1. © 2009 The Conference Board, Inc. 0 www.conference-board.orgwww.conference-board.org Ken Goldstein The Conference Board Trusted Insights for Business Worldwide LONG SLOW SLOG

2. © 2009 The Conference Board, Inc. 1 www.conference-board.orgwww.conference-board.org Overview: Recession Over Rear Recovery Next Spring Ditto Global economy (-1.4% now – a still slow 2.5% in 2010) Energy prices: Going back up again Housing market bottom near Post Recession  Dampened Expansion

3. © 2009 The Conference Board, Inc. 2 www.conference-board.orgwww.conference-board.org WHAT IS NOT CHANGING 1)DEMOGRAPHICS 2)PRODUCTIVITY 3)PRICE/COST 4)INTERNATIONALIZATION

4. © 2009 The Conference Board, Inc. 3 www.conference-board.orgwww.conference-board.org WHAT IS CHANGING 1)LOWER MPC 2)CAPITAL AVAILABILITY & COST 3)MORE REGULATION 4)HIGHER TAXES

5. © 2009 The Conference Board, Inc. 4 www.conference-board.orgwww.conference-board.org All Regions Are Slowly Turning Notes: Shaded areas represent U.S. recessions Source: The Conference Board

6. © 2009 The Conference Board, Inc. 5 www.conference-board.orgwww.conference-board.org Spending Power & Spending At Bottom Sources: BEA, BLS, TCB PCE - PERSONAL CONSUMER EXPENDITURE Notes: DPI - DISPOSABLE PERSONAL INCOME Rebate checks WOW

7. © 2009 The Conference Board, Inc. 6 www.conference-board.orgwww.conference-board.org SPENDING POWER WILL CONSISTENTLY RISE FASTER THAN SPENDING

8. © 2009 The Conference Board, Inc. 7 www.conference-board.orgwww.conference-board.org HIGHER GAS PRICES DRIVE DEMAND FOR FUEL EFFICIENCY

9. © 2009 The Conference Board, Inc. 8 www.conference-board.orgwww.conference-board.org SLOWER HOME CONSTRUCTION  SLOWER DEMAND FOR HOUSEHOLD GOODS

10. © 2009 The Conference Board, Inc. 9 www.conference-board.orgwww.conference-board.org Progress, Slow Progress

11. © 2009 The Conference Board, Inc. 10 www.conference-board.orgwww.conference-board.org LONG SLOW HOUSING RECOVERY

12. © 2009 The Conference Board, Inc. 11 www.conference-board.orgwww.conference-board.org MATERIAL COST NOT A PROBLEM POST-RECESSION

13. © 2009 The Conference Board, Inc. 12 www.conference-board.orgwww.conference-board.org Source: TCB, Freddie Mac “Conventional Mortgage Home Price Index” South Atlantic POST HURRICANE CONTRACTION

14. © 2009 The Conference Board, Inc. 13 www.conference-board.orgwww.conference-board.org Source: TCB, Freddie Mac “Conventional Mortgage Home Price Index” Mountain SOFTENED CONFIDENCE / JOB DECLINE

15. © 2009 The Conference Board, Inc. 14 www.conference-board.orgwww.conference-board.org Losers and winners in manufacturing and services often the same Detroit Los Angeles Atlanta Birmingham Minneapolis Boston Philadelphia Baltimore Chicago Nashville Phoenix Kansas City St. Louis San Diego Miami Denver Seattle San Francisco New York City Dallas Houston Sources: BLS, The Conference Board

16. © 2009 The Conference Board, Inc. 15 www.conference-board.orgwww.conference-board.org Service jobs decline less percentage-wise, but recovery may take longer Administrative services Recreation Professional services Construction Accommo- dations Other services Management services Financial services Mining Retail trade Wholesale trade Utilities Manufacturing Sources: BLS, The Conference Board

17. © 2009 The Conference Board, Inc. 16 www.conference-board.orgwww.conference-board.org Wealth destruction phase Cresting? Note: Shaded areas represent U.S. recessions. Sources: FRB, The Conference Board

18. © 2009 The Conference Board, Inc. 17 www.conference-board.orgwww.conference-board.org MISSED MARKET SIGNAL: FIREWORKS NOT YET EXHAUSTED Aug ‘09 Forecast S&P 500, PE ratio PE implied by 10-year Treasury Bonds PE ratio

19. © 2009 The Conference Board, Inc. 18 www.conference-board.orgwww.conference-board.org Financing Gap: Danger Signal

20. www.conference-board.org The US Consumer Lynn Franco Director, Consumer Research Center September 2009

21. © 2009 The Conference Board, Inc. 20 www.conference-board.orgwww.conference-board.org Rapid consumer recovery remains an unlikely scenario as demand constraints persist  Supply constraints are improving as inventories, production, trade and employment numbers are coming in better  … but demand side remains constrained as discrepancy between willingness and ability to spend persists  Most channels for rapid recovery of consumer demand are clogged as rise in compensation and income and access to credit remain weak  Holiday season likely to be a challenging one for retailers

22. © 2009 The Conference Board, Inc. 21 www.conference-board.orgwww.conference-board.org Present Situation and Expectations Indexes suggest the worst is behind us

23. © 2009 The Conference Board, Inc. 22 www.conference-board.orgwww.conference-board.org Income expectations remain quite negative

24. © 2009 The Conference Board, Inc. 23 www.conference-board.orgwww.conference-board.org Household net worth has declined dramatically

25. © 2009 The Conference Board, Inc. 24 www.conference-board.orgwww.conference-board.org Consumers saving more, but for how long?

26. © 2009 The Conference Board, Inc. 25 www.conference-board.orgwww.conference-board.org The era of rapid home equity extraction has ended

27. © 2009 The Conference Board, Inc. 26 www.conference-board.orgwww.conference-board.org Credit conditions have eased, but remain tight Credit Cards Other Consumer Loans

28. © 2009 The Conference Board, Inc. 27 www.conference-board.orgwww.conference-board.org The Conference Board Employment Trends Index™ signals end of massive job cuts

29. © 2009 The Conference Board, Inc. 28 www.conference-board.orgwww.conference-board.org Compensation is expected to grow very slowly

30. © 2009 The Conference Board, Inc. 29 www.conference-board.orgwww.conference-board.org Recovery in consumer spending is slow compared to previous recoveries

31. © 2009 The Conference Board, Inc. 30 www.conference-board.orgwww.conference-board.org No clear leaders in pickup on consumer spending  Volatility of spending will remain with consumers' low ability to spend  Bargain-hunting mode will prevail for remainder of 2009, and especially for holiday season  As economy improves, spending on “affordable” discretionary items will likely lead the way  But large ticket items will remain slow as long as personal balance sheets remain weak – exception “cash for clunkers”  Rise in gas and commodity prices can hold consumers back further