1. September 2009 Institute for Supply Management Carolinas Virginia Triad Chapter The 2009 - 2010 Economy – What Lies Ahead? City of Winston-Salem, North Carolina

3. Recent US Recessions Recession DateLength (Months) April 1960 - February 196110 December 1969 – November 197011 November 1973 – March 197516 January 1980 – July 19806 July 1981 – November 198216 July 1990 – March 19918 March 2001 – November 20018 December 2007 - ?????20 Months & Counting Source: National Bureau of Economic Research (NBER).

4. US Economic Growth (2006-09) Source: Wachovia Economics Group.

5. 2008 US Economic Growth by Quarter (Quarterly Change at an Annual Rate) Source: Wachovia Economics Group.

6. 2009 Forecasted US Growth by Quarter (Quarterly Change at an Annual Rate) Source: Wachovia Economics Group.

7. 2010 Forecasted US Growth by Quarter (Quarterly Change at an Annual Rate) Source: Wachovia Economics Group.

8. The National Outlook The recession appears to be ending, and the recovery will likely begin later this year. – More than 90% of economists recently surveyed by the National Association of Business Economists predict the recession will end this year. 74% believe the recession will end in 3Q09. 19% believe the turning point will be in 4Q09. 7% believe the recession will end in 1Q10.

9. “Sub-Par” Recovery Output Employment Consumer income

10. “Sub-Par” Recovery Consumer spending – 0.7% fall in 2009 – 1.2% rise in 2010 Housing units – 740,000 new starts in 2009 – The annual average over the 2003-05 “bubble” years was 1.95 million. Unemployment rate – 11% annual average during 2009 and perhaps into 2010 – 5% annual average over 2004-06 Ongoing “adjustment” to a new, lower long-run growth rate in retail, construction, manufacturing (especially durables manufacturing), and financial services

11. Inflation Sluggish economic growth should keep inflation contained. Inflation typically moderates through the second year of a recovery. The Fed will likely not need to take any anti- inflationary actions until late 2010 at the earliest.

12. Stock Index Performance Dow down 38% / S&P down 41% / NASDAQ down 33%

13. Stock Markets Over the Last 3 years as of 9-10-09 Up about 30% from the March 2009 low, but still 37% below the October 2007 High. Source: MSN Money.com

14. Crude Oil Down 58.4% in 2008 and down 72.0% from monthly peak. Back to $72.41 for light sweet crude 9-10-09 Source: Thomson Baseline / Month End Data

15. The Stimulus Package (American Recovery and Reinvestment Act of 2009) Reductions in payroll withholding will provide some “modest” support to after-tax income. Spending is restrained by job losses, reduced operating hours and pay, slow wage and salary growth, and wealth losses. Business investment will remain weak as the stimulus impact on infrastructure is “modest” and spread out over several years. Fixed investment will not likely rebound until Spring 2010. Outlays for software and equipment may turn positive later this year. Government spending will be dominant. – The impacts of the additional aid to state and local governments will be felt as early as the second half of this year. – Increased federal outlays are being offset by cutbacks at the state, county, and municipal level.

16. The Fallacy of “Getting Back to Where We Were” “Where we were” was out-of-step with long-term sustainable economic growth. Policy proposals aimed at “returning us to where we were” are at odds with the economic reality of the excesses of the previous expansion that were fueled by lax qualifications for housing finance and a highly-leveraged consumer. – Economic growth is likely to be lower over the next five years than during the five years prior to the current recession.

18. The Great Depression The Great Depression U.S. Household Debt as a Percent of GDP Shading represents National Bureau of Economic Research Recessionary Periods Source: U.S. Census, U.S. Federal Reserve Flow of Funds. Please note non-corporate net private debt is used as a proxy for household debt (going back to 1918) as the Federal Reserve did not begin tracking U.S. household debt until 1950 ?

19. Credit and Interest Rates Steeper yield curve Little change in credit spreads Medium-to-long-term credit will remain difficult to obtain.

20. US Treasury Security Yield Curves

21. Foreign Economies Premature to claim that the global economy is stabilizing More likely an “inflection point” has been reached, in which economic activity continues to fall but at a slower pace. – Negative “first derivative” Economic activity continues to fall. First derivative may be “approaching zero.” – “Second derivative” world Economic activity is falling at a decreasing rate.

