1. 1 AFTER THE FALL: What Kind Of Recovery In California & In The Rest Of The U.S. From The “Great Recession” Of 2008-09? A Presentation To The California Municipal Treasurers Association Annual Conference Sacramento, California April 21, 2010 AFTER THE FALL: What Kind Of Recovery In California & In The Rest Of The U.S. From The “Great Recession” Of 2008-09? A Presentation To The California Municipal Treasurers Association Annual Conference Sacramento, California April 21, 2010

2. 22 -7.5% -5.5% -3.5% -1.5% 0.5% 2.5% Dec-04Sep-05Jun-06Mar-07Dec-07Sep-08Jun-09Mar-10 California Source: U.S. Dep't Of Labor CALIFORNIA LAGS THE U.S. ECONOMY, AGAIN, IN THIS ECONOMIC CYCLE Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data U.S. 3/10 Recession Period 2/10

3. 33 -8.0% -5.7% -3.4% -1.1% 1.2% 3.5% Dec-04Dec-05Dec-06Dec-07Dec-08Dec-09 Bay Area Central Valley Source: U.S. Dep't Of Labor WILL SOUTHERN CALIFORNIA BE FIRST "OUT?" Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data 2/10 Southern California Recession Period

4. 44 -9% -6% -3% 0% 3% 6% Dec-05Sep-06Jun-07Mar-08Dec-08Sep-09Jun-10 L.A.-Long Beach 2/10 Riverside-San Bernardino Source: U.S. Dep't Of Labor L.A.-LONG BEACH IS CLOSEST TO AN ECONOMIC RECOVERY IN SOUTHERN CALIFORNIA... Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data Orange County

5. 55 -9% -7% -5% -3% -1% 1% 3% Dec-04Dec-05Dec-06Dec-07Dec-08Dec-09 San Francisco 2/10 San Jose Source: U.S. Dep't Of Labor …WHILE ACTIVITY HAS CONVERGED IN THE BAY AREA'S THREE MAJOR ECONOMIES... Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data Oakland

6. 66 -7.0% -5.5% -4.0% -2.5% -1.0% 0.5% 2.0% Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09Jun-10 Sacramento Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data Source: U.S. Dep't Of Labor …AND IN THE CENTRAL VALLEY 2/10 Central Valley, Ex. Sacramento

7. 77

8. 88 -40% -30% -20% -10% 0% 10% 20% 30% 40% Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09 U.S. AND CALIFORNIA METRO HOME PRICES BACK "ABOVE WATER" Year-Ago Percent Change; Seasonally Adjusted Data 1/10 20 U.S.-Metro Average San Francisco Bay Area Source: Standard & Poors, Inc. L.A.-San Diego Average

9. 99 TOWARD SELF-SUSTAINING ECONOMIC GROWTH The Saving Rate Steadying At An Historically Low Level Household Debt Burdens At A Nine-Year Low “Purchasing Power” On The Verge Of Recovery An Early Rebound In Investment Spending Export Growth Still Near A Thirty-Five-Year High

10. 10 -4% -3% -2% -1% 1% 2% 3% 4% Dec-07Apr-08Aug-08Dec-08Apr-09Aug-09Dec-09 0 1 2 3 4 5 6 7 HOUSEHOLDS DIP INTO SAVINGS TO FINANCE A SPENDING RECOVERY Source: U.S. Commerce Dep't. 2/10 Personal Saving Rate (Right Scale) Inflation-Adjusted Spending, Ex. Autos (Left Scale) Yr-Ago % Chg; 3-Mo Moving Avgs.Percent of After-Tax Income

11. 11 15.0 15.5 16.0 16.5 17.0 17.5 18.0 18.5 19.0 Mar-81Mar-85Mar-89Mar-93Mar-97Mar-01Mar-05Mar-09 * Interest, principal & auto-lease payments, rent, home owner property taxes & insurance. Sources: Federal Reserve Board HOUSEHOLD DEBT-PAYMENT BURDENS AT A NINE-YEAR LOW Financial Obligations* Ratio, In Percent '09Q4 Note: Bars Denote Recession Periods

