1. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 The Economic Outlook: Will the Headwinds or Tailwinds Prevail? Lynn Reaser, Ph.D. Houston, March 25, 2010

2. Key Topics  Global Outlook  U.S. Economy  Financial Markets  Texas/Houston The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010

3. Global Outlook

4. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Global Manufacturing Rebounds Index, 50 plus = expansion

5. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 World Trade Dives, Recovers Real Volumes, annual percent change

6. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 China’s Motor Remains On Real GDP, annual percent change

7. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Nations’ Growth Rates to Diverge Percent change in 2010 real GDP, forecast

8. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Crosscurrents Keep Dollar Stable in 2010 Broad Trade-Weighted Index, Jan 97=100, December average Forecast

9. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 U.S. Economy

10. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 U.S. Real GDP to Rebound 4 th quarter, percent change over prior year

11. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Consumers Save More, but Trauma Contained Saving rate, percent Forecast

12. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Recov e ry Weaker than Normal Real GDP, percent change

13. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Output to Recoup Losses in 2010 GDP, billions of chained 2005 dollars

14. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Job Growth to Slowly Resume Change in nonfarm employment, thousands

15. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Jobless Rate to Edge Lower by Year-end 2010 Quarterly average, percent

16. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Consumer Prices Still Subdued 4 th quarter, percent change over prior year

17. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Financial Markets

18. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Fed’s Balance Sheet Explodes Billions of dollar, month-end

19. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Interest Rates to Slowly Rise Quarter-end, percent

20. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Profits to Bounce Higher After-tax profits, annual percent change

21. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Potential Potholes

22. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Debt Shifts to the Public Sector Q3 2009, Percent change from prior quarter, annualized

23. Federal Deficit Continues to Deepen Deficit as percent of GDP, fiscal years The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010

24. Risks Terrorism Commerci al Real Estate Oil Prices China Sovereign Risk 10-15% 15-20%

25. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Texas Tracks U.S. Job Performance Percent change over prior year

26. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Houston and U.S. Job Trends Converge Percent change over prior year

27. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Oil Prices Forecast to Stay at Higher Levels Dollars per barrel, quarterly average, WTI ActualForecast

28. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Most Houston Sectors Suffer Job Losses January, percent change over prior year

29. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Houston Home Prices* to Rise Moderately 4 th quarter, percent change over prior year *FHFA Index

30. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Positives  Oil drilling  Exports  Health care  Homebuilding Negatives  Commercial real estate  Oil refining margins  Tight credit Houston

31. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Houston to See More Jobs December average, change over prior year, thousands

32. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Recap  Global Economy Uneven  U.S. Recovers  Higher Interest Rates and Stock Prices  Houston Outperforms Nation  Global Economy Uneven  U.S. Recovers  Higher Interest Rates and Stock Prices  Houston Outperforms Nation

33. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Real Change Emerging Markets Take the LeadGovernment Debt EscalatesLess Trust in Markets

34. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Change, but How Permanent? Consumer Thrift Green Economy

35. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010 Real Change Complex Tax SystemRisk TakingSmall Business

36. The Fermanian Business & Economic Institute – business & economics in action © FBEI 2010