U.S. Forecast October 2006

U.S. Forecast October 2006

institute for economic Competitiveness College of Business administration University of Central Florida

MeSSaGe FROM Dean thOMaS L. KeOn

aBOUt UniVeRSitY OF CentRaL FLORiDa (UCF) T h e Un i ve r s i t y o f C e n t r a l Fl o r i d a i s a public, multi-campus, metropolitan r e s e a r c h u n i v e r s i t y, d e d i c a t e d t o serving its surrounding communities with their diverse and expanding populations, technological corridors, and international partners. The mission of the university is to offer high-quality undergraduate and graduate education, student development, and continuing education; to conduct research and creative activities; and to provide services that enhance the intellectual, cultural, environmental, and economic development of the metropolitan region, address national and international issues in key areas, establish UCF as a major presence, and contribute to the global c o m m u n i t y.

aBOUt the COLLeGe OF BUSineSS aDMiniStRatiOn

Welcome to the inaugural U.S. Economic Forecast Report.

The report is produced by the Institute for Economic Competitiveness, which is located in the UCF College of Business Administration.

This publication is intended to educate the public and increase economic awareness.

Information from the forecast is included in exclusive panels including the USA Today Sur vey of Top Economists, Livingston Sur vey, Sur vey of Professional Forecasters, Reuters, and Bloomberg monthly sur veys. This places UCF in an elite group of just five business schools in the nation that are included in these sur veys. our business school is young. our first graduating class was in 1970. However, we have already achieved a strong reputation for attracting high-quality students and faculty members. As our enrollment has grown, so has the college’s commitment to ensuring the deliver y of outstanding academic programs and research institutes. Among those research centers is the Institute for Economic Competitiveness.

Established in 1998, the Institute helps the College meet five of the university’s Strategic Initiatives: 1) foster excellence in research and creative activities 2) contribute to regional economic development 3) enhance collaboration 4) increase visibility and 5) enhance university resources.

The College of Business Administration a d v a n c e s t h e u n i v e r s i t y ’s m i s s i o n

A new economic forecast will be produced and

and goals in providing intellectual

distributed by the Institute ever y quarter. Each edition will provide updated economic information that is vital to the academic, government, and business communities. It is through the hard work and dedicated research of the faculty and staff of the Institute that I proudly present to you our first issue.

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n o e K .

L s a m o h T Sincerely,

Thomas L. Keon Dean

Institute for Economic Competitiveness College of Business Administration University of Central Florida

F o r eca s t f o r t h e N at i o n Forecast 2006 - 2009 October 2006 Report

Published quarterly by the Institute for Economic Competitiveness, College of Business Administration, University of Central Florida Copyright Š 2006 Institute for Economic Competitiveness. All rights reserved.

This forecast was prepared based upon assumptions reflecting the Institute for Economic Competitiveness’ judgments as of the date it bears. Actual results could vary materially from the forecast. Neither the Institute for Economic Competitiveness nor the University of Central Florida shall be held responsible as a consequence of any such variance. Unless approved by the Institute for Economic Competitiveness, the publication or distribution of this forecast and the preparation, publication or distribution of any excerpts from this forecast are prohibited.

h i g h l i g h t s o f t h e 3 Q F OR E C A ST

In this quarter’s U.S. Forecast from the University of Central Florida’s Institute for Economic Competitiveness: • Would Smokey the Bear approve of how Ben Bernanke and the Federal Reserve Bank are handling inflationary pressures in the economy?

• The original recipe for the housing soufflé and revisiting why a bubble was, and still is, a misplaced metaphor to describe the housing market.

• Energy prices are taking the economy on another ride — will fossil fuels in retailer’s stockings be a bad thing this holiday shopping season?

• The U.S. economy to slow through the 2nd quarter of 2007 before accelerating back to 3% growth in 2008.

• A credible Fed and tumbling oil prices join forces, ensuring that inflation remains under control.

•

The housing soufflé continues to cool: Housing starts decline through 2008 as mortgage rates slowly creep to 7.25% in 2009.

Excess supply of new and existing homes in many markets will put downward pressure on prices.

• Unemployment rates remain below 5% through 2008. Payroll job growth slows to 1% in 2007 before recovering to 1.5% in 2009.

• The dollar will continue to depreciate against major trading partners through 2008. The trade deficit will experience a modest improvement over the same period.

H I GHL I GHTS

• The yield curve is not only inverted it’s introverted – too shy to reveal the reasons why this indicator is downward sloping.

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N o W o r r ie s , M o n

levels of the anxious index suggest that there is little reason to be alarmed about the possibility of an imminent decline in GDP. As the forecast horizon is lengthened, however, economists’ estimates of the probability of a recession increase significantly. These rising probabilities suggest that everything may not be “irie” looking beyond the fourth quarter of 2006.

Does the cooling of the once red-hot housing market, coupled with an economy that is losing momentum, have economic forecasters concerned that a recession is just around the corner? The most recent release (third quarter 2006) of the Survey of Professional Forecasters by the Federal Reserve Bank of Philadelphia suggests that the 46 forecasters surveyed for this publication, including the author, are not overly concerned that a decline in real GDP will occur in the fourth quarter of the year.

The survey asks panelists to estimate the probability that real GDP will decline in the quarter in which the survey is taken and the probability of a decline in each of the following four quarters. The anxious index, a term coined by The New York Times reporter David Leonhardt, is the probability of a decline in real GDP in the quarter after a survey is taken. In the survey taken in the third quarter of 2006, the index stands at 9.66%, which means that forecasters believe there is a 9.66% chance that real GDP will decline in the fourth quarter of 2006.

Prior to each of the previous six recessions, the anxious index showed steep increases and surpassed the 20% level. The graph below illustrates the historical values of the anxious index, with the gray bars indicating periods of recession. The current

I n v e r t e d Y ie l d C u r v e o r I n t r o v e r t e d Y ie l d C u r v e ?

Some economists have argued for many years that the slope of the yield curve, measured as the spread between long-term and short-term interest rates, is a useful tool for predicting future economic activity.

The usual shape of the yield curve is upward sloping, with long-term rates typically higher than short-term rates. When short-term rates rise above long-term rates, the yield curve slopes downward or becomes inverted. The yield curve usually has an upward slope because of the existence of a term premium, or the additional yield required to entice investors to hold riskier long-term bonds.

Why would economists expect that the shape of the yield curve would provide information about future economic activity? The primary reason is that the yield curve includes the market’s expectations

The Anxious Index Probability of Decline in Real GDP in the Following Quarter Quarterly, 1968:Q4 to 2006:Q3 100 90

Probability (percent)

80 70 60 50 40 30 20

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about the future path of short-term interest rates.

So, an upward-sloping yield curve usually means that markets expect short-term rates to rise in the future.

Since the actions of the Federal Reserve Bank drive short-term rates, an upward sloping curve might indicate that the Fed is expected to raise short-term interest rates in the future. This type of action would occur to slow down a growing economy; therefore, an upward- sloping yield curve may indicate future economic growth. On the other hand, a downward sloping yield curve would mean that short-term interest rates are expected to fall, indicating that the Fed is expected to cut interest rates. The Fed would take such an action to stimulate the economy – a cut in short-term rates would be undertaken to pull the economy out of a downturn. In this case, the downward slope of the yield curve might be an indicator of a future recession.

While it is true that each of the previous six recessions was preceded by an inversion of the yield curve (see figure 2 below, where the shaded bars in the graph indicate recessions), does the current episode of an inverted yield curve imply that the seventh recession, predicted by the yield curve, is just around the corner? Is the yield curve once again shouting out an economic warning that the economy is headed for a downturn? Or could this mean that the yield curve has become bashful, withholding the reason(s) for its inversion?

Currently, I think we have a case of a bashful yield curve that has inverted for a variety of reasons

that not only include an expected slowing of the economy but also reflect a sharp increase in foreign holdings of U.S. Treasury bonds – the majority of which are foreign official holdings – and a credible Federal Reserve that is fostering lower inflationary expectations.

The latest data from the U.S. Department of Treasury1 indicate that the percentage of outstanding marketable U.S. Treasury bonds held by foreigners has increased from 13.5% in 1984 to 35.2% in 2000 to 51.7% in 2005. The total value of foreign-owned Treasury debt is nearly $1.6 trillion. Foreign official institutions hold 66% of the $1.6 trillion, a figure that the U.S. Treasury believes is underestimated due to chains of intermediaries that may be involved in purchases on behalf of foreign official institutions.

The value of U.S. Treasury debt held by foreign official institutions has soared from $72 billion in 1984 to $1.05 trillion in 2005.

Why is the distinction between private and official holdings of U.S. Treasury debt relevantto the discussion of our introverted yield curve? The motivation for holding Treasury debt is markedly different between foreign private and foreign official agents. The former can be assumed to follow standard portfolio allocation theory, which is the underpinning of the link between long-term interest rates and expected future short-term interest rates, while the latter make purchases to carry out international monetary policy objectives (in other words, exchange rate management).

Japan and China, most notably, have officially purchased huge amounts of U.S. Treasury bonds FIGURE 2 over the past several years. The intention of these purchases was/is to slow the Yield Curve Spread and the Last Six U.S. dollar’s depreciation against their currencies, thereby protecting their Recessions 20 substantial export markets in the U.S. 10 Year Treasury Yield A depreciation of the dollar against the Fed Funds Rate yen and yuan would make Japanese 15 and Chinese goods more expensive to American consumers, which would 10 eventually reduce imports from these countries. These purchases have kept the 5 Report on Foreign Portfolio Holdings of U.S. Securities as of June 30, 2005 (http:// www.ustreas.gov/tic/shl2005r.pdf ) 1

0

68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Institute for Economic Competitiveness

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prices (yields) of U.S. Treasury bonds higher (lower) than they otherwise would have been. Our bashful yield curve has withheld this fact, letting us only witness the implication of these actions, the inverted yield curve.

Expectations about inflation have remained well contained. Long-term interest rates are very sensitive to expected inflation and move one-forone with any changes. The Federal Reserve has been vigilant in its anti-inflationary stance, helped by strong productivity growth in recent years. This has bolstered confidence in the Fed, so much so that even while the economy experienced current inflation of 4% and higher, expectations about future inflation rates remained in the 2% range, and long-term interest rates did not rise.

Former Federal Reserve chairman Alan Greenspan described the reluctance of long-term interest rates to respond to the Fed’s tightening of short-term interest rates as a “conundrum.” Both the Fed’s success in containing inflation and the financial markets’ confidence that the Fed would continue to limit inflation partially explain this puzzle. This confidence was further strengthened by the appointment of Ben Bernanke as Greenspan’s successor. He asserts that the biggest contribution that the Central Bank can make to promote long-run economic growth is to maintain low and stable inflation rates. Once again, the yield curve remains tight-lipped on this point; however, low long-run interest rates are the testimony of inflationary expectations that remain tethered.

It would appear that the yield curve is not only inverted but also introverted. The other causal factors that may be driving the inversion of the yield curve, as discussed above, undermine the effectiveness of the yield curve as an indicator of future economic activity. Since the yield curve is not forthcoming about the reasons why it has inverted, we shouldn’t take this inversion at face value and conclude that a recession is on its way. While we may agree that a girl must have her secrets, an economic indicator that keeps secrets is not much of an indicator at all.

The current inversion of the yield curve should not be taken as a precursor of an economic downturn. In fact, other countries, such as Australia and the U.K, have recently experienced both inverted yield curves and strong economic growth.

U.S. Forecast

W i l l t h e F e d Ta k e t h e C am p fi r e A p p r o ac h t o I nf l a t i o n ?

At summer camp, counselors teach campers the proper way to extinguish a campfire and prevent the fire from spreading to the surrounding forest.

