1. Presented by © 2004 Economy.com Slide 1 The Economic Outlook Mark Zandi Chief Economist

2. © 2004 Economy.com Slide 2 Manufacturers All Industries An Improving Economy Business Confidence % Positive - % Negative Source: Economy.com

3. © 2004 Economy.com Slide 3 Source: BEA Plunging Tax Payments Tax payments $bil, (L) Effective tax rate (R)

4. © 2004 Economy.com Slide 4 Real federal government spending growth % change year ago, 4-quarter MA Sources: BEA, Economy.com Federal Government Spending Soars

5. © 2004 Economy.com Slide 5 Soaring Mortgage Borrowing Cash Raised from Mortgage Borrowing $ bil Source: Economy.com

6. © 2004 Economy.com Slide 6 Inventory-to-sales ratio Sources: BEA, Census Developing Inventory Cycle Wholesale Total, Real

7. © 2004 Economy.com Slide 7 Nonfinancial businesses % change year ago, 4-qtr MA Source: BLS Amazing Productivity Growth...

8. © 2004 Economy.com Slide 8 After-Tax corporate profit margin Source: BEA...Lifts Margins and Profitability...

9. © 2004 Economy.com Slide 9 Business spending on information technology $ bil Source: BEA...Which Prompts Business to Invest...

10. © 2004 Economy.com Slide 10...And Finally Add Some Jobs Change in employment ths Source: BLS

11. © 2004 Economy.com Slide 11 Profits growth 1 year lead (L) Employment growth (R) Sources: BEA, BLS Even More Jobs Coming

12. © 2004 Economy.com Slide 12 Near-Term Outlook Real GDP Employment % change year ago

13. © 2004 Economy.com Slide 13 China (R) Withering Global Competition Total excluding OPEC (L) Trade deficit $ bil, 12 mo moving sum Source: Census

14. © 2004 Economy.com Slide 14 Portland Boston San Francisco San Jose Orange County San Diego Las Vegas Miami Ft. Lauderdale Ft. Myers Naples Tampa Baltimore Washington DC Monmouth Jersey City Bergen-Passaic Nassau Newark Potential Housing Market Problems Los Angeles Potential bubbles Potentially overbuilt Salt Lake/Provo El Paso Corpus Christi New Orleans Tulsa St. Louis Milwaukee Louisville Indiannapolis Detroit Columbus Cleveland Buffalo Pittsburgh Syracuse

15. © 2004 Economy.com Slide 15 Darkening Fiscal Outlook 10-Year Cumulative Budget Deficit Source: Congressional Budget Office

16. © 2004 Economy.com Slide 16 Outlook Summary The economy is performing increasingly well. Supporting growth are massive fiscal and monetary stimulus, a replacement cycle, and robust productivity growth. Job growth is rebounding in earnest. While the economy will come back, it will not come roaring back. Fierce global competition and high labor-to-capital costs will weigh on job market. Interest rates will rise with the job market. Even modestly higher rates will be hard on vehicles and housing. High household leverage and ballooning federal budget and current account deficits are longer-term threats.