1. Where Are We In The Business Cycle & What Are The Implications For U.S. Economy & Florida?
September, 2007

2. The fundamentals underlying U.S. growth remain sound
Economic Overview
U.S. Economy & Florida
The fundamentals underlying U.S. growth remain sound
There Is No Monster In The Closet Or Under The Bed. The Next Recession Is Still Years Away, Subprime Loans Are Not The Problem Structured Finance Is
We Are In The Midst Of A Mid-Cycle Adjustment. This Expansion Is Nearly Six Years Old And The Drivers Of Economic Growth Are Changing.
Home Sales Peaked About Two Years Ago & Are Now More Than Half Way Through A Major Correction. Sales Should Bottom Out Later This Year. Residential Construction Should Bottom Out In Early 2008.
Consumer Spending Is Growing More Modestly Due To Slower Home Price Appreciation & Higher Fuel Prices. Spending Will Grow Slightly Below Income Growth. This Means Retail Sales Should Rise Around a 5% Pace. Forecast Of Declines Are Way Off The Mark
Worries About A Tidal Wave Of Defaults Coming Out Of The $567 Billion In ARMs Re-pricing In ’07 Are Overblown. Nearly Two-Thirds Of These Loans Have Already Been Paid Off. Defaults And Foreclosures Are Rising But Early Payment Defaults Have Surged Due To Fraud And Faulty Underwriting In 2005 and 2006.
Problems In The Secondary Market Will Cause The Housing Slowdown To Be Somewhat Longer And More Severe.
Business Fixed Investment & Net Exports Need To Pick Up To Bring The Economy Back To Above Trend Growth. Both Are Moving In The Right Direction.
Wachovia Economics Group

3. Real GDP Growth
U.S. Economy & Florida
After a brief slowdown, growth is expected to gradually move back to trend
The Unwinding Of The Housing Boom Has Cut Into Economic Growth
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

4. Employment growth continues at a moderate pace
U.S. Economy & Florida
Employment growth continues at a moderate pace
Hiring Has Moderated Recently But Remains Reasonably Strong Outside Of Residential Construction
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

5. Employment Growth
U.S. Economy & Florida
The unemployment rate remains below “Full Employment” but will likely rise in coming months
The Unemployment Rate Is Showing Signs Of Bottoming Out. Tighter Labor Markets Have Driven Wages Higher. Look For A Rise To Just Under 5%.
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

6. We Still Expect New Home Sales To Bottom Out This Year
U.S. Economy & Florida
We Still Expect New Home Sales To Bottom Out This Year
New Home Sales Peaked Two Years Ago But Are Still Well Above Typical Recessionary Levels
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

7. Consumer Health: Housing
U.S. Economy & Florida
The housing boom was largely concentrated in a handful of states
OFHEO HPI Growth:
Source: National Association of Realtors, Office of Federal Housing Enterprise Oversight, U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

8. Consumer Health: Housing
U.S. Economy & Florida
Rampant investor activity led to many of the most severe downturns
Highlights
Increase in Subprime Delinquencies
The markets where investor activity was most prevalent at the peak of the housing market, are the same markets experiencing the greatest difficulty today.
National subprime mortgage delinquencies increased 321bps between the first quarter of 2005 and the first quarter of 2007.
Top 30 Metro Markets for Investors Share of Conforming Mortgages: June 2005
Source: First American Loan Performance, Mortgage Bankers Association, U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

9. Home Prices
U.S. Economy & Florida
Prices will continue to stagnate nationally this year but are rising in more places than they are falling
The Historic Run-Up In Home Prices Has Ended, But Fears Of Price Collapse Are Way Overdone. Two-Thirds Of The Nation’s MSA Are Seeing Price Gains.
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

10. Consumer Income and Spending
U.S. Economy & Florida
Forecasts For A Dramatic Slowdown In Consumer Spending Are Way Off The Mark
Job & Income Growth Drives Consumer Spending, The “Wealth Effect” Will Likely Produce Only A Modest Drag On Sales
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

11. Capital Spending
U.S. Economy & Florida
Business Fixed Investment For “Other Capital Equipment” Has Been Missing In Action The Past Few Years
Business Fixed Investment Has Been Depressed In Areas Tied To Housing, Autos, & Heavy Trucks. Some Of This Drag Appears Set To Ease.
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