The method taught to countless campers begins by dousing the fire with copious amounts of water until the flames have been snuffed out. After drenching the fire, campers stir the coals of the campfire with a stick, revealing any embers that may have escaped the initial deluge. After these stubborn coals have been exposed, campers repeat the dousing process to ensure that the campfire does not have any cinders that could reignite a fire in the surrounding area.

Finally, if the fire is truly extinguished, the ashes of the campfire should be cool to the touch.

Would Smokey the Bear approve of the Federal Reserve Bank’s efforts to extinguish the inflationary fire in our economy? After more than two straight years of pouring water on the economy, the Fed has taken a pause in its interest rate hikes. As Ben Bernanke and the rest of the Fed stir the economic data, will they see any additional embers of inflation in the economy that would require more water, in the form of further interest rate hikes, to be poured on the economy?

Several months ago, I would have argued that the Fed would take short-term interest rates to 5.75% in an effort to stop the advance of inflation. For two consecutive FOMC meetings, the Fed has decided to keep the federal funds rate target at 5.25%. Will this be the stopping point for the years-long sequence of interest rate hikes? Are the inflationary ashes cool to the touch?

One of the brightest of those embers appears, for now, to have cooled down. Energy prices have fallen significantly from the record highs reached earlier this year. Oil has fallen from its peak of $78 per barrel to around $60 per barrel. Gasoline has fallen nearly $0.75 per gallon from its peak (more on these later). Persistently higher energy prices were the key contributor to the elevated consumer price inflation of recent quarters. There was also evidence that this inflationary pressure was being passed to other sectors of the economy.

The core CPI rate of inflation had also crept up to uncomfortably high levels, suggesting that

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energy prices have bled into prices of other goods and services. Kellogg’s announced that it was raising prices by 3% beginning in September due, in part, to higher energy prices. Will lower gasoline prices mean that I will be paying less for my Frosted MiniWheats? Probably not, but it may mean that other companies will not be forced down a similar path as Kellogg’s, indicating that the bleed-through of energy prices to other prices in the economy may end.

Personally, I wouldn’t mind seeing a little more water poured on the embers – let’s make sure this fire is out before we move on to the next campsite.

It is much easier to deal with the problem inside a campfire ring than it is to try to put out a forest fire once that fire jumps to the surrounding forest. I do think that 5.75% is unlikely to be the target for the Fed, but 5.5% is still a possibility.

E c o n o my t o S l o w T h r o u g h F i r s t Ha l f of 2007 The economy has begun its final descent into to a Fed-piloted soft landing. Make sure your seatbelts are fastened; there could be some turbulence between now and touchdown. One of the biggest clouds on the horizon is the housing market. The housing soufflé has cooled significantly from its peak in 2005.

The cataclysmic end to the housing run-up that was predicted by economic Chicken Littles from California to New York has not played itself out, but the cooling of these once red-hot markets will still have an impact on the economy.

The wealth effect of the value of housing is more far-reaching than the wealth effect of the stock market. Homeowners have easy access to this pool of wealth via the proliferation of home equity lines of credit. With the swelling of home values over the past several years, homeowners have taken on greater levels of home equity backed debt, loans that have been used for debt consolidation, home renovations, and major purchases. The gains in housing wealth have come to a full stop and, in some cases, will turn into mild losses. What effects might these losses have on the behavior of households? In the aggregate, we can expect consumer spending growth to slow as a result. Although the extent of this slowdown is not entirely clear, it will be a drag on economic growth.

The cooling of housing markets may also have a

negative impact on consumer sentiment, providing another channel through which the housing market may impact consumer spending.

During the first half of 2007, we will see real GDP growth in the low 2% range, with growth accelerating over the second half of the year. The economy will pull itself out of this temporary lull in 2008 when real GDP growth returns to a growth rate in excess of 3%.

E ne r g y P r ice s : I s t h e R o l l e r c o a s t e r Ri d e O v e r Y e t ? C o a l in Re t ai l e r s ’ S t o c k in g s t h i s Y ea r ?

The volatility of energy prices over the past year has played an important role in the economy.

Following hurricanes Katrina and Rita, record levels for oil prices, gasoline, and natural gas prices had consumers in a triple pinch. Faced with higher prices at the pump, the light switch, and the thermostat, consumers cut spending significantly, and consumption growth came to a near standstill. After the hurricanes passed, inflicting less damage than had been anticipated, energy prices retreated, and consumer spending, buoyed by this reversal, surged during the first quarter of 2006 in response to the fall in energy prices.

But what energy prices give, energy prices can take away, and in the second quarter of 2006, energy prices surged once again in response to the Israeli invasion of Lebanon and Iranian pursuit of nuclear capabilities. Consumption spending growth fell by nearly 50% in the second quarter of 2006, as energy once again became the ballast holding down economic growth.

In 2005, retailers were forced to aggressively cut prices early in the holiday shopping season to prompt spending from consumers, who were shell shocked by $3 per gallon gasoline, natural gas prices in the stratosphere, and record oil prices. Entering this holiday season, energy prices have fallen substantially, particularly oil and gasoline, which have tumbled $18 per barrel and $0.75 per gallon, respectively.

This drop in energy prices is good news for retailers. With the housing market cooling and consumer sentiment lacking, the last thing merchants want to see is a repeat of 2005 when it comes to Institute for Economic Competitiveness

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energy prices. This shopping season will be better than last year, with real consumption spending expected to grow at 2% – a far cry from the paltry 0.8% growth rate in the fourth quarter of 2005.

Despite this bit of good news, retailers will still have to be aggressive with prices this season.

Consumer sentiment has soured, and the home equity fountain has been turned off. Consumers will still be on the hunt for bargains and, with the exception of the latest Tickle-Me-Elmo (an item that people are already assaulting each other over in Tampa Bay, Florida), price will be the key factor as retailers compete for consumer dollars. As a result, price competition will be the greatest in consumer electronics. This holiday season may be a good time to buy that plasma television you have had your eye on.

Consumer sentiment, while temporarily boosted by falling gasoline prices, will remain below 90 for most of 2007. Low unemployment rates will keep sentiment up in the wake of the cooling housing market and the ongoing war on and threat of terrorism.

I n v e s t men t 2004 and 2005 were remarkably strong years of profit growth, and 2006 will also end with profits growing at double digits as well before falling into the low single-digit range during the 2007-2009 time frame. This profit growth will fuel double-digit nonresidential fixed investment spending in 2006 of 10.1%, which will trail off to 5.5% in 2009.

Computers and peripherals will be one of the strongest areas of growth through 2009. Petroleum and mining structures will continue to see doubledigit expansion through 2007, declining thereafter as energy prices continue to recede. Aircraft purchases remain volatile, but Boeing is winning the battle for lower cost-per-passenger mile aircraft (the fuelefficient 787 Dreamliner has put Airbus into a tailspin) and, as a result, investment in aircraft will average double-digit growth through 2008.

Residential fixed investment growth, on the other hand, will turn negative in 2006 and continue to contract through 2008. 2007 will witness a doubledigit decline as developers cut back on projects in the wake of rising inventories and sluggish demand.

U.S. Forecast

G o v e r nmen t S p en d in g Pressure to reign in spending will increase as the 2008 presidential election draws nearer. Republicans, facing a variety of challenges that run the gamut from sex scandals to growing sectarian violence in Iraq and a surprising resurgence of the Taliban in Afghanistan, will need to shore up their political base by demonstrating some fiscal discipline. During the last fiscal year, earmark spending (aka pork-barrel spending) was stripped out of budget appropriation bills. This move is largely symbolic but indicates that the Republican Party is returning its attention to greater fiscal responsibility.

This gesture does nothing to address the entitlements elephant standing in the room – Medicare and Social Security. These entitlement programs threaten to overwhelm the Federal budget as the Baby Boom generation makes its march toward retirement. The myopia that afflicts most politicians, an inability to see beyond the next election, continues to keep the entitlements issue, which may be the greatest single threat to the economic future of the United States, off of the legislative table.

We expect government spending growth to slow to less than 1% from 2007-2009. The gradual reduction of military forces in Iraq will help slow spending growth. However, the slowing economy will lead to lower tax revenues, and these two factors will result in a deficit that will worsen slightly in the 2007 and 2008 fiscal years before improving during the 2009 fiscal year.

State and local government spending will expand at an average rate of 2% from 2006 to 2009 as states are still playing catch-up after three years of sub 1% growth in spending and a backlog of projects extended by the housing boom experienced by many states the past several years.

Net Exports Large current account deficits, swelled in recent quarters by rising oil prices, will continue to put pressure on the U.S. dollar to depreciate against its major trading partners. The pace of this depreciation moderated in 2005 and so far in 2006; however, the depreciation of the dollar will gain momentum in 2007 and continue through 2008. Net exports will finally begin to respond to the multiyear slide in

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the value of the dollar in 2007, and the trade deficit will continue to improve through 2009. Net exports respond with a lag to a depreciation of the domestic currency. The current account, however, will worsen through 2007 due, in part, to debt service on U.S. debt held by foreigners.

While the trade deficit, particularly the U.S. trade deficit with China, is a major concern among politicians, there is a flip side to the trade and current account deficits that the U.S. has been running.

That flip side is the surplus in the capital account, which reflects U.S. borrowing from foreigners. The willingness of foreigners to purchase U.S. Treasury bonds in record amounts (as discussed in the section on the yield curve above) has kept interest rates in the United States much lower than they otherwise would have been. Interest rates on 10-year Treasury bonds during the Reagan administration, another period of record federal deficits, were in the 13-14% range. During this time, there was much discussion of “crowding out” of private investment due to the deficit spending by the government. Recently, the yield on the 10-year Treasury has been around 4-5%.

This has greatly reduced the impact of the federal deficit on the U.S. economy and has allowed both residential and nonresidential investment spending to grow.

I nf l a t i o n Strong economic growth, energy prices, and the Federal Reserve Bank have been engaged in a battle over the rate of price inflation in the U.S. economy.

Elevated energy prices are responsible for pushing CPI inflation temporarily above 5% (in the third quarter of 2005) and are, in part, responsible for core CPI inflation (excluding food and energy) that exceeds 3%. Plummeting energy prices should push fourth quarter CPI inflation below 2.5%.

As we discussed above, the Federal Reserve may or may not be done with this cycle of interest rate hikes, but we believe the ultimate outcome of these policy actions will be a return of CPI inflation (both overall and core) to much lower levels than we are currently experiencing.

The key to the successful repression of inflation is, and will be, the credibility of the Fed as an inflation fighter. This credibility has resulted in inflationary expectations remaining contained despite both

the energy shocks and low unemployment rates experienced in the economy in the past year. Strong productivity growth as well has prevented a wageinflation spiral from taking root. Productivity growth allows firms to pay higher employment costs without passing those costs on to consumers by charging higher prices for their products Looking forward and assuming that all of those embers have been extinguished by the Fed, we expect CPI inflation to steadily decline over the forecast horizon. Consumer price inflation should fall from 3.2% in 2006 to under 2% in 2007 and 2008. Core inflation will decline as well, but not as far as the overall CPI. We anticipate core CPI inflation to decline from 2.9% in 2006 to 2.1% in 2009.

U nem p l o ymen t Unemployment rates fell below 5% at the end of 2005 and have continued to fall in 2006 to the current monthly level of 4.6%. Overall, 2006 unemployment will average 4.7%, and we are forecasting unemployment to stay at levels in the 5% range or slightly lower. It appears that these levels of unemployment are consistent with stable prices, and the natural rate of unemployment once thought to be in the 5.5% to 6.5% range may now be in the 4.5% to 5.5% range. Technological advances may be part of the story. Labor markets, once highly segmented by geography, now transcend boundaries once determined by the circulation of newspaper want ads. Employers and job seekers are being matched electronically, dramatically reducing search time and cost, thereby reducing the equilibrium level of frictional unemployment in the economy.

