic Meeting January 23, 2013 Alexander Heil, PhD, Chief Economist Economics Unit Planning & Regional Development Department The Port Authority of New York & New Jersey

2. Our Agenda for Today  Review of Current Economic Indicators  Regional Economic Projections  Building up to Forecasts  Fiscal Cliff Assumptions [subject to change]  Assessment of Impact of Hurricane Sandy  Q&A Slide 2

3. January 2013 - Where do we stand now? Slide 3  More promising headline data  Consumer Spending  Housing  Policy Actions  Europe ECB policy action  QE3  But significant risks remain  Europe  Fiscal Cliff / Debt Ceiling  China

4. GDP vs. Final Sales Slide 4

5. Home Prices are moving … up Slide 5

6. Americans are buying cars … Slide 6

7. Durable Goods Orders at Pre-Recession Level Slide 7

8. Corporate Profits Slide 8

9. Retail Sales dip … then recover Slide 9

10. Stagnating Real Wages Slide 10 2011 MHI for US = $50K – same as 1996!

11. Weekly Unemployment Claims Slide 11

12. Employment – Monthly Change Slide 12

13. Long-Term Unemployment Slide 13

14. GDP vs. VMT Slide 14

15. PA Pulse Transportation Index Slide 15

16. 18-County Port Authority Region Slide 16

17. Employment Recoveries in NY & NJ Counties Slide 17 Source: Oxford Economics Global Macro Model run by PA Economics Unit

18. County Level Employment Projections Slide 18 Source: Oxford Economics Global Macro Model run by PA Economics Unit

19. NY Counties Employment by Sector Slide 19 Source: Oxford Economics Global Macro Model run by PA Economics Unit

20. NY County Industry Structure at Recovery Slide 20 Source: Oxford Economics Global Macro Model run by PA Economics Unit

21. NJ County Employment by Sector Slide 21 Source: Oxford Economics Global Macro Model run by PA Economics Unit

22. NJ County Industry Structure at Recovery Slide 22 Source: Oxford Economics Global Macro Model run by PA Economics Unit

23. PA Region Employment by Sector Slide 23 Source: Oxford Economics Global Macro Model run by PA Economics Unit

24. NY Counties – Industry Employment Projections Slide 24 Source: Oxford Economics Global Macro Model run by PA Economics Unit

25. Slide 25 NJ Counties – Industry Employment Projections Source: Oxford Economics Global Macro Model run by PA Economics Unit

26. So what about the Fiscal Cliff …? Slide 26

27. Payroll Tax Rate – Employee Portion Slide 27 Source: Oxford Economics Macro Model, run by PRDD

28. Federal Spending Slide 28 Source: Oxford Economics Macro Model, run by PRDD

29. Retail Sales Slide 29 Source: Oxford Economics Macro Model, run by PRDD

30. Consumer Spending Slide 30 Source: Oxford Economics Macro Model, run by PRDD

31. So what about the Labor Market …? Slide 31

32. Labor Force Participation Rate Slide 32 Minus 3+% Source: Oxford Economics Macro Model, run by PRDD

33. US Unemployment Rate Slide 33 Source: Oxford Economics Macro Model, run by PRDD

34. National Employment Slide 34 Source: Oxford Economics Macro Model, run by PRDD

35. So what about the Housing Market …? Slide 35

36. Housing Sector Slide 36 Source: Oxford Economics Macro Model, run by PRDD

37. Home Sales Slide 37 Source: Oxford Economics Macro Model, run by PRDD

38. So what about the Federal Reserve …? Slide 38

39. Federal Reserve Policy Slide 39 QE3 Source: Oxford Economics Macro Model, run by PRDD

40. So what about overall economic growth …? Slide 40

41. US Real GDP Growth Slide 41 Source: Oxford Economics Macro Model, run by PRDD

42. And the regional economy …? Slide 42

43. Total Regional Employment Slide 43 Source: Oxford Economics Macro Model, run by PRDD

44. PA Region Income Trend Slide 44 The Fiscal Cliff … Source: Oxford Economics Macro Model, run by PRDD

45. PA Region Office-based Employment Slide 45 Decline in Office Employment Source: Oxford Economics Macro Model, run by PRDD

46. Regional Economic Growth Slide 46 Source: Oxford Economics Macro Model, run by PRDD

47. Economic Impacts of Hurricane Sandy How should we be thinking about economic assessments?

48. Sandy’s Economic Impact Slide 48 Hurricane Sandy Damaged AssetsLost Output Buildings & contents Infrastructure Vehicles RebuildAbandon Manufacturing Delayed services RecoverableLost Travel time Energy costs Some services Some wages Temporary Hit to GDP Permanent Hit to GDP

49. The Rebuild Decision Slide 49 Rebuild Damaged Assets LocalFederal Higher Productivity How?Whose Money? Net Regional Stimulus Replace & Improve Simple Replacement Diverted from Other Projects Higher Insurance Premiums

50. The Abandon Decision Slide 50 Abandon Damaged Assets Housing/Businesses Infrastructure Productivity Loss Risk Reduction

51. Frequency:Assume $50 billion cost/storm Present Value Cost: 100 years$11 billion 25 years$62 billion 5 years$316 billion Present Value of Damages Depends on Storm Frequency and Damage Level Slide 51 Assumes 3% discount rate

52. Any Questions? Alexander Heil, PhD, Chief Economist Planning & Regional Development Department The Port Authority of New York and New Jersey 233 Park Avenue South, 11th Floor, New York, NY 10003 aheil@panynj.gov Slide 52 Economic Outlook January 2013