22. The US Compared to Other Countries US policymakers have done relatively more to stimulate economic activity. – The US should exit, or at least show signs of exiting, the recession before most other major economies do... But then again maybe not. – The US dollar will likely appreciate. Ibid. The dollar’s rise will slow due to sluggish US growth. Foreign purchases of US Treasury securities will slow as risk aversion becomes less extreme.

23. NC Economic Growth (2005-09) Source: UNC Charlotte North Carolina Economic Forecast.

24. 2008 NC Economic Growth by Quarter (Quarterly Change at an Annual Rate) Source: UNC Charlotte North Carolina Economic Forecast.

25. 2008 North Carolina Sector Output Change GrowthDecline Government3.9%Farm-16.5% Services2.9%Construction-9.0% Transportation, Warehousing, Utilities, & Information (TWUI)1.0%Mining-3.7% Wholesale Trade0.1%Durables Manufacturing-3.4% Agricultural Services-3.2% Retail Trade-2.2% Nondurables Manufacturing-1.8% Finance, Insurance, & Real Estate (FIRE)-1.6% Source: UNC Charlotte North Carolina Economic Forecast.

26. 2009 Forecasted NC Economic Growth by Quarter (Quarterly Change at an Annual Rate) Source: UNC Charlotte North Carolina Economic Forecast.

27. 2009 Forecasted North Carolina Sector Output Change (Constant $) GrowthDecline Mining1.1%Construction-5.9% Government0.5%Farm-3.2% Services0.2%Durables Manufacturing-3.0% Retail Trade-2.4% Wholesale Trade-2.1% Agricultural Services-1.6% Nondurables Manufacturing-1.6% Source: UNC Charlotte North Carolina Economic Forecast.

28. 2009 NC Jobs Forecast SectorNCUS Construction-11.1%-7.2% Manufacturing-7.2%-5.2% Financial Activities-5.2%-4.6% Retail Trade-5.1%-4.6% Transportation/Warehousing-4.2%-3.6% Information-4.1%-3.1% Professional/Business Services-4.0%-5.3% Leisure/Hospitality-3.0%-3.3% Wholesale Trade-2.8%-3.0% Natural Resources/Mining-2.7%-4.9% Government-0.3%-0.6% Other Services0.1%-2.6% Utilities0.4%-3.7% Education/Health Care1.0%-1.1% All Sectors-3.3% Source: Moody’s Economy.com.

29. Unemployment Rates (%) Source: NC Employment Security Commission.

30. Employment Outlook NCSU Economist Mike Walden predicts that the NC unemployment rate will peak at around 13% during 1Q10. – The rate will fall to 10.3% by year-end 2010. – The highest rates will be in the Charlotte and Greensboro- High Point-Winston-Salem areas. – The lowest rate is expected in the Raleigh-Durham area. The national unemployment rate will likely rise through mid 2010 and peak at around 10.5%.

31. North Carolina Retail Sales Growth Rates (%) Source: NC Department of Revenue.

32. NC Sales of Existing Single-Family Residential Structures (5-Month Centered Moving Average) Source: NC Association of Realtors.

33. North Carolina Sales and Average Price of Existing SF Residential Structures Source: NC Association of Realtors. Sale s Average Price

34. FY 2008-09 State Revenues 10.8% decline over last year 15.2% under budget – 9-10% shortfalls in last two recessions April 15 final tax payments down 40% – 20-21% shortfall in last two recessions Source: Fiscal Research Division, North Carolina General Assembly.

35. FY 2009-10 Additional $1.5 billion in cuts and/or revenues over and above those in the Governor’s and Senate’s budgets – Equivalent to ½ of FY 2008-09 state Medicaid budget – Equivalent to ½ of the size of the state university budget – Equivalent to fiscal stimulus money available during FY 2009-10 Source: Fiscal Research Division, North Carolina General Assembly.

36. Special Thanks to: William W. Hall, Jr., Ph.D. Professor of Economics Department of Economics and Finance Senior Economist Center for Business and Economic Services Cameron School of Business UNC Wilmington Dr. Hall provided many of these slides.

37. City of Winston-Salem, North Carolina Contact Information: Clark G. Case Assistant Financial Officer/Treasurer PO Box 2511 Winston-Salem, NC 27102 clarkc@cityofws.org 336.747.6901