A P r ime r o n t h e H o u s in g S o uff l é In 2005, I offered an alternative metaphor to describe what was happening in the housing market.

Countless articles and authors have described it as a housing bubble. Alan Greenspan, former chairman of the Federal Reserve, had quipped that housing markets were frothy like the top of a cappuccino or a pint of beer, essentially a matrix of little bubbles in a larger structure. I proffered a third metaphor: the housing soufflé.

Why soufflé? Partly because my TV is too often Institute for Economic Competitiveness

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tuned to the Food Network, but primarily because I felt it was a more accurate description of what was/is taking place in housing markets.

A bubble, short for speculative bubble, is the appreciation in the price of an asset driven solely by the expectation of further price appreciation. As long as people continue to expect the asset’s price to increase, it will. Eventually, people stop believing this, and the bubble bursts, causing the asset’s price to fall, usually in a dramatic fashion (see Dutch tulip bulbs and dot com stocks for two examples).

A soufflé, on the other hand, rises because all the right ingredients have been combined in just the right way and in just the right environment. If all goes well, the soufflé will rise. If the ingredients are not right or are not combined in the right manner, or if the environment is not quite right, what happens?

The soufflé will go flat. Once removed from the oven, the soufflé will lose some of its loft as the hot air inside cools.

A bubble always bursts and, by definition, it must.

A soufflé, on the other hand, is a delicate pastry that for a variety of reasons could go flat but does not have to do so.

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U.s. Forecast

At the time, I would have liked to write a book delving into this theory – or at least a journal article.

Time was short and, thus, I opted for a recipe card, reproduced below for your consumption (sorry).

What is the status of the housing soufflé today?

Currently, the most pessimistic forecasts call for 1020% price declines in some areas of the country over the next few years. Even if that comes to pass, this trend is much more consistent with a soufflé cooling than with a bubble bursting, particularly when you consider the gains that the housing market has enjoyed the past few years. If the NASDAQ had only fallen 10% or 20% from its peak, would we still be referring to at as the dot com bubble?

The feeding frenzy is over, and it is clearly now a buyer’s market. The large jump in inventories of both new and existing homes for sale will take some time to clear, and prices will be pressured downward until this excess supply is absorbed.

Automobile and Light Tru October 2006 11.0

(Millions Vehicles)

10.0 9.0 8.0 7.0 6.0

96 97 98 99 00 01 02 03 04 05 Auto Sales Light Truck Sales

C H A RTS

F OR E C A ST F OR TH E N A T I O N

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30-Year Mortgage Rates and Housing Starts 8.5

(Mortgage rates - Left axis, %)

8.0

2.00

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1.80

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1.40

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97 98 99 00 01 02 03 04 05 06 07 08 09 30-Year Fixed Mortgage Rate Housing Starts - Millions

Automobile and Light Truck Sales 11.0

(Millions Vehicles)

10.0 9.0 8.0 7.0 6.0

97 98 99 00 01 02 03 04 05 06 07 08 09 Auto Sales Light Truck Sales

Consumer Prices 4.0

(% Change Year Ago)

3.0 2.0 1.0 0.0

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2.20

97 98 99 00 01 02 03 04 05 06 07 08 09 Consumer Price Index Core Consumer Price Index

1.20

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Federal Budget Surplus (Billions of Dollars)

300.0 200.0 100.0 0.0 -100.0 -200.0 -300.0 -400.0 -500.0

97 98 99 00 01 02 03 04 05 06 07 08 09 Federal Budget Surplus

Real GDP Growth and Federal Funds Rate 8.0

(%)

6.0 4.0 2.0 0.0 -2.0

97 98 99 00 01 02 03 04 05 06 07 08 09 Quarterly Growth Rate Real GDP Fed Funds Rate

Money Supply

20.0

(Annual Growth Rate %)

15.0 10.0 5.0 0.0 -5.0 -10.0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 Annual Growth Rate of M2 Annual Growth Rate of M1 Institute for Economic Competitiveness

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Industrial Production 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0 85.0

(2002=100)

97 98 99 00 01 02 03 04 05 06 07 08 09 Industrial Production

Manufacturing Employment 18.0

(Millions)

17.0 16.0 15.0 14.0 13.0

97 98 99 00 01 02 03 04 05 06 07 08 09 Manufacturing Employment

Total Nonfarm Payroll Employment 145.0

(Millions)

140.0 135.0 130.0 125.0 120.0

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97 98 99 00 01 02 03 04 05 06 07 08 09 Total Nonfarm Employment

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Real Disposable Income and Consumption 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0

(% Change Year Ago)

96 97 98 99 00 01 02 03 04 05 06 07 08 09 Real Disposable Income Consumption

Civilian Unemployment Rate 6.5

(%)

6.0 5.5 5.0 4.5 4.0 3.5

97 98 99 00 01 02 03 04 05 06 07 08 09 Unemployment Rate

Yield Curve 7.0

(%)

6.0 5.0 4.0 3.0 2.0 1.0

97 98 99 00 01 02 03 04 05 06 07 08 09 1-Year T-Bill Yield 5 Year Treasury Bond Yield 25 year Treasury Bond Yield Institute for Economic Competitiveness

15

u . s . f o r eca s t C H A RTS

0 -100 -200 -300 -400 -500 -600 -700 -800

Trade Balance and Real Exchange Rate

1.10 1.00 0.90 0.80 0.70 97

98

99 00 01 02 03 04 05 06 07 08 09 Trade Balance (Billions $) Left axis U.S. Dollar Real Exchange Rate (2000 = 1.0) Right axis

Twin Deficits 400.0

(Billions of Dollars)

200.0 0.0 -200.0 -400.0 -600.0 -800.0 -1000.0

97 98 99 00 01 02 03 04 05 06 07 08 09 U.S. Federal Budget Surplus Current Account

Change in Real Business Inventories 150.0

(Billions of 2000 Dollars)

100.0 50.0 0.0 -50.0 -100.0

16

U.S. Forecast

1.20

97 98 99 00 01 02 03 04 05 06 07 08 09 Change in Real Business Inventories

0.60

Table 15. Government Receipts and Expenditures

1998

1999

Receipts Personal Tax and Nontax Receipts Corp. Profits Tax Accruals Indirect Business Tax and Nontax Accruals Contributions for Social Insurance

1653.1 744.3 203.0 78.2 576.4

1773.8 825.8 204.3 81.1 613.8

1891.2 893.0 213.0 83.9 651.7

2053.9 999.1 219.5 87.8 691.7

2016.2 994.5 164.7 85.8 717.5

1853.2 830.5 150.5 87.3 734.3

1879.9 774.5 197.8 89.7 758.9

Expenditures Purchases Goods & Services National Defense Other Transfer Payments To Persons To Foreigners Grants in Aid to State & Local Gov't Net Interest Subsidies less Surplus of Gov't Entities Surplus (+) or Deficit (-)

1708.9 530.9 349.6 181.3 918.9 704.2 13.9 198.6 278.5 32.1 -55.8

1735.0 530.5 345.7 184.7 946.5 716.9 14.6 212.8 281.2 34.9 38.8

1787.6 555.8 360.6 195.2 986.1 735.7 15.2 232.9 264.7 44.1 103.6

1864.4 578.8 370.3 208.5 1038.1 770.0 18.3 247.3 263.2 46.1 189.5

1969.5 612.9 392.6 220.3 1131.4 838.7 14.0 276.1 240.2 53.1 46.7

2101.1 679.7 437.1 242.5 1243.0 916.9 18.8 304.6 213.7 39.1 -248.0

2252.1 756.4 497.2 259.2 1328.7 963.7 23.6 338.5 196.5 45.4 -372.2

750.0 182.0 34.1 533.8 10.8 198.6

794.9 201.2 34.9 558.8 10.4 212.8

840.4 214.5 35.8 590.2 9.8 232.9

893.2 236.6 35.6 621.1 11.0 247.3

915.8 242.7 30.2 642.8 13.7 276.1

929.0 221.3 32.2 675.5 15.8 304.6

979.5 226.6 35.3 717.5 19.8 338.5

1058.3 937.8 227.6 -0.1 -11.8 1.5 0.0 39.1

1111.2 987.9 235.8 -1.0 -9.8 1.7 0.0 52.0

1186.3 1065.0 252.4 -3.8 -10.0 1.8 0.0 50.4

1269.5 1142.8 271.7 -4.5 -7.1 1.9 0.0 50.0

1368.2 1212.8 305.2 5.2 3.6 2.0 0.0 4.8

1444.3 1281.5 332.0 16.5 -1.6 2.0 0.0 -34.2

1514.6 1336.0 353.0 24.8 0.7 2.2 0.0 -20.4

F OR E C A ST F OR TH E N A T I O N

2000

History 2001

1997

2002

2003

O c t oFederal b e r Government 2 0 0 6 Receipts an

Expenditures Purchases Godds & Services Transfer Payments Interest Received Net Subsidies Dividends Received Net Wage Accruals Surplus (+) or Deficit (-)

TABLES

State and Local Government Receip Receipts Personal Tan/Nontax Receipts Corporate Profits Indirect Business Tax and Nontax Accruals Contributions for Social Insurance Federal Grants-In-Aid

u . s . f o r eca s t T A B L E S Table 1. Annual Summary of the U.S. Forecast

Table 1. Summary of the Long-Term Forecast of the U.S.

Gross Domestic Product Final Sales of Domestic Product Total Consumption Durables Nondurables Services Nonresidential Fixed Investment Equipment & Software Information Processing Equipment Computers & Peripherals Communications Equipment Industrial Equipment Transportation Equipment Aircraft Other Equipment Structures Commercial & Health Care Manufacturing Power & Communication Mining & Petroleum Other Residential Fixed Investment Exports Imports Federal Government State & Local Government

Real GDP Nominal GDP

GDP Deflator Consumer Prices Excl. Food & Energy Producer Prices, Finished Goods Employment Cost Index - Total Comp.