12. 12 -14% -10% -6% -2% 2% 6% 10% Dec-06Jun-07Dec-07Jun-08Dec-08Jun-09Dec-09 2/10 HOUSEHOLD "PURCHASING POWER" FINALLY HITS BOTTOM Percent Changes In Three-Month Moving Average Data Sources: U.S. Commerce Department Avg. Annual % Chg, 1975-2009=2.3% P.A. * Inflation as measured by the PCE deflator. Annualized % Change From 3 Months Ago Year-Ago % Change

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14. 14 POISED FOR ANOTHER “MINI-BURST” OF ECONOMIC GROWTH? * Pent-Up Consumer Demand * Deferred Equipment Spending --Liquid Assets High, Manufacturing Capacity Falling * Pent-Up Housing Demand From Depressed Household Formations, Labor Mobility * Extraordinarily “Lean” Payrolls * Ample “Liquidity,” “Thawing” Credit Markets * Historically High Operating Leverage

15. 15 90% 100% 110% 120% 130% 140% 150% Mar-64Mar-70Mar-76Mar-82Mar-88Mar-94Mar-00Mar-06 OPERATING LEVERAGE SOARS Non-Fin'l Corps. Revenue Per Dollar Of Labor & Capital Costs * Normalized revenue growth based on rolling, 5-year average annual gains. Source: U.S. Department Of Commerce '09Q4 Avg., 1960- 2008=118%

16. 16 Avg. Ann. % Chg, '04 - '07 Avg. '08 - '09 2010F2011F2012F "Real" Personal Income U.S.3.3-1.22.33.42.0 California3.1-1.71.33.74.5 Payroll Employment U.S.1.4-2.5-0.22.51.8 California1.3-3.7-0.72.33.0 Unemployment Rate (%) U.S.5.17.69.79.38.6 California5.59.311.810.49.7 Housing Starts/Permits U.S. (Starts, MM)1.80.70.60.70.8 California (Permits, Thousands)1755182140167 OTHER KEY CALIFORNIA DATA Taxable Retail Sales (% Chg.)5.1-7.01.25.26.9 Non-Residential Constr. (% Chg.)2.4-31.0-4.419.126.3 Population (% Chg.)1.21.11.0 Net Immigration (Thousands)117836685118 Source: The UCLA Anderson Forecast, March 2010; WCM Forecast. ECONOMIC OUTLOOK: THE U.S. AND CALIFORNIA ECONOMIES COMPARED Year-To-Year Percent Change, Unless Otherwise Specified

17. 17 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 0510152025303540 Years To Maturity 12/31/08 Source: Bloomberg Financial News, Inc. 10/1/09 THE SHAPE OF THINGS TO COME? The Treasury Yield Curve, Selected Periods; Yields In Percent Fed Funds Target Rate (12/16/08)=0-0.25%) 4/13/10

18. 18 -15% -12% -9% -6% -3% 0% 3% 6% 9% 12% Dec-07Apr-08Aug-08Dec-08Apr-09Aug-09Dec-09 -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% "CORE," OR UNDERLYING INFLATION TAKES A DIVE Year-Ago Percent Change Source: Bureau Of Labor Statistics CPI (Left Scale) 2/10 "Core" CPI (Excluding Food & Energy) (Right Scale)

19. 19 14 17 20 23 26 29 32 35 38 Dec-99Jun-01Dec-02Jun-04Dec-05Jun-07Dec-08Jun-10 WILL BROADENING "DEFLATION" HELP SHAPE MONETARY POLICY? Percent Of PCE Components Declining; Three-Month Moving Average Jan. '10=36% Average, 2/77- 12/08=21.6% Sources: U.S. Commerce Department; Federal Reserve Bank Of Dallas

20. 20 RISKS TO A DELAYED, GRADUAL RISE IN U.S. INTEREST RATES Market Appetite For Dollar-Denominated Assets Dries Up --A Loss Of Confidence In U.S. Economic Policies Unexpectedly Strong Economic Growth, And A Less Sanguine Inflation Outlook Heightened Financial-Market Uncertainties, Volatility Amid A “Sea Change” In Monetary Policy

21. 21 THEMES SHAPING LONGER-TERM ECONOMIC PERFORMANCE Asset-Price Volatility In A Low-Inflation, Low Interest-Rate Economy --”Financialization” Of Commodities Trade Protectionism In A Slower Growing Global Economy --Diminishing “Tail Winds” From “Globalization?” An Aging Population’s Impact On Potential Growth, Spending & Investment Toward A Higher-Taxed, “Managed” Capitalist, U.S. Economy?