1. Presented by Economic Outlook Mark Zandi Economy.com, Inc.

2. 2 Outlook Summary A tentative economic recovery is underway. The recovery will struggle but remain in tact, supported by resilient productivity growth, low interest rates, and stimulatory fiscal policy. Downside risks remain paramount, and include fragile confidence, spiking energy prices, and overcapacity. Fragile investor confidence is a significant economic threat. Preconditions for stronger business investment and hiring are coming into place. Tax revenues are expected to rebound as the recovery gains traction.

3. 3 Coincident Index Y2K = 100 Source: Conference Board ----------------2000--------------------------------2001----------------------2002------

4. 4 More Like the Jobless Recovery Recession Trough = 100 Months From Recession Trough Previous Current Early ‘90s

5. 5 States in Recession

6. 6 State Government Tax Revenue % Change Year Ago Source: Census

7. 7 Sources: Federal Reserve Board, BEA Wealth to income ratio (L) Saving rate (R) Wealth Effect

8. 8 Cash Raised by Households Billions $ Source: Economy.com Stocks Were a Key Source of Cash

9. 9 Nonfinancial Productivity Growth % Change Year Ago, 4-Quarter Moving Average Source: BLS Recession

10. 10 Lower Rates Support Housing Demand... New and Existing Home Sales Millions Source: Realtors

11. 11 …Lifts Homeowners’ Equity... Trillions $ Source: Federal Reserve Housing Stocks

12. 12 Cash Raised via Home Equity Borrowing Billions $ Source: Economy.com …and Ignites Mortgage Borrowing

13. 13 Revenue Growth Source: Treasury Department Spending Growth

14. 14 Nonfarm Businesses % Change Year Ago 2 Qrt Moving Average Source: BLS Unit Labor Costs Prices

15. 15 Near-Term Outlook Real GDP Growth ----------2001---------- ----------2002---------------------2003---------- Potential Growth

16. 16 Effective Tax Rate Trough = 100 Source: BEA 1973-75 1970 1990-91 1981-82 Months From Trough

17. 17 Realized Capital Gains (Billions $) Sources: IRS, Economy.com

18. 18 % Change, Fiscal Years Sources: Census, Economy.com

19. 19 State Tax Revenue Prospects FY ‘02/’03 vs FY ‘01/’00

20. 20 Sources: BEA, Energy Department Spending Billions $ (L) Regular unleaded $/gallon (R) Spiking Energy Prices Would Hurt

21. 21 Ratio of Consumer Credit Outstanding to Income (%) Sources: FRB, BLS

22. 22 Portland Boston Albany Syracuse Buffalo Tacoma Boise San Francisco San Jose Orange County San Diego El Paso Corpus Christi Albuquerque Colorado Springs Denver Topeka South Bend Dayton Springfield Little Rock Miami Ft. Lauderdale Pittsburgh Ft. Myers Naples Sarasota Baltimore Washington DC Monmouth Jersey City Bergen-Passaic Nassau Newark Philadelphia Wilmington Highly Underpriced Highly Overpriced Potential Bubbles

23. 23 # of months of seasoning Cumulative Losses as a Share of Original Securitized Pool Balance Source: Moody’s 1998 vintage 1995 vintage 1996 vintage 1997 vintage 1999 vintage 2000 vintage Mounting Credit Problems

24. 24 Commercial Vacancy Rate Source: Economy.com Over Capacity