Oil - WTI ($ per barrel) Productivity (% change) Industrial Production (% change) Factory Operating Rate Nonfarm Inven. Chg. (Bil. of 2000 $) Consumer Sentiment Index Light Vehicle Sales (Million units) Housing Starts (Million units) Existing House Sales (Million units) Unemployment Rate (%) Payroll Employment (% change) Federal Surplus (Unified, FY, bil. $) Current Account Balance (Bil. $)

18

1998

1999

2000

History 2001 2002

4.2 4.2 5.0 11.3 4.0 4.2 9.3 13.3 22.0 44.7 16.0 3.6 6.3 39.3 21.4 5.2 5.8 3.4 15.4 -7.7 5.4 7.6 2.5 11.7 -1.1 3.6

4.4 4.5 5.1 11.8 4.6 4.0 12.1 12.7 21.2 41.4 19.2 -0.1 16.8 51.6 11.8 -0.4 3.2 -22.6 17.3 -8.5 0.9 6.1 4.3 11.4 2.2 4.7

3.7 3.8 4.7 7.4 3.8 4.5 11.1 9.4 17.4 21.1 30.1 7.7 -4.0 2.8 -10.3 6.8 6.3 -5.4 15.1 27.7 2.9 0.8 8.8 13.2 0.9 2.7

0.8 1.6 2.5 4.3 2.0 2.4 9.2 -4.8 -1.6 2.6 -7.1 -8.4 -11.7 3.7 -25.3 -2.1 -5.0 -10.2 3.0 18.5 -4.8 0.4 -5.3 -2.6 3.9 3.2

2004

2005

Billions of Dollars 9066.9 9470.4 9817.0 9890.7 10048.9 10301.1 10703.5 11048.6 8747.0 9268.4 9817.0 10128.0 10469.6 10960.8 11712.5 12455.8

1.1 1.5 2.3 -0.5 3.4

1.6 2.6 2.0 2.9 3.5

2006

Composition of Real GDP, Percent Change 1.6 2.5 3.9 3.2 1.2 2.5 3.5 3.5 2.7 2.8 3.9 3.5 7.2 5.8 6.4 5.5 2.5 3.2 3.6 4.5 1.9 1.9 3.5 2.6 8.7 -4.1 -8.8 3.3 -6.1 2.8 7.2 9.0 -4.6 5.8 10.2 8.5 5.4 13.1 14.3 18.0 -21.0 1.4 10.5 12.4 -7.3 2.9 -4.0 8.1 -10.9 -6.2 19.4 12.8 -26.6 -22.3 -6.8 -20.9 -0.4 -8.7 27.7 16.7 -17.0 -3.9 2.2 1.1 -15.6 -6.4 2.6 -0.8 -41.2 -6.0 5.2 21.4 -1.5 -12.6 -12.4 -6.5 -23.1 18.2 13.4 11.0 -15.4 -4.3 3.1 -5.1 4.8 8.4 10.0 8.6 -2.0 1.3 9.2 6.8 3.5 4.1 10.8 6.1 7.0 6.8 4.3 1.5 3.1 0.2 0.5 0.5

3.4 3.2 3.1 4.6 3.7 2.6 10.4 7.5 9.3 18.2 11.8 7.9 3.7 1.5 7.2 9.9 6.6 13.0 4.5 14.7 13.1 -3.3 8.9 5.9 2.2 2.0

2.4 1.9 2.7 -1.1 4.0

14.4 19.3 30.4 2.8 2.9 2.8 5.9 4.5 4.4 81.7 80.8 80.3 71.2 71.5 57.8 104.6 105.8 107.6 15.506 16.888 17.343 1.621 1.647 1.573 4.492 4.636 4.614 4.5 4.2 4.0 2.6 2.4 2.2 69 124 237 -214 -300 -415

26.0 2.6 -3.5 74.1 -31.8 89.2 17.115 1.601 4.727 4.7 0.0 127 -389

26.1 4.1 0.1 73.3 15.1 89.6 16.816 1.710 4.997 5.8 -1.1 -158 -472

Other Measures 31.1 41.5 56.6 3.7 3.0 2.3 0.6 4.1 3.2 73.7 77.1 78.9 14.0 47.0 19.6 87.6 95.2 88.6 16.643 16.866 16.948 1.854 1.949 2.073 5.443 5.912 6.170 6.0 5.5 5.1 -0.3 1.1 1.5 -377 -413 -318 -528 -665 -792 Financial Markets, N SA 1.13 1.35 3.21 1.01 1.36 3.14 1.24 1.89 3.62 2.97 3.43 4.05 4.02 4.27 4.29 5.05 5.12 4.56 5.82 5.84 5.86 964 1131 1207 -1.3 18.0 6.8 0.916 0.840 0.825 -12.3 -8.1 -1.7

5.35 4.79 5.05 5.15 5.26 5.58 6.94 1084 24.8 0.969 4.8

4.97 4.63 5.08 5.54 5.64 5.86 7.43 1326 22.3 0.953 -1.6

6.24 5.81 6.11 6.15 6.03 5.95 8.06 1427 7.7 1.000 4.9

3.89 3.43 3.48 4.55 5.02 5.50 6.97 1192 -16.4 1.060 6.0

1.67 1.61 2.00 3.82 4.61 5.42 6.54 996 -16.7 1.044 -1.5

Personal Income (Bil. of $) (% change) Disposable Income (Bil. of $) (% change) Real Disposable Income (Bil. Of 2000 $) (% change) Saving Rate (%) After-Tax Profits (Billions of $) (% change)

7423 7.3 6396 6.8 6664 5.8 4.3 470 -14.8

7802 5.1 6695 4.7 6862 3.0 2.4 517 10.1

8430 8.0 7194 7.5 7194 4.8 2.4 508 -1.6

8724 3.5 7487 4.1 7333 1.9 1.8 504 -0.9

8882 1.8 7830 4.6 7562 3.1 2.4 576 15.2

Incomes 9164 9731 3.2 6.2 8163 8682 4.2 6.4 7730 8011 2.2 3.6 2.1 2.0 665 844 15.6 27.3

10239 5.2 9036 4.1 8105 1.2 -0.4 1119 32.6

Forecast 2007 2008

2.3 2.5 2.5 0.7 2.2 3.0 9.4 5.7 8.3 22.6 4.1 5.3 4.8 18.2 -12.0 10.0 5.4 8.3 5.8 20.8 6.9 -10.2 9.0 4.0 0.8 1.9

3.1 3.1 3.0 3.9 2.7 3.0 7.0 5.2 7.9 19.1 5.1 -0.6 7.6 13.6 6.5 2.2 -0.1 11.8 4.1 1.9 1.8 -2.8 9.1 4.4 0.6 2.1

2009

3.3 3.2 3.3 5.1 3.0 3.2 5.5 6.2 6.7 18.8 3.5 2.3 11.6 6.6 21.4 1.8 4.7 14.2 2.3 -8.3 3.4 1.2 8.5 6.1 0.3 2.1

11424.6 11689.4 12057.2 12457.3 13269.8 13900.5 14629.2 15424.8

Prices & Wages, Percent C hange, Annual Rate 1.7 2.2 3.1 3.1 2.7 2.2 1.9 3.3 3.7 3.2 2.0 1.2 2.1 2.1 2.9 1.0 3.5 4.5 5.1 2.9 3.1 3.9 3.7 2.9 2.9

2.2 3.4 2.6 3.8 4.4

Federal Funds Rate (%) 3-Month Treasury Bill Rate (%) 1-Year Treasury Note Yield (%) 5-Year Treasury Note Yield (%) 10-Year Treasury Note Yield (%) 25-Year Treasury Note Yield (%) 30-Year Fixed Mortgage Rate (%) S&P 500 Stock Index (% change) Exchange Rate, Major Trading Partners (% change (negative = depreciation))

U.S. Forecast

2003

2.2 2.4 2.4 3.4 3.2

2.0 1.8 2.2 0.6 3.3

2.1 1.7 2.1 0.3 3.5

67.3 2.4 4.3 80.8 37.6 86.0 16.514 1.876 5.627 4.7 1.4 -264 -867

63.7 1.7 2.4 80.2 21.3 88.4 16.512 1.671 4.891 4.9 1.1 -273 -891

61.2 2.3 2.2 79.7 32.2 91.5 16.725 1.667 4.744 4.9 1.4 -283 -874

57.2 2.1 2.4 79.2 45.3 93.0 16.822 1.683 4.773 4.7 1.5 -273 -878

5.03 4.84 5.03 4.77 4.78 4.87 6.42 1284 6.4 0.808 -2.0

4.78 4.62 4.72 4.59 4.66 4.79 6.22 1298 1.1 0.746 -7.7

4.54 4.47 4.78 5.11 5.25 5.44 6.83 1378 6.2 0.711 -4.6

4.99 4.85 5.16 5.53 5.68 5.94 7.26 1461 6.0 0.717 0.9

10961 7.0 9581 6.0 8344 2.9 -0.6 1329 18.8

11549 5.4 10105 5.5 8589 2.9 -0.3 1342 1.0

12217 5.8 10728 6.2 8941 4.1 0.7 1366 1.8

12970 6.2 11355 5.8 9297 4.0 1.2 1360 -0.4

u . s . f o r eca s t T A B L E S Table Real Domestic Table 2. 2.

Annual RealGross G ross Domestic Product Product

1998

Gross Domestic Product Final Sales of Domestic Product Total Consumption

1999

2000

History 2001 2002

2003

2004

2005

2006

Forecast 2007 2008

2009

9066.9 9470.4 9817.0 9890.7 10048.9 10301.1 10703.5 11048.6

11424.6 11689.4 12057.2 12457.3

8997.6 9404.1 9760.5 9921.0 10036.5 10285.1 10648.3 11025.2

11376.7 11660.8 12019.5 12406.7

7099.3

7295.4

7577.1

7841.2

8087.9

8291.3

8543.2

8829.4

900.7

964.8

1020.6

1085.7

1145.3

1198.1

1206.4

1253.7

1318.0

Nondurables

1794.4 1876.6 1947.2 1986.7

2037.1

2103.0

2179.2

2276.8

2361.8

2414.7

2480.8

2556.1

Services

3614.9 3758.0 3928.8 4023.2

4100.4

4178.8

4323.9

4436.6

4550.7

4687.2

4829.1

4982.8

1037.8 1133.3 1232.1 1180.5

1071.5

1081.8

1145.8

1223.8

1324.5

1415.8

1477.1

1550.0

Durables

Nonresidential Fixed Investment Equipment & Software Information Processing Equipment Computers & Peripherals Communications Equipment

6125.8 6438.6 6739.4 6910.4 720.3

804.5

863.3

745.6

840.2

918.9

874.2

820.2

843.1

904.2

984.9

1058.6

1118.4

1176.9

1250.3

328.9

398.5

467.6

459.0

437.4

462.7

509.3

552.6

603.7

654.1

705.8

753.3

59.5

83.9

101.6

103.7

108.9

123.2

140.7

165.9

196.1

240.6

286.5

340.5

80.0

95.4

124.1

114.7

90.5

91.4

100.7

113.2

126.4

131.4

138.0

142.9

Industrial Equipment

148.1

147.9

159.2

145.7

134.5

138.4

132.7

143.5

154.8

162.9

161.9

165.6

Transportation Equipment

144.0

167.6

160.8

141.7

126.3

118.3

141.6

158.3

164.1

171.7

184.7

206.1

22.0

31.7

32.6

33.5

23.9

17.8

16.7

12.7

12.4

14.4

16.4

17.5

41.0

45.7

40.9

30.4

30.1

27.4

35.1

40.6

43.6

38.3

40.8

49.5

294.5

293.2

313.2

306.1

253.8

243.5

248.7

251.5

276.4

303.6

310.3

315.8

125.4

129.4

137.6

130.3

109.8

102.6

105.2

104.4

111.2

117.1

117.0

122.5

Manufacturing

43.7

33.9

31.8

28.5

16.7

15.4

16.2

19.6

22.2

24.0

26.8

30.7

Power & Communication

34.7

40.8

46.8

48.2

47.1

41.0

35.8

33.5

34.8

36.8

38.3

39.2

Mining & Petroleum

23.3

21.3

27.2

32.0

24.5

29.0

32.8

36.4

41.8

50.4

51.3

47.0

Other

67.4

67.9

69.9

66.6

55.9

53.4

55.1

52.2

59.0

63.0

64.1

66.2

Residential Fixed Investment

418.3

443.6

446.9

448.5

469.9

509.4

559.9

608.0

587.2

526.5

511.5

517.5

Exports

966.5 1008.2 1096.3 1036.7

1013.3

1026.1

1120.4

1196.1

1302.5

1419.7

1549.0

1681.1

Imports

1170.3 1304.5 1475.8 1435.8

1484.6

1545.0

1711.3

1815.3

1922.7

1999.0

2086.3

2213.9

Aircraft Other Equipment Structures Commercial & Health Care

Federal Government State & Local Government

601.4

643.4

687.1

716.6

727.6

743.7

749.5

754.2

756.7

1063.0 1113.2 1142.8 1179.0

561.3

573.7

578.8

1215.5

1217.8

1223.9

1230.4

1254.8

1278.2

1304.8

1332.6

Institute for Economic Competitiveness

19

u . s . f o r eca s t T A B L E S Table 3. Quarterly Summary of the Forecast of the U.S.

