1. December 3, 20101 The State of The Economy In this presentation National forecasts are produced by Global Insight, Inc. State and Metropolitan forecasts are public information produced by the Division of Research and Policy, Wisconsin DOR. Information is supplied by the U.S. Bureau Of the Census, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Federal Housing Finance Authority, Federal Reserve Board of Governors, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of New York, the Wisconsin Department of Workforce Development, and various divisions of the Wisconsin DOR. Wisconsin Economics Association December 3, 2010

2. 2 Today’s Themes 1)In the Midst of a Rodney Dangerfield Recovery Gets no respect, but Actually Stronger than the past two recoveries. 2)Why the Recovery seems worse than it is 3)What is holding back the recovery 4)Outlook for US and Wisconsin in 2010 & 2011

3. December 3, 20103 The Pace of the Current Recovery Stronger Than the Past Two Recoveries Real GDP Industrial Production Employment Retail Sales

4. December 3, 20104 An Expansion Underway Since July 2009 National Bureau of Economic Research Press Release, Sept. 20, 2010 The Business Cycle Dating Committee of the determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion.

5. December 3, 20105 Real GDP Nearly Recovered

6. December 3, 20106 Real GDP Up Over 3% on The Year

7. December 3, 20107 Industrial Production Expanding Faster than Past Two Recessions Source: Federal Reserve Board of Governors

8. December 3, 20108 Retail Sales Growth Much Stronger Than the Last Recovery Source: U.S. Census Bureau

9. December 3, 20109 Private Job Growth Since End of the Recession Source: U.S. Bureau of Labor Statistics

10. December 3, 201010 Income Growth Since End of the Recession

11. December 3, 201011 Starting from a Very Low Point Production Fell to 1998 Levels Lost 15% Over 6 Quarters Source: Federal Reserve Board of Governors

12. December 3, 201012 Why the Recovery Seems Worse Starting from a Very Low Point Time Erodes Memory Painful Adjustment from Unsustainable to Normal Low Inflation Reveals Adjustments High Inflation Hid

13. December 3, 201013 Starting from a Very Low Point Real GDP Lost More Than 3 Years of Growth Source: U.S. Bureau of Economic Analysis

14. December 3, 201014 Starting From a Very Low Point Job Losses Matched Those of the Last Three Recessions Combined Source: U.S. Bureau of Labor Statisticsc

15. December 3, 201015 Starting from a Very Low Point Retail Sales Lost Four Years of Growth in Just Four Months Source: U.S. Bureau of the Census

16. December 3, 201016 Starting from a Very Low Point Housing Construction Down over 75% Source: U.S. Census Bureau

17. December 3, 201017 Starting from a Very Low Point Household Net Worth Fell Over $17 Trillion Source: Federal Reserve Board of Governors

18. December 3, 201018 Time Erodes Memory Unemployment Did Not Reach Record Levels Nationally

19. December 3, 201019 Time Erodes Memory Wisconsin’s Historic High For Unemployment was 25 Years Ago Source: U.S. Bureau of Labor Statistics

20. December 3, 201020 Time Erodes Memory Few States Set Record Unemployment This Recession

21. December 3, 201021 Painful Adjustment to Normal: Equities S&P 500 Price History

22. December 3, 201022 After Over-Correcting in Early 2009, Equities Have Settled In at Realistic Values

23. December 3, 201023 Painful Adjustment to Normal Housing Price Bubble Corrected

24. December 3, 201024 Painful Adjustment to Normal After the Decline, Household Net Worth Very Close To Its Long-Term Average Sources: Federal Reserve Board of Governors, U.S. Bureau of Economic Analysis

25. December 3, 201025 Low Inflation Reveals Painful Adjustments High Inflation Hid

26. December 3, 201026 Low Inflation Reveals Adjustments High Inflation Hid

27. December 3, 201027 Real Disposable Income Since End of the Recession

28. December 3, 201028 What is Holding Back the Recovery Modern Recoveries Take Longer Consumers are Deleveraging Banking Sector Still Absorbing Losses Layoffs Back to Normal, Hiring Is Not

29. December 3, 201029 Employment: Time to Full Recovery

30. December 3, 201030 Layoffs Now Back to Normal

31. December 3, 201031 Hiring Has Not Returned to Normal

32. December 3, 201032 Consumers Rapidly De-Leveraging Consumer Financial Obligations at Lowest Level in 12 years Source: Federal Reserve Board of Governors

33. December 3, 201033 Wealth Effects on Consumption Are Channeled Through Changes in Savings Rate Sources: Federal Reserve Board of Governors, U.S. Bureau of Economic Analysis

