1. Vermont Jeffrey B. Carr Kerry G. Mayo Economic & Policy Resources, Inc. 400 Cornerstone Drive, Suite 310 P.O. Box 1660 Williston, VT 05495 (802) 878-0346 www.epreconomics.com

2. Vermont Situation y Against that U.S. economic background, the Vermont upturn continues this Spring…but rather meekly… –The housing market correction is now well underway with slowing price appreciation (now at a single-digit pace yr-over-yr.--OFHEO) and construction has slowed considerably (e.g. for 2 nd homes) –GSP growth has slowed to the +2.5% to +3.0% range, –Resort based real estate and amenity development continues but at a fraction of its prior pace, –Jobs in the state’s Factory sector have gotten a positive push from the weakening U.S dollar, and IBM seems to be doing well… –BUT the still relatively “high” level of energy prices and the poor first half Winter weather once again were “not helpful” to either the 1 st Q of 2007 or the state’s Winter tourism season.

3. Vermont Situation y The positive push from lower energy prices has now dissipated...and prices are rising once again…

4. Vermont Situation y The state’s labor market recovery-expansion continues, but the Spring 2006 re-benchmark was negative again…less than last year...but now 3 years in a row!

5. Vermont Situation y This underscores the restrained pace of the labor market expansion in the state…especially vs. last year

6. Vermont Situation y But the revisions did not alter the sector-by-sector view of the current labor market recovery-expansion...

7. Vermont Situation y The revisions also again appear to put job growth out-of-sync with other data...such as PI Withholding...

8. Vermont Outlook y The “consensus” forecast is that the state gets through the housing market correction and the increasing economic threats. –If so, the Vermont economic and labor market recovery-expansion will continue through calendar 2011… – But at a noticeably restrained pace—slower than U.S., but on par with NE. yThere will be plenty of opportunities for the economy to hit bumps—including falling into a full-fledged downturn—along the recovery-expansionary road. These include: –High and volatile energy prices (where small things have been magnified by how close to the edge we are), –The still unfolding housing market correction—and the threat of it widening, –The potential for rising interest rates (Will the Fed over-react to the threat of inflation?), and –Continued “sharp and ruthless” global competition—which a reflection of the realities today’s “new more competitive world ” for business.

9. Conference Theme--Subprime y So far to this point, Vermont has been able to cope with the combined impacts of the housing market correction, rising affordability problems, and a higher than average level of subprime lending. – There is some discussion about varying data sources (Mortgage Bankers Association vs. Moody’s Economy.com-Equifax), – Coverage differences—Moody’s E.com-Equifax seems more encompassing. y The key is Vermont has been able to avoid the potentially troubling combination of falling housing prices and rising foreclosures. – Housing prices are still rising, but at single digit rates. – Vermont’s foreclosure rate is among the lowest in the 50 states.

10. Conference Theme-Subprime

11. y But Vermont is expected to face a period where housing price change goes negative on a year-over- year basis…

12. Conference Theme-Subprime y Vermont’s—like other NE states’—largest source of forecast risk through 2011 is how the subprime issue- housing market correction will play out… – The critical time for VT will be the period when housing prices go “negative”… – May have a larger impact in VT because of the disproportionately large positive impact the housing market boom had on the VT economy (28.4% of total job growth 2003-06 v. 12.2% for NE and 16.5% for U.S. for the same 4 year period). y Given the dynamics of the housing market correction, it is difficult to envision a turnaround much before mid- calendar 2008. – Second homes impact in VT is a big “wild card.” – Anecdotal reports from resorts indicate replay of the mid-1990s dynamic is currently underway.