Table 3. Q uarterly Summary of the U.S. Forecast

2006Q 3 2006Q 4 2007Q 1 2007Q 2 2007Q 3 2007Q 4 2008Q 1 2008Q 2 2008Q 3 2008Q 4 2009Q 1 2009Q 2 2009Q 3 2009Q 4

Gross Domestic Product Final Sales of Domestic Product Total Consumption Durables Nondurables Services Nonresidential Fixed Investment Equipment & Software Information Processing Equipment Computers & Peripherals Communications Equipment Industrial Equipment Transportation Equipment Aircraft Other Equipment Structures Commercial & Health Care Manufacturing Power & Communication Mining & Petroleum Other Residential Fixed Investment Exports Imports Federal Government State & Local Government

Real GDP Nominal GDP

GDP Deflator Consumer Prices Excl. Food & Energy Producer Prices, Finished Goods Employment Cost Index - Total Comp.

2.4 3.2 3.5 5.7 3.0 3.4 9.5 8.2 7.8 20.4 2.2 4.5 20.8 129.3 6.2 12.9 13.5 -0.6 18.9 19.7 3.8 -18.3 8.3 3.7 5.2 1.2

1.9 2.1 2.0 -2.5 2.0 2.9 10.8 9.6 9.4 22.2 6.9 13.7 17.7 16.7 14.0 13.5 8.3 5.8 -2.3 33.0 7.2 -15.8 9.8 5.0 -0.3 1.7

2.2 2.5 2.4 -1.2 2.3 3.1 5.2 3.1 8.9 26.4 7.0 5.3 -11.0 -0.1 -60.6 10.1 5.7 5.6 5.0 18.8 10.1 -8.4 9.1 4.0 0.8 2.2

2.2 2.1 2.1 1.3 1.6 2.5 5.8 5.5 8.2 20.6 7.3 0.9 9.9 21.9 -0.2 6.4 3.0 8.1 6.1 14.5 0.0 -8.1 8.6 4.8 0.4 1.7

Composition of Real GDP, Percent Change, Annual 2.6 2.7 3.5 3.2 3.6 2.9 2.8 3.3 3.0 3.4 2.7 2.8 3.3 2.9 3.3 1.8 4.3 5.3 2.0 5.3 2.7 2.5 2.8 2.8 2.8 2.9 2.7 3.2 3.0 3.2 4.4 5.1 3.9 3.0 4.6 5.7 5.0 5.3 4.6 4.5 9.0 8.8 7.9 6.8 6.1 18.8 17.8 17.0 17.8 17.8 5.8 6.2 4.8 4.2 3.4 -0.5 -2.2 -1.1 -0.3 -0.8 8.2 5.3 8.1 6.0 6.6 10.1 13.1 18.8 8.0 8.5 1.8 4.0 3.6 8.6 14.4 1.4 5.2 0.6 -0.6 4.8 -5.0 -2.6 1.8 -0.1 1.9 11.7 12.7 7.9 9.3 15.0 5.6 4.3 3.6 4.9 2.4 5.0 17.1 -4.0 -9.9 7.8 2.4 0.3 0.4 3.8 3.4 -6.7 -4.9 -1.9 -1.3 0.6 8.6 8.8 8.8 8.9 8.8 2.1 5.1 3.8 4.2 5.1 1.1 0.7 0.6 0.6 0.5 1.0 2.0 1.9 2.5 2.8

Prices & Wages, Percent C hange, Annual Rate 1.8 1.9 2.2 2.0 1.9 1.9 2.0 2.0 1.9 1.7 2.3 2.3 2.3 2.2 2.1 2.0 1.5 1.4 0.8 0.5 3.2 3.4 3.5 3.2 3.2

1.9 2.4 2.8 6.8 2.9

2.9 3.4 2.7 6.9 3.1

2.2 2.3 2.4 3.3 3.3

70.8 2.1 4.4 81.0 32.5 83.1 16.609 1.772 5.458 4.7 1.1 -138 -881

64.5 1.3 1.0 80.9 26.3 88.1 16.298 1.732 5.232 4.8 1.0 -129 -895

64.4 1.5 1.6 80.6 20.8 85.9 16.357 1.708 5.063 4.8 1.0 -160 -899

63.8 1.7 2.3 80.4 26.0 88.1 16.413 1.661 4.899 4.9 1.0 -174 -898

63.7 2.1 2.8 80.1 19.1 89.3 16.618 1.653 4.782 5.0 1.1 -196 -883

Federal Funds Rate (%) 3-Month Treasury Bill Rate (%) 1-Year Treasury Note Yield (%) 5-Year Treasury Note Yield (%) 10-Year Treasury Note Yield (%) 25-Year Treasury Note Yield (%) 30-Year Fixed Mortgage Rate (%) S&P 500 Stock Index (% change) Exchange Rate, Major Trading Partners (% change (negative = depreciation))

5.25 4.99 5.14 4.80 4.81 4.92 6.53 1286 1.4 0.802 -3.4

5.50 5.27 5.32 4.77 4.66 4.79 6.31 1285 -0.2 0.785 -8.7

5.31 5.09 5.08 4.72 4.69 4.82 6.24 1290 1.3 0.763 -11.0

4.85 4.71 4.73 4.51 4.59 4.72 6.15 1294 1.3 0.751 -6.5

Personal Income (Bil. of $) (% change) Disposable Income (Bil. of $) (% change) Real Disposable Income (Bil. Of 2000 $) (% change) Saving Rate (%) After-Tax Profits (Billions of $) (% change)

11050 5.5 9659 5.8 8373 3.1 -0.8 1352 1.0

11169 4.3 9757 4.1 8416 2.0 -0.8 1331 -6.2

11335 5.9 9909 6.2 8487 3.4 -0.5 1336 1.3

11478 5.0 10030 4.9 8545 2.7 -0.4 1338 0.6

20

U.S. Forecast

3.2 3.1 3.2 3.8 3.0 3.1 5.1 7.1 6.3 17.4 3.4 3.4 17.1 4.7 31.7 0.1 8.0 7.5 1.0 -18.3 3.7 1.7 8.4 6.4 0.5 1.8

3.0 3.0 3.2 6.0 2.8 2.9 5.6 7.0 6.8 17.1 3.2 2.5 14.7 5.6 36.1 2.2 4.3 11.0 3.9 -7.0 3.5 1.1 7.8 6.1 -0.3 1.8

3.1 3.1 3.3 4.4 3.1 3.2 5.2 5.4 7.4 18.0 3.6 1.8 4.4 3.7 4.2 4.9 3.4 24.1 3.8 0.8 3.8 1.6 7.5 6.0 0.4 1.9

3.4 3.5 3.9 8.4 3.4 3.4 4.3 4.6 7.3 17.7 3.5 1.7 0.4 7.9 -10.4 3.4 8.7 -0.2 4.6 -4.2 2.7 3.2 7.1 6.4 1.2 2.0

Billions of Dollars 11465.0 11519.4 11583.1 11647.6 11723.7 11803.0 11905.8 12000.1 12107.7 12215.0 12313.8 12404.8 12501.8 12608.8 13366.1 13494.8 13669.3 13820.5 13974.9 14137.4 14338.7 14526.1 14727.1 14924.9 15132.3 15322.5 15518.9 15725.5

2.3 3.4 3.1 1.1 3.3

Oil - WTI ($ per barrel) Productivity (% change) Industrial Production (% change) Factory Operating Rate Nonfarm Inven. Chg. (Bil. of 2000 $) Consumer Sentiment Index Light Vehicle Sales (Million units) Housing Starts (Million units) Existing House Sales (Million units) Unemployment Rate (%) Payroll Employment (% change) Federal Surplus (NIPA bil. $) Current Account Balance (Bil. $)

Rate 3.5 3.3 3.6 5.7 3.2 3.3 4.5 6.4 6.2 18.1 3.5 3.9 12.3 9.3 16.6 -0.2 3.3 22.4 -0.2 -14.9 2.4 0.7 9.0 6.5 0.3 2.4

1.8 1.6 2.0 -0.1 3.2

2.3 1.7 2.1 1.0 3.6

2.1 1.7 2.1 0.4 3.4

2.0 1.6 2.1 0.4 3.4

1.9 1.5 2.0 -0.5 3.3

Other Key Measures 62.2 61.6 60.9 2.5 2.1 2.4 2.2 2.3 2.4 79.8 79.7 79.6 23.4 29.2 34.5 90.9 91.0 91.7 16.744 16.681 16.726 1.662 1.665 1.668 4.814 4.777 4.696 5.0 5.0 4.9 1.4 1.5 1.6 -230 -252 -251 -880 -872 -870

60.2 2.2 2.5 79.6 41.6 92.5 16.748 1.671 4.689 4.8 1.6 -247 -874

59.2 1.9 2.5 79.6 47.6 92.7 16.743 1.677 4.715 4.8 1.5 -212 -875

57.9 1.8 2.4 79.2 45.1 92.6 16.805 1.676 4.743 4.7 1.4 -211 -878

56.6 2.1 2.4 79.1 44.8 93.0 16.827 1.682 4.768 4.7 1.4 -205 -879

55.3 2.4 2.3 79.0 43.6 93.8 16.911 1.696 4.869 4.6 1.5 -203 -881

4.60 4.39 4.54 4.46 4.57 4.71 6.17 1300 1.9 0.739 -6.0

Financial Markets, N SA 4.35 4.38 4.50 4.59 4.27 4.33 4.43 4.52 4.53 4.64 4.74 4.83 4.68 4.89 5.06 5.19 4.78 5.00 5.18 5.35 4.91 5.15 5.36 5.56 6.34 6.57 6.76 6.94 1309 1336 1367 1392 2.8 8.2 9.3 7.5 0.731 0.718 0.712 0.708 -4.6 -7.0 -3.5 -2.0

4.67 4.59 4.91 5.30 5.46 5.69 7.05 1418 7.2 0.707 -0.5

4.74 4.67 4.99 5.38 5.53 5.79 7.12 1439 6.1 0.715 4.3

5.04 4.87 5.19 5.56 5.71 5.99 7.29 1452 3.4 0.716 0.9

5.08 4.91 5.22 5.58 5.74 6.00 7.31 1468 4.4 0.718 1.0

5.11 4.94 5.24 5.59 5.74 6.00 7.32 1485 4.8 0.720 1.0

11619 4.9 10173 5.7 8626 3.8 -0.2 1345 2.3

11766 5.0 10308 5.3 8697 3.3 -0.1 1348 0.9

Incomes 11944 12128 6.1 6.1 10480 10652 6.7 6.6 8797 8897 4.6 4.6 0.2 0.6 1354 1360 1.6 1.9

12490 6.0 10969 5.8 9081 4.1 0.9 1376 0.7

12686 6.3 11108 5.1 9155 3.3 0.9 1372 -1.1

12873 5.9 11271 5.9 9248 4.1 1.1 1361 -3.3

13062 5.9 11437 5.9 9344 4.2 1.3 1356 -1.5

13258 6.0 11605 5.9 9442 4.2 1.4 1353 -0.8

62.7 2.2 1.5 79.8 19.1 90.1 16.659 1.660 4.818 5.0 1.3 -206 -883

12306 5.9 10811 6.0 8988 4.1 0.8 1374 4.0

u . s . f o r eca s t T A B L E S Table Quarterly Table 4. Q4. uarterly G ross Domestic Gross Product Domestic Product 2006Q 3 2006Q 4 2007Q 1 2007Q 2 2007Q 3 2007Q 4 2008Q 1 2008Q 2 2008Q 3 2008Q 4 2009Q 1 2009Q 2 2009Q 3 2009Q 4 Gross Domestic Product Final Sales of Domestic Product Total Consumption Durables Nondurables Services Nonresidential Fixed Investment Equipment & Software Information Processing Equipment Computers & Peripherals Communications Equipment Industrial Equipment Transportation Equipment Aircraft Other Equipment Structures Commercial & Health Care Manufacturing Power & Communication Mining & Petroleum Other Residential Fixed Investment Exports Imports Federal Government State & Local Government