34. December 3, 201034 Consumers Still Paying Down Credit Cards Revolving Credit Has Been Dropping Rapidly Since Feb 2009 Source: Federal Reserve Board of Governors Last Month Plotted: August 2010

35. December 3, 201035 Bank Failures At A 20-Year High Source: Federal Deposit Insurance Corporation

36. December 3, 201036 Bank Charge-Offs At All Time High Source: Federal Reserve Board of Governors

37. December 3, 201037 Real Estate Charge-Offs Have Peaked Source: Federal Reserve Board of Governors

38. December 3, 201038 Banks Also Writing-Off Bad Debt On Credit Cards Source: Federal Reserve Board of Governors

39. December 3, 201039 Delinquency Rates Still Rising Source: Federal Reserve Board of Governors

40. December 3, 201040 Wisconsin Bank Charge-Offs Lower than US Source: FDIC-Division of Insurance and Research, Federal Reserve

41. December 3, 201041 Wisconsin Banks Reporting Net Losses Source: FDIC-Division of Insurance and Research, Federal Reserve

42. December 3, 201042 Wisconsin Banks Loan Volume Declining Source: FDIC-Division of Insurance and Research, Federal Reserve

43. December 3, 201043 Industry Matters Strength of Recovery Varies Widely

44. December 3, 201044 Industry Matters Strength of Recovery Varies Widely

45. December 3, 201045 Industry Matters Strength of Recovery Varies Widely

46. December 3, 201046 Industry Matters Strength of Recovery Varies Widely

47. December 3, 201047 Industry Matters Strength of Recovery Varies Widely

48. When the Recovery Will Be Complete Are We There Yet? Just A Little Further V-Shape Recoveries in Many Sectors None at All in Others Decline Continues in Another

49. December 3, 201049 Corporate Profits Have Already Recovered to Pre-Recession Levels

50. December 3, 201050 Corporate Cash Holdings At A Record High

51. December 3, 201051 Consumption Spending Now Ahead of Pre-Recession Levels

52. December 3, 201052 Investment: Split Decision

53. December 3, 201053 Investment Nearly Recovered In Equipment and Software

54. December 3, 201054 Investment: No Recovery in Business or Residential Structures

55. December 3, 201055 Government: Federal Purchases Rising

56. December 3, 201056 Government: State and Local Purchases Down

57. December 3, 201057 Exports Have Recovered to Pre- Recession Levels

58. December 3, 201058 Full GDP Recovery Will Not Be Complete By Next Quarter Sources: US Bureau of Economic Analysis, Global Insight Actual Forecast 2007Q4 Real GDP

59. December 3, 201059 Job Recovery Takes Even Longer Employment Will Not Return to Pre-Recession Levels Until 2013 Sources: US Bureau of Labor Statistics, Current Employment Statistics (CES); US Bureau of Economic Analysis, Global Insight Actual Forecast

60. December 3, 201060 Time to Recover to Pre-Recession Levels

61. Wisconsin Outlook in 2010 and 2011

62. December 3, 201062 Hit Hard Mid-Recession, Wisconsin Now Outpacing US Economy

63. December 3, 201063 Hit Hard Mid-Recession, Wisconsin Now Outpacing US Economy

64. December 3, 201064 Net Hiring Resumed 1 st Qtr 2010 Source: Wisconsin DOR, Wisconsin Economic Outlook http://www.revenue.wi.gov/ra/econ/index.html

65. December 3, 201065 Wisconsin Adding Employment

66. December 3, 201066 Wisconsin Unemployment Below US and Trending Down

67. December 3, 201067 Wisconsin Unemployment Significantly Below US

68. December 3, 201068 Wisconsin Outpacing Nation in Recovery Source: U.S. Bureau of Labor Statistics

69. December 3, 201069 Wisconsin Personal Income Growth Outpaced US for Past 7 Quarters

70. December 3, 201070 Real Personal Income in Recession and Recovery

71. December 3, 201071 Real Personal Income in Recession and Recovery

72. December 3, 201072 Wisconsin Exports Back on the Rise

73. December 3, 201073 GDP: Wisconsin Outperforms US in 2011 Source: Wisconsin DOR, Wisconsin Economic Outlook http://www.revenue.wi.gov/ra/econ/index.html

74. December 3, 201074 Wisconsin Employment Prospects Improve in 2010 and 2011 Source: Wisconsin DOR, Wisconsin Economic Outlook http://www.revenue.wi.gov/ra/econ/index.html

75. December 3, 201075 Wisconsin Leading Index Shows Expansion Continuing