12. Monetary Policy
U.S. Economy & Florida
The Fed Is Reluctant To Repeat Their Earlier Mistakes. We Expect The Fed To Reluctantly Cut Interest Rates.
The Fed, For Good Reasons At The Time, Provided Way Too Much Liquidity Over The Past eight Years. Removing This Liquidity Is Proving Problematic.
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

13. Long-Term Interest Rates Remain Very Low Relative To Nominal GDP
Monetary Policy
U.S. Economy & Florida
Long-Term Interest Rates Remain Very Low Relative To Nominal GDP
All Of That Extra Liquidity Has Helped Hold Down Long-Term Interest Rates
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

14. Current Regional Trends
Housing Regionally
U.S. Economy & Florida
The Run-up In Housing Prices Is Causing Businesses To Reevaluate Location Decisions
Current Regional Trends
Population growth has slowed significantly in California, Texas, New Jersey & Northern Virginia—states where prices rose dramatically.
The big winners are Arizona, Texas, Georgia & the Carolinas.
Foreign-owned automobile producers are setting up shop in the Deep South & growth will now be driven by suppliers.
East coast ports are bumping up against capacity constraints, leading to major expansions.
FL, GA, SC, NC, VA and NY/NJ
Output in the high tech sector is strengthening but more of the growth will occur away from California, Boston & DC.
Biotech development is just getting up to speed and will go way beyond medicine and disease detection.
Source: National Association of Realtors, OFHEO, U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

15. Wachovia U.S. Economic Forecast
Economic Outlook
U.S. Economy & Florida
We Continue To Look For Modest Economic Growth
Wachovia U.S. Economic Forecast
Wachovia Economics Group

16. Florida
U.S. Economy & Florida
Florida Is Still Slightly Outperforming The U.S. But Job Growth Has Clearly Moderated
Declines In Residential Construction Are Cutting Into Overall Job Growth
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

17. Florida
U.S. Economy & Florida
Florida’s Unemployment Rate Has Begun To Inch Higher And Will Likely Rise About A Percentage Point Over The Next Year
Florida’s Jobless Rate Appears To Have Bottomed Out
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

18. Florida
U.S. Economy & Florida
The Rising Costs Of Housing, Insurance, & Property Tax Have Made Florida Less Attractive Relative To Neighboring States
Florida’s Population Growth Slowed In 2006 And Likely Slowed Even More This Past Year
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

19. Florida
U.S. Economy & Florida
We estimate there were 150,000 excess homes completed in Florida between 2004 and 2006
Housing Construction Is Ramping Down As Rapidly As Possible. There Is A Great Deal Of Oversupply In Southwest Florida
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

20. Florida
U.S. Economy & Florida
Florida’s home prices will need to adjust by about 20 percent over the next few years. Half of this adjustment will likely come from outright price declines.
While There Is No Question Housing Prices Are Adjusting, Home Prices Are Still Modestly Higher On A Year-To-Year Basis.
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Source: OFHEO and Wachovia Corp.
Wachovia Economics Group

21. Employment growth has slowed across most major industries
Tampa
U.S. Economy & Florida
Employment growth has slowed across most major industries
Tampa Has Seen A Significant Slowdown in Job Growth This Past Year
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

22. Tampa
U.S. Economy & Florida
Tampa’s unemployment rate has inched up recently and will likely rise above 4%
Unemployment Has Started To Rise
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

23. Tampa’s Population Boom Has Cooled Off
U.S. Economy & Florida
Tampa’s Population Boom Has Cooled Off
Population Growth Has Held Up Relatively Well In The Tampa Area, As Housing Is Relatively More Affordable Than In Other Parts Of the State
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

24. This Will Help Eat Away At Some Of The Excess Supply.
Tampa
U.S. Economy & Florida
Homebuilding Has Fallen Back Below The Region’s Underlying Demographics.
This Will Help Eat Away At Some Of The Excess Supply.
The Building Boom Is Over
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

25. Tampa
U.S. Economy & Florida
We Expect Home Prices To Decline Between Five And Ten Percent By The End Of Next Year
Home Prices Are Beginning To Correct
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Source: OFHEO and Wachovia Corp.
Wachovia Economics Group