11465.0 11519.4 11583.1 11647.6 11723.7 11803.0 11905.8 12000.1 12107.7 12215.0 12313.8 12404.8 12501.8 12608.8 11422.4 11482.9 11553.4 11613.7 11697.8 11778.3 11876.7 11965.3 12067.8 12168.1 12261.1 12354.5 12451.7 12559.7 8125.7 8167.3 8216.0 8259.5 8315.5 8374.4 8443.6 8504.3 8574.4 8650.6 8718.9 8789.1 8861.5 8947.9 1208.8 1201.2 1197.6 1201.5 1206.8 1219.9 1236.1 1242.5 1259.0 1277.0 1289.3 1308.7 1323.2 1350.9 2370.1 2382.0 2395.6 2405.2 2421.5 2436.7 2454.0 2471.3 2488.9 2509.0 2527.6 2545.2 2565.1 2586.6 4570.9 4604.6 4640.4 4669.7 4703.4 4735.3 4772.8 4809.2 4847.1 4887.3 4925.5 4961.6 5001.0 5043.2 1334.8 1370.7 1388.5 1408.6 1424.1 1442.1 1456.2 1467.3 1484.1 1500.6 1519.8 1541.0 1561.2 1577.8 1061.8 1087.3 1095.6 1110.8 1126.6 1140.7 1155.8 1169.0 1182.1 1200.9 1222.4 1243.6 1260.3 1274.8 605.4 619.7 633.5 646.5 661.0 675.5 688.9 700.6 711.3 722.3 733.6 746.1 759.9 773.8 198.8 209.8 223.7 235.2 246.2 257.2 268.1 280.0 292.4 305.7 318.9 332.6 347.5 362.9 123.8 126.0 128.2 130.5 132.4 134.4 136.1 137.5 138.7 139.9 141.1 142.2 143.5 144.7 155.5 160.9 163.0 163.3 163.1 162.2 161.8 161.7 161.4 162.9 164.3 165.3 166.1 166.8 163.8 171.0 166.3 170.4 173.9 176.2 179.8 182.5 185.5 191.2 199.4 206.7 209.0 209.2 13.0 13.6 13.6 14.3 14.7 15.2 15.9 16.2 16.5 16.9 17.1 17.4 17.5 17.9 43.4 44.9 38.1 38.1 38.3 38.7 39.0 39.9 41.3 43.0 46.4 50.6 51.1 49.8 281.7 291.2 298.6 303.3 304.4 308.3 308.8 308.3 312.0 311.9 311.9 313.6 317.4 320.1 113.3 115.7 117.3 118.2 116.7 116.0 116.5 116.5 117.0 118.0 120.3 121.6 122.6 125.3 22.5 22.8 23.1 23.6 24.3 25.0 25.5 26.1 27.1 28.6 29.2 30.0 31.8 31.7 35.8 35.6 36.1 36.6 37.1 37.5 37.9 38.3 38.6 38.6 38.6 39.0 39.4 39.8 42.6 46.1 48.2 50.0 50.6 52.8 52.2 51.0 51.9 50.0 47.7 46.9 47.0 46.5 60.1 61.2 62.8 62.8 63.1 63.2 63.3 63.9 64.4 64.8 65.4 66.0 66.6 67.0 575.1 552.3 540.8 529.8 520.9 514.5 512.1 510.5 511.3 512.2 514.4 515.8 517.9 522.0 1311.7 1343.8 1374.5 1404.0 1434.3 1466.0 1498.3 1531.7 1565.5 1600.6 1634.2 1665.9 1697.0 1727.1 1926.3 1950.1 1969.6 1993.3 2003.7 2029.2 2048.5 2070.2 2096.3 2130.2 2164.0 2196.9 2229.6 2265.3 746.6 746.0 747.5 748.3 750.4 751.7 752.8 753.9 754.8 755.3 756.2 755.5 756.4 758.6 1258.5 1264.0 1270.8 1276.2 1279.6 1286.0 1292.3 1300.4 1309.4 1317.3 1323.2 1329.2 1335.6 1342.2

Table 5. Annual Employment

Table 5. Annual Employment 1998

1999

2000

History 2001 2002

2003

2004

2005

2006

Forecast 2007 2008

2009

Millions Total Nonfarm Employment Private Nonfarm Mining Construction Manufacturing Trade, Transportation, and Utilities Transportation & Warehousing Financial Activities Education & Health Professional & Business Services Information Leisure & Hospitality Government Federal State & Local

125.924 128.992 131.792 131.832 130.342 129.993 131.424 133.459 106.014 108.680 111.002 110.711 108.834 108.412 109.804 111.653 0.565 0.518 0.520 0.532 0.512 0.503 0.523 0.560 6.147 6.545 6.788 6.826 6.716 6.732 6.974 7.278 17.560 17.323 17.266 16.442 15.257 14.507 14.315 14.234 25.186 25.770 26.225 25.986 25.499 25.289 25.532 25.906 4.167 4.298 4.412 4.373 4.224 4.185 4.247 4.346 7.462 7.646 7.688 7.808 7.848 7.976 8.030 8.142 14.445 14.795 15.109 15.643 16.201 16.588 16.952 17.342 15.142 15.954 16.670 16.481 15.977 15.984 16.391 16.876 3.219 3.418 3.629 3.629 3.394 3.188 3.117 3.065 11.232 11.544 11.860 12.032 11.989 12.176 12.493 12.799 19.910 20.312 20.790 21.120 21.508 21.582 21.620 21.806 2.771 2.770 2.865 2.763 2.766 2.761 2.731 2.725 17.139 17.542 17.925 18.357 18.743 18.820 18.889 19.081

135.299 136.746 138.628 140.706 113.351 114.618 116.278 118.023 0.616 0.665 0.676 0.649 7.497 7.386 7.352 7.496 14.246 14.297 14.143 14.094 26.058 26.242 26.752 27.063 4.409 4.480 4.610 4.755 8.316 8.328 8.397 8.511 17.730 18.059 18.337 18.628 17.325 17.782 18.485 19.266 3.061 3.046 3.055 3.082 13.039 13.304 13.533 13.677 21.948 22.128 22.349 22.683 2.709 2.708 2.709 2.722 19.239 19.420 19.640 19.961

Growth Rates Total Nonfarm Employment Private Nonfarm Mining Construction Manufacturing Trade, Transportation, and Utilities Transportation & Warehousing Financial Activities Education & Health Professional & Business Services Information Leisure & Hospitality Government Federal State & Local

2.57 2.82 -1.10 5.74 0.82 1.97 3.51 3.95 2.54 5.66 4.37 1.96 1.27 -1.23 1.69

2.44 2.51 -8.37 6.47 -1.35 2.32 3.13 2.48 2.42 5.36 6.18 2.77 2.02 -0.04 2.35

2.17 2.14 0.52 3.74 -0.33 1.77 2.66 0.54 2.13 4.49 6.21 2.74 2.36 3.44 2.19

0.03 -0.26 2.38 0.57 -4.78 -0.91 -0.86 1.57 3.53 -1.11 0.02 1.46 1.59 -3.40 2.41

-1.13 -1.69 -3.81 -1.62 -7.17 -1.87 -3.39 0.50 3.57 -3.04 -6.47 -0.36 1.84 0.09 2.10

-0.27 -0.39 -1.80 0.24 -4.91 -0.82 -0.91 1.63 2.39 0.05 -6.05 1.56 0.34 -0.15 0.42

1.10 1.28 3.98 3.60 -1.31 0.96 1.49 0.68 2.19 2.55 -2.22 2.60 0.18 -1.09 0.37

1.55 1.68 7.17 4.36 -0.56 1.47 2.33 1.39 2.30 2.96 -1.67 2.45 0.86 -0.22 1.01

1.38 1.52 9.97 3.02 0.08 0.59 1.44 2.13 2.24 2.66 -0.15 1.88 0.65 -0.58 0.83

1.07 1.12 7.86 -1.48 0.36 0.71 1.60 0.15 1.86 2.64 -0.49 2.03 0.82 -0.05 0.94

1.38 1.45 1.81 -0.45 -1.08 1.94 2.91 0.84 1.54 3.95 0.30 1.73 1.00 0.05 1.13

1.50 1.50 -4.03 1.96 -0.34 1.17 3.14 1.35 1.59 4.23 0.91 1.06 1.49 0.47 1.63

Institute for Economic Competitiveness

21

u . s . f o r eca s t T A B L E S Table Quarterly Table 6. Q6. uarterly Employment Employment 2006Q 3 2006Q 4 2007Q 1 2007Q 2 2007Q 3 2007Q 4 2008Q 1 2008Q 2 2008Q 3 2008Q 4 2009Q 1 2009Q 2 2009Q 3 2009Q 4 Employment (Millions) Total Nonfarm Employment Private Nonfarm Mining Construction Manufacturing Trade, Transportation, and Utilities Transportation & Warehousing Financial Activities Education & Health Professional & Business Services Information Leisure & Hospitality Government Federal State & Local

135.5 113.5 0.6 7.5 14.2 26.0 4.4 8.3 17.8 17.4 3.1 13.1 22.0 2.7 19.3

135.8 113.8 0.6 7.5 14.3 26.1 4.4 8.3 17.9 17.5 3.1 13.1 22.0 2.7 19.3

136.2 114.1 0.6 7.5 14.4 26.1 4.4 8.3 18.0 17.6 3.1 13.2 22.1 2.7 19.4

136.5 114.4 0.7 7.4 14.3 26.2 4.5 8.3 18.0 17.7 3.1 13.3 22.1 2.7 19.4

136.9 114.8 0.7 7.3 14.3 26.3 4.5 8.3 18.1 17.9 3.0 13.4 22.1 2.7 19.4

137.3 115.2 0.7 7.3 14.3 26.4 4.5 8.3 18.1 18.0 3.0 13.4 22.2 2.7 19.5

Total Nonfarm Employment Private Nonfarm Mining Construction Manufacturing Trade, Transportation, and Utilities Transportation & Warehousing Financial Activities Education & Health Professional & Business Services Information Leisure & Hospitality Government Federal State & Local

