1. Florida Economic Update: Outlook for Retail Sales for 2008-2009 By: Tony Villamil, CEO The Washington Economics Group, Inc. Retail Days at the Capitol & Board Meeting Doubletree Hotel Tallahassee, Florida March 4-7, 2008

2. 2 Agenda 1.Status of Economic Modeling Project to Forecast Retail Sales by Product Category 2.Outlook for Macro Drivers of Florida’s Economy 3.Outlook for Drivers of Retail Sales Based on Forecast Model 4.Trends in Taxable Retail Sales 5.Conclusion

3. 3 Macro Drivers of Florida’s Economy Drivers of Retail Sales Retail Sales Activity Outlook 2008-2009 Macro Drivers of Florida Tendency U.S. Economy  Global Economy  Florida Business Climate 

4. 4 Status of Model to Forecast Retail Sales in Florida Preliminary Findings Population growth and per capita income change account for a statistically significant 87 percent of the change in total retail sales in Florida Consumer expectations on the economy, together with month of the year, account for 12 percent of the expected changes in retail sales A 1 percent change in population changes retail sales by 4/10 th of 1 percent in the short run, and 9/10 th of 1 percent in the long run A 1 percent change in real per capita income changes retail sales by 1/2 a percent in the short run and by slightly above 1 percent in the long run

5. 5 Drivers of Retail Sales Drivers suggest a moderate recovery in retail sales, starting in 2009 A return to strong expansion is unlikely until 2010

6. 6 Florida Population Growth 2001-2007 Source: U.S. Bureau of Census. Population growth is a key driver of retail sales Growth has slowed from 2 to 2½% in the “boom” years of 2003-2006 to an estimated 1% in 2007 and 2008 Fundamentals suggest a 1½% growth in population through 2010

7. 7 Florida Per Capita Personal Income Trend Per Capital Personal Income grew strongly, in the 6 to 7% annual rate from 2003-2006, stimulating the expansion of retail sales in most product and services categories This key driver is forecast to expand at a slower 4 to 5% annual rate in 2008-2010 – back to trend growth Source: Florida Research and Economic Database.

8. 8 Recent Florida Taxable Sales Performance Reflects Much Slower Expansion of Economic Activity in 2007-2008

9. 9 Florida Taxable Sales (December 2007/December 2006) Source: Florida Economic and Demographic Research. At end 2007 (December) taxable sales were below the level achieved in December 2004 as population growth, per capita personal income and consumer expectations impact retail purchases Taxable sales were down a significant 6.9% between December 2007/December 2006 – trend is continuing in first half of 2008 Most of the declines occur in consumer durables, autos and accessories and construction-related sales Tendency

10. 10 Regional Performance of Taxable Sales in Florida (Dec 2007/Dec 2006) A. Selected Regions: Declines in Taxable Sales Greater than State Average RegionDeclineKey Categories in Downturn Punta GordaMinus 21.5%Construction and durable sales Ft. MyersMinus 16.4%Autos and accessories, construction and business sales OcalaMinus 13.3%Durables, autos and business sales Ft. PierceMinus 11.6 %Construction, business and durables sales NaplesMinus 11.1%Construction and business sales [continued] Indicative of smaller regional economies with large dependence on real estate

11. 11 B. Selected Regions: Declines in Taxable Sales Below State Average RegionDeclineKey Categories MiamiMinus 3.1%Autos, durables and business sales OrlandoMinus 5.0%Durables, autos and construction sales Palm BeachMinus 5.0%Autos, construction and business sales Ft. LauderdaleMinus 5.5 %Autos, construction and business sales Tourism and Recreation Taxable Retail Sales ARE UP In: Daytona Beach+ 7.8% Miami+3.1% Orlando+10.7 Naples+2.1%

12. 12 Bottom Line: Outlook for 2008-2009 Florida macro drivers suggest a moderate upturn starting in 2009 –U.S. economic activity likely to pick up –Global economic growth expected to remain moderate –Florida business climate: property insurance and tax issues Improvement in Florida macro drivers leads to: –Slight increase in population growth to 1½% –Moderate increase in personal income per capita –Improvement in consumer expectations, especially “big ticket” purchases Retail sales forecast growth –2½% -- 2008 –5% to 6% -- 2009

13. 13 The Washington Economics Group, Inc. 2655 LeJeune Road, Suite 608 Coral Gables, Florida 33134 Phone: 305-461-3811 www.weg.com info@weg.com The Washington Economics Group, Inc. 2655 LeJeune Road, Suite 608 Coral Gables, Florida 33134 Phone: 305-461-3811 www.weg.com info@weg.com