26. Sarasota Is Seeing A Significant Slowdown
Sarasota & Bradenton
U.S. Economy & Florida
Sarasota Is Seeing A Significant Slowdown
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

27. Sarasota & Bradenton
U.S. Economy & Florida
The Jobless Rate May Be The Best Indication Of How Much Conditions Have Changed
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

28. Sarasota & Bradenton
U.S. Economy & Florida
Housing Affordability Has Become Extremely Stretched, Which Has Severely Cut Into Population Growth
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

29. Residential Construction Has All But Come To A Screeching Halt
Sarasota & Bradenton
U.S. Economy & Florida
Residential Construction Has All But Come To A Screeching Halt
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

30. Sarasota & Bradenton
U.S. Economy & Florida
Housing Prices Are Falling And Will Likely Fall Twenty Percent By The End Of Next Year
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Source: OFHEO and Wachovia Corp.
Wachovia Economics Group

31. Lakeland – Winter Haven
U.S. Economy & Florida
Lakeland Is Seeing Fairly Solid Job Growth, Although The Pace Is Slowing
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

32. Lakeland – Winter Haven
U.S. Economy & Florida
Unemployment Has Inched Up And Will Likely Reach The Mid 4% Range By The Middle Of Next Year
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Source: U.S. Department of Labor and Wachovia Corp.
Wachovia Economics Group

33. Lakeland – Winter Haven
U.S. Economy & Florida
Population Growth Has Picked Up In Recent Years
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

34. Lakeland – Winter Haven
U.S. Economy & Florida
Homebuilding Has Slowed Significantly
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Source: U.S. Department of Commerce and Wachovia Corp.
Wachovia Economics Group

35. Lakeland – Winter Haven
U.S. Economy & Florida
Home Prices Are Holding Up Relatively Well But Will Likely Slow Further
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Source: OFHEO and Wachovia Corp.
Wachovia Economics Group

36. Appendix
Wachovia Economics Group

37. Economics Group Comprehensive Coverage of the U.S. Economy
Appendix
Economics Group Coverage
U.S. Macro
Economy
Comprehensive Coverage of the U.S. Economy
Monthly Economic Forecast
Weekly Analysis & Outlook
Timely Commentary on Daily Economic Data Releases
Global
Economies
Macro Level Coverage of Major Foreign Economies
Macro Forecasts of 11 Economies
Monthly Forecasts of 19 Dollar Exchange Rates
Weekly Analysis & Outlook
U.S. Regional
Economics
Regional and MSA Level Expertise
Extensive Coverage Across the Wachovia Footprint
Ground level Analysis & Commentary of Local Markets
Industry
Coverage Across CIB Industry Groups
Regular Commentary on Economic Developments by Industries
Real
Estate
Industrial
Growth
Consumer
&
Retail
Energy
& Power
Financial
Services
Media
Healthcare
Tech
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38. Economics Group Publications
Appendix
A Sampling of Our Recent Special, Regional & Industry Commentary
Distribution Lists
Recent Special Commentary
Monthly Outlook
Weekly Economic & Financial Commentary
Special Reports
Economic Indicators
Global Commentary
Regional Commentary
Chief Economist List
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39. Economics Group John E. Silvia, Ph.D. Mark Vitner Jay H. Bryson, Ph.D.
Appendix
John E. Silvia, Ph.D.
Chief Economist
Mark Vitner
Senior Economist
Jay H. Bryson, Ph.D.
Global Economist
U.S. Macro Economy
Interest Rates
Monetary Policy
U.S. Macro Economy
Real Estate
Regional Economics: State & MSA Level
Global Economies
Foreign Exchange
Sam Bullard
Economist
Huiwen Lai, Ph.D.
Quantitative Analyst
Anika Khan
Economist
Desk Operations
Financial Services
Quantitative Macro-Economic Modeling
U.S. Macro Economy
Consumer & Retail
Non-residential Real Estate
Jason Schenker
Economist
Adam G. York
Economic Analyst
Tim Quinlan
Economic Analyst
Global Economies
Energy & Commodities
Industrial Growth & Services
U.S. Macro Economy
Real Estate
Industrial Growth & Services
U.S. Macro Economy
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