1.10 1.14 10.07 0.69 -0.43 0.01 0.78 1.16 2.51 2.77 -0.89 2.03 0.92 1.07 0.90

1.02 1.13 9.78 -1.37 1.41 0.65 1.33 0.54 1.87 2.15 -0.91 1.38 0.47 -0.61 0.63

1.01 1.00 6.06 -1.84 2.14 -0.08 0.64 -0.90 2.69 1.82 0.70 1.49 1.04 -0.21 1.22

1.02 0.99 5.69 -2.61 -1.98 1.30 2.35 -0.02 0.53 3.32 1.05 3.08 1.17 -0.18 1.35

1.09 1.28 6.31 -3.19 -0.20 1.85 2.51 -0.59 1.49 3.43 -2.31 2.95 0.09 0.07 0.10

1.29 1.36 6.60 -0.52 -0.40 2.21 3.18 0.95 1.48 3.23 -3.88 1.25 0.88 0.07 1.00

137.8 115.6 0.7 7.3 14.2 26.6 4.6 8.4 18.2 18.2 3.0 13.5 22.2 2.7 19.5

138.3 116.0 0.7 7.3 14.2 26.7 4.6 8.4 18.3 18.4 3.1 13.5 22.3 2.7 19.6

138.9 116.5 0.7 7.4 14.1 26.8 4.6 8.4 18.4 18.6 3.1 13.5 22.4 2.7 19.7

139.5 117.0 0.7 7.4 14.1 26.9 4.7 8.4 18.5 18.8 3.1 13.6 22.5 2.7 19.8

140.0 117.4 0.7 7.4 14.1 27.0 4.7 8.5 18.6 19.0 3.1 13.6 22.6 2.7 19.9

140.4 117.8 0.7 7.5 14.1 27.0 4.7 8.5 18.6 19.2 3.1 13.7 22.6 2.7 19.9

140.9 118.2 0.6 7.5 14.1 27.1 4.8 8.5 18.7 19.3 3.1 13.7 22.7 2.7 20.0

141.5 118.6 0.6 7.6 14.1 27.2 4.8 8.6 18.7 19.5 3.1 13.7 22.8 2.7 20.1

1.60 1.50 -3.53 2.17 -1.13 1.56 2.72 0.65 2.34 4.24 0.89 0.32 2.11 0.07 2.40

1.65 1.62 -3.61 1.54 -0.56 1.84 3.06 0.76 1.84 4.56 0.26 1.04 1.78 0.07 2.02

1.48 1.57 -4.14 2.15 -0.19 0.66 3.38 1.78 1.88 4.96 0.72 0.70 1.03 0.07 1.16

1.35 1.40 -4.98 1.95 0.25 1.01 3.28 1.38 1.22 3.48 0.81 1.32 1.13 0.07 1.28

1.40 1.34 -4.90 2.62 0.09 0.78 2.92 1.92 0.96 3.16 0.75 1.46 1.71 1.57 1.73

1.48 1.41 -5.07 2.74 -0.17 1.08 2.83 2.23 0.77 3.71 0.38 1.15 1.85 3.49 1.63

Growth Rates 1.41 1.60 1.20 -0.43 -1.54 2.35 2.99 1.99 1.63 4.22 0.90 1.51 0.42 0.07 0.46

1.45 1.46 -1.24 -0.29 -1.58 1.62 2.92 0.56 1.17 4.15 4.83 2.33 1.42 0.07 1.61

Table 7. Q Implicit Price Deflators (2000= 100) Deflators (2000=100) Table 7.uarterly Quarterly Implicit Price 2006Q 3 2006Q 4 2007Q 1 2007Q 2 2007Q 3 2007Q 4 2008Q 1 2008Q 2 2008Q 3 2008Q 4 2009Q 1 2009Q 2 2009Q 3 2009Q 4 GDP Consumption Durables Motor Vehicles Furniture Other Durables Nondurables Food Clothing & Shoes Gasoline & Oil Fuel Services Housing Household Operations Electricity Natural Gas Water & Sewer Telephone Domestic Service Other Household Transportation Other Services 22

U.S. Forecast

116.6 115.3 89.0 99.5 73.2 98.9 116.6 115.7 90.9 188.0 190.5 121.1 121.2 121.0 133.5 153.3 129.9 95.1 120.4 127.3 118.1 127.9

117.1 115.9 88.7 99.4 72.7 99.0 116.7 116.3 90.7 183.6 193.3 122.1 122.4 122.6 134.2 165.0 131.1 95.1 120.9 128.1 118.9 129.1

118.0 116.8 88.7 99.8 72.2 99.2 117.3 117.0 90.6 185.6 188.1 123.2 123.5 125.3 135.7 186.9 132.4 94.7 121.4 128.8 119.9 130.2

118.7 117.4 88.7 100.3 71.8 99.4 117.7 117.8 90.6 182.1 184.2 124.2 124.3 126.9 136.3 200.3 133.6 94.5 121.9 129.6 120.7 131.1

119.2 117.9 88.7 100.8 71.3 99.4 118.0 118.5 90.5 180.2 179.8 125.0 125.1 127.3 134.7 205.6 134.8 94.3 122.4 130.4 121.5 132.1

119.8 118.5 88.6 101.3 70.9 99.5 118.4 119.1 90.4 179.8 178.7 125.8 125.9 127.6 134.1 208.0 136.1 94.1 122.9 131.2 122.3 133.2

120.4 119.1 88.6 101.7 70.5 99.6 118.8 119.7 90.3 178.3 177.2 126.7 126.7 128.0 134.7 209.7 137.3 93.8 123.4 132.0 123.2 134.2

121.0 119.7 88.6 102.0 70.0 99.7 119.3 120.4 90.2 177.7 176.6 127.6 127.5 128.1 135.4 206.4 138.6 93.5 123.9 132.8 123.9 135.3

121.6 120.3 88.5 102.3 69.6 99.8 119.6 121.0 90.1 176.5 175.7 128.4 128.3 128.2 136.0 203.8 139.8 93.3 124.4 133.7 124.7 136.4

122.2 120.8 88.3 102.6 69.1 99.8 119.9 121.5 90.0 175.5 174.9 129.2 129.0 128.2 136.5 201.4 141.0 92.9 124.9 134.4 125.4 137.5

122.9 121.3 88.2 102.7 68.7 99.9 120.2 121.9 89.9 174.0 174.0 130.0 129.8 128.7 137.0 203.6 142.3 92.6 125.3 135.2 126.2 138.5

123.5 121.9 88.1 102.9 68.2 100.0 120.5 122.5 89.9 172.6 173.2 130.8 130.6 129.0 137.6 204.0 143.5 92.2 125.8 136.0 127.0 139.6

124.1 122.4 87.9 103.0 67.8 100.1 120.8 122.9 89.8 170.6 171.7 131.7 131.4 129.4 138.2 205.0 144.7 92.0 126.2 136.7 127.8 140.8

124.7 122.9 87.7 103.0 67.3 100.1 121.0 123.4 89.7 168.9 170.4 132.5 132.1 129.5 138.7 203.3 145.8 91.7 126.6 137.5 128.5 142.0

u . s . f o r eca s t T A B L E S Table 8. 8.

Percent C hange inChange Implicit Price in Deflators Table Percent Implicit Price Deflators 2006Q 3 2006Q 4 2007Q 1 2007Q 2 2007Q 3 2007Q 4 2008Q 1 2008Q 2 2008Q 3 2008Q 4 2009Q 1 2009Q 2 2009Q 3 2009Q 4 GDP Consumption Durables Motor Vehicles Furniture Other Durables Nondurables Food Clothing & Shoes Gasoline & Oil Fuel Services Housing Household Operations Electricity Natural Gas Water & Sewer Telephone Domestic Service Other Household Transportation Other Services

2.3 2.6 -1.0 -0.1 -3.5 2.2 2.8 2.8 -3.1 11.9 21.5 3.3 4.8 0.0 3.3 -21.3 5.9 1.9 2.3 2.7 4.3 3.9

1.9 2.0 -1.2 -0.4 -3.0 0.5 0.4 2.1 -1.1 -9.5 5.9 3.5 4.2 5.3 2.1 30.5 3.8 0.2 1.7 2.5 3.0 3.6

2.9 2.8 -0.2 1.6 -2.6 0.8 2.3 2.3 -0.4 4.5 -10.6 3.7 3.4 8.8 4.5 53.1 3.7 -1.5 1.6 2.4 3.1 3.5

2.2 2.1 0.0 2.0 -2.5 0.6 1.1 2.7 -0.1 -7.6 -8.4 3.1 2.7 5.2 1.7 28.6 3.7 -1.2 1.7 2.5 2.9 2.9

1.8 1.9 0.0 2.0 -2.5 0.3 1.2 2.5 -0.4 -4.2 -9.6 2.6 2.6 1.1 -4.6 10.6 3.7 -0.5 1.7 2.5 2.6 3.0

1.9 2.0 -0.2 1.6 -2.4 0.3 1.5 2.0 -0.4 -0.9 -2.4 2.6 2.5 0.9 -1.7 4.8 3.7 -0.9 1.7 2.5 2.7 3.1

2.2 2.0 -0.1 1.6 -2.4 0.5 1.2 2.0 -0.4 -3.4 -3.4 2.8 2.6 1.5 1.7 3.2 3.7 -1.3 1.7 2.4 2.7 3.1

2.0 2.0 -0.2 1.4 -2.5 0.4 1.6 2.3 -0.4 -1.3 -1.3 2.6 2.5 0.1 2.1 -6.3 3.6 -1.2 1.6 2.4 2.5 3.2

1.9 1.8 -0.4 1.2 -2.6 0.3 1.2 2.0 -0.4 -2.8 -2.1 2.6 2.4 0.3 1.7 -5.2 3.6 -1.1 1.6 2.4 2.4 3.4

1.8 1.7 -0.5 0.9 -2.6 0.2 1.0 1.4 -0.4 -2.1 -1.9 2.4 2.4 0.2 1.5 -4.6 3.4 -1.4 1.4 2.3 2.3 3.1

2.3 1.8 -0.6 0.7 -2.6 0.3 1.0 1.6 -0.3 -3.5 -2.0 2.6 2.4 1.5 1.5 4.3 3.4 -1.5 1.4 2.3 2.7 3.1

2.1 1.8 -0.7 0.5 -2.6 0.3 1.0 1.7 -0.3 -3.4 -1.9 2.6 2.4 1.0 1.7 0.8 3.4 -1.5 1.4 2.3 2.5 3.1

2.0 1.7 -0.7 0.4 -2.6 0.3 0.8 1.6 -0.4 -4.5 -3.3 2.6 2.4 1.2 1.7 1.9 3.3 -1.1 1.3 2.2 2.4 3.5

1.9 1.6 -0.8 0.3 -2.6 0.1 0.8 1.5 -0.5 -4.1 -3.1 2.5 2.4 0.4 1.6 -3.3 3.2 -1.3 1.2 2.2 2.3 3.4

Table 9.9.Annual ImplicitImplicit Price Deflators (2000= 100) Table Annual Price Deflators (2000=100)

GDP Consumption Durables Motor Vehicles Furniture Other Durables Nondurables Food Clothing & Shoes Gasoline & Oil Fuel Services Housing Household Operations Electricity Natural Gas Water & Sewer Telephone Domestic Service Other Household Transportation Other Services

1998

1999

2000

History 2001 2002

2003

2004

2005

2006

Forecast 2007 2008

2009

96.5 96.0 104.2 99.2 111.6 102.5 93.8 95.9 103.0 71.9 71.8 95.3 94.3 98.1 99.1 84.5 95.5 106.1 93.1 93.3 95.4 93.5

97.9 97.6 101.6 99.6 104.7 100.8 96.2 97.7 101.3 78.2 72.7 97.4 96.9 98.1 98.4 84.9 97.6 103.5 95.8 96.3 97.5 96.5

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.1 100.0 100.0 100.0 100.0 100.0 100.0

102.4 102.1 98.1 100.5 94.1 100.3 101.5 102.9 98.0 96.3 101.7 103.3 103.9 104.6 108.1 118.8 102.9 98.0 103.8 104.9 101.7 104.0

106.4 105.6 92.4 97.7 83.3 97.9 104.1 107.0 93.0 105.2 109.7 109.4 110.4 107.7 109.3 123.8 110.2 97.2 110.3 114.8 106.0 113.1

109.4 108.4 90.8 97.2 79.9 98.0 107.6 110.3 92.7 123.9 125.4 112.9 113.2 109.9 111.4 134.2 116.7 95.2 112.8 117.8 108.4 117.8

112.7 111.5 90.2 99.0 76.9 97.7 111.5 112.7 91.7 150.8 159.5 116.5 116.2 115.6 118.3 160.3 122.9 94.4 116.6 122.1 112.7 122.6

116.2 114.8 89.1 99.5 73.6 98.5 115.6 115.3 91.0 178.6 184.1 120.6 120.4 121.8 132.9 165.8 129.0 94.8 120.0 126.8 117.3 127.3

118.9 117.6 88.7 100.6 71.5 99.4 117.9 118.1 90.5 181.9 182.7 124.6 124.7 126.8 135.2 200.2 134.2 94.4 122.1 130.0 121.1 131.7

123.8 122.1 88.0 102.9 68.0 100.0 120.6 122.7 89.8 171.5 172.3 131.3 131.0 129.2 137.9 204.0 144.0 92.1 126.0 136.4 127.4 140.2

104.2 103.5 95.8 100.1 88.7 99.5 102.1 105.0 95.4 90.4 91.7 106.0 107.8 103.7 106.8 101.1 106.2 98.1 107.6 109.5 102.9 108.3

121.3 120.0 88.5 102.1 69.8 99.7 119.4 120.6 90.1 177.0 176.1 128.0 127.9 128.1 135.6 205.3 139.2 93.4 124.2 133.2 124.3 135.8

Institute for Economic Competitiveness

23

u . s . f o r eca s t T A B L E S Table 10.10.

Percent C hange Change in Implicit Price Deflators Price Deflators Table Percent in Implicit

GDP Consumption Durables Motor Vehicles Furniture Other Durables Nondurables Food Clothing & Shoes Gasoline & Oil Fuel Services Housing Household Operations Electricity Natural Gas Water & Sewer Telephone Domestic Service Other Household Transportation Other Services

1998

1999

2000

1.1 0.9 -2.7 -1.0 -5.8 -0.7 0.0 1.8 -1.9 -13.0 -8.7 2.2 3.2 -0.9 -3.9 -1.9 3.2 -1.3 2.8 2.1 2.2 2.2

1.4 1.7 -2.4 0.4 -6.2 -1.6 2.5 1.9 -1.6 9.1 1.4 2.2 2.8 -0.1 -0.7 0.6 2.2 -2.4 2.9 3.3 2.2 3.3

2.2 2.5 -1.6 0.4 -4.5 -0.8 4.0 2.3 -1.3 28.6 37.8 2.7 3.2 1.9 1.6 16.5 2.5 -3.4 4.4 3.8 2.5 3.6

History 2001 2002 2.4 2.1 -1.9 0.5 -5.9 0.3 1.5 2.9 -2.0 -3.5 2.2 3.3 3.9 4.6 8.1 22.3 2.9 -2.0 3.8 4.9 1.7 4.0

1.7 1.4 -2.4 -0.4 -5.7 -0.8 0.6 2.0 -2.7 -5.0 -9.4 2.7 3.8 -0.9 -1.1 -13.5 3.2 0.2 3.7 4.3 1.2 4.1

2003

2004

2005

2006

2.1 2.0 -3.6 -2.4 -6.0 -1.6 2.0 1.9 -2.5 17.0 20.0 3.2 2.5 3.9 2.4 22.5 3.7 -0.9 2.5 4.9 2.9 4.4

2.8 2.6 -1.6 -0.4 -4.1 0.1 3.3 3.1 -0.4 18.1 14.7 3.2 2.5 2.1 1.9 8.4 6.0 -2.0 2.2 2.6 2.3 4.2

3.0 2.9 -0.7 1.8 -3.8 -0.4 3.6 2.2 -1.0 21.5 27.2 3.2 2.6 5.1 6.1 19.1 5.3 -0.9 3.4 3.6 4.0 4.1

3.0 3.0 -1.2 0.5 -4.2 0.8 3.7 2.3 -0.7 19.0 15.9 3.5 3.6 5.4 12.4 5.1 5.0 0.5 2.9 3.9 4.1 3.8

2005

2006

Forecast 2007 2008 2.4 2.5 -0.5 1.1 -2.8 0.9 1.9 2.4 -0.6 2.3 -0.5 3.3 3.6 4.1 1.8 21.5 4.0 -0.4 1.8 2.5 3.2 3.4

2.0 2.0 -0.2 1.6 -2.4 0.4 1.3 2.2 -0.4 -2.7 -3.6 2.7 2.6 1.1 0.3 2.8 3.7 -1.1 1.7 2.5 2.6 3.2

2009 2.1 1.8 -0.6 0.7 -2.5 0.3 1.0 1.7 -0.4 -3.1 -2.1 2.6 2.4 0.8 1.6 -0.6 3.5 -1.4 1.4 2.3 2.5 3.2

Table 11.11.

Personal Income and its C omponents Table Personal Income and its Components History 2001 2002

1998

1999

2000

Personal Income Wages & Salaries Other Labor Income Nonfarm Income Farm Income Rental income Dividends Interest Income Transfer Payments Personal Social Insurance Tax

7423.0 5019.4 529.7 598.4 29.4 137.5 350.0 933.3 978.6 317.2

7802.4 5357.1 562.4 649.7 28.6 147.4 335.6 928.6 1022.1 338.1

8429.7 5782.7 609.9 705.7 22.7 150.3 376.1 1011.0 1084.1 359.2

8724.1 5942.1 642.7 752.2 19.7 167.4 369.0 1011.0 1193.9 374.5

8881.9 6091.2 745.1 757.8 10.6 153.0 397.2 936.1 1286.2 384.8

Personal Income Wages & Salaries Other Labor Income Nonfarm Income Farm Income Rental income Dividends Interest Income Transfer Payments Personal Social Insurance Tax

7.3 7.7 6.5 10.4 -13.4 6.8 5.2 10.0 2.9 6.6

5.1 6.7 6.2 8.6 -2.0 7.3 -4.1 -0.5 4.4 6.6

8.0 8.0 8.5 8.6 -19.6 2.0 12.1 8.9 6.1 6.2

3.5 2.8 5.4 6.6 -12.8 11.5 -1.8 0.0 10.1 4.3

1.8 2.5 15.9 0.7 -46.1 -7.8 7.7 -7.4 7.8 2.7

2003

2004

Forecast 2007 2008

2009

Personal Income Billions Current Dollars 9163.6 6325.4 815.6 782.1 29.2 133.0 422.6 914.1 1351.0 396.5

9731.4 10239.2 6650.3 7030.3 866.1 933.2 874.9 940.5 36.2 30.3 127.1 72.8 537.1 574.4 890.8 945.0 1426.5 1526.6 419.3 448.3

10960.5 11549.5 12217.0 12969.8 7567.3 7933.2 8333.6 8778.6 992.4 1041.0 1080.4 1121.4 998.5 1050.6 1124.6 1195.0 19.6 18.6 18.3 17.6 66.6 50.3 37.0 28.8 638.0 713.4 788.1 851.2 1024.6 1085.7 1161.2 1295.5 1603.0 1706.2 1815.1 1923.0 488.7 515.3 542.2 572.5

Growth Rates

24

U.S. Forecast

3.2 3.8 9.6 3.2 269.0 -11.7 6.4 -2.3 5.0 3.0

6.2 5.1 6.2 11.9 28.1 -4.1 26.8 -2.5 5.6 5.7

5.2 5.7 7.7 7.5 -16.1 -45.4 8.1 6.1 7.0 6.9

7.0 7.6 6.4 6.2 -35.5 137.6 11.1 8.4 5.0 9.0

5.4 4.8 4.9 5.2 -3.5 -24.3 11.8 6.0 6.4 5.5

5.8 5.0 3.8 7.0 -1.8 -26.6 10.5 6.9 6.4 5.2

6.2 5.3 3.8 6.3 -3.7 -21.5 8.0 11.6 5.9 5.6

u . s . f o r eca s t T A B L E S Table Personal Consumption Expenditures Table 12. 12.

Personal C onsumption Expenditures (C urrent Dollars)

(Current Dollars)

2006Q 3 2006Q 4 2007Q 1 2007Q 2 2007Q 3 2007Q 4 2008Q 1 2008Q 2 2008Q 3 2008Q 4 2009Q 1 2009Q 2 2009Q 3 2009Q 4 Consumer Expenditures by Type Billions Current Dollars

Consumer spending on‌ all goods & services durable goods furniture & appliances computers & software motor vehicles & parts other durable goods nondurables clothing & shoes fuel oil & coal gasoline & motor oil food other nondurable goods

9372.9 1075.7 405.2 60.7 449.7 193.0 2763.0 358.5 24.7 350.1 1289.0 740.8

9468.4 1065.7 404.5 60.7 438.5 194.7 2779.4 359.1 24.5 337.2 1303.7 755.0

9592.2 1062.1 403.7 61.5 431.5 198.6 2811.0 362.6 23.8 340.2 1318.6 765.9

9694.9 1065.4 400.9 62.4 435.3 200.8 2829.8 362.4 23.5 337.7 1332.5 773.7

9807.4 1070.1 400.2 63.3 438.8 202.4 2857.7 366.0 23.1 339.2 1346.7 782.7

all goods & services durable goods furniture & appliances computers & software motor vehicles & parts other durable goods nondurables clothing & shoes fuel oil & coal gasoline & motor oil food other nondurable goods

8125.7 1208.8 553.3 191.2 451.9 198.6 2370.1 394.2 12.9 186.2 1113.9 672.9

8167.3 1201.2 556.5 198.3 441.1 200.2 2382.0 396.1 12.7 183.7 1120.7 681.5

8216.0 1197.6 559.0 207.6 432.3 203.9 2395.6 400.2 12.6 183.2 1127.2 686.3

8259.5 1201.5 558.7 217.4 433.9 206.0 2405.2 400.2 12.7 185.4 1131.3 688.4

8315.5 1206.8 561.2 227.1 435.2 207.6 2421.5 404.6 12.9 188.2 1136.3 692.0

all goods & services durable goods furniture & appliances computers & software motor vehicles & parts other durable goods nondurables clothing & shoes fuel oil & coal gasoline & motor oil food other nondurable goods

3.5 5.7 7.2 24.8 7.0 -0.1 3.0 6.8 -0.2 4.8 1.6 3.0

2.0 -2.5 2.3 15.0 -9.6 3.1 2.0 1.8 -7.9 -5.3 2.5 5.1

2.4 -1.2 1.8 18.6 -8.0 7.5 2.3 4.2 -1.1 -1.0 2.3 2.8

2.1 1.3 -0.2 19.0 1.5 4.0 1.6 0.0 3.0 4.7 1.4 1.2

2.7 1.8 1.8 17.8 1.2 3.2 2.7 4.4 3.6 6.1 1.8 2.0

9926.0 10058.6 10181.8 10313.2 10449.2 10579.3 10711.8 10846.5 10997.0 1081.3 1095.3 1100.3 1113.8 1128.2 1137.3 1152.6 1163.2 1185.1 400.8 403.1 405.4 409.3 415.3 420.9 425.2 430.5 437.5 64.1 65.1 66.2 67.3 68.4 69.5 70.7 72.0 73.3 446.2 454.3 453.9 459.7 463.3 462.4 469.9 471.7 481.9 205.2 208.4 211.1 214.6 218.9 222.8 225.8 228.8 233.1 2886.2 2915.1 2947.1 2977.1 3008.6 3038.2 3067.4 3097.8 3130.2 368.7 372.0 374.7 377.8 381.7 385.5 388.8 392.6 397.6 22.9 22.7 22.6 22.4 22.4 22.4 22.3 22.3 22.2 341.3 342.4 345.4 345.7 346.4 345.6 345.6 344.7 344.1 1359.9 1374.1 1389.2 1403.6 1416.7 1429.6 1443.5 1457.5 1471.3 793.4 803.9 815.2 827.7 841.4 855.1 867.2 880.8 895.0

Consumer Expenditures by Type Billions 2000 Dollars 8374.4 1219.9 565.4 236.8 440.6 210.5 2436.7 407.9 12.8 189.8 1141.8 697.0

8443.6 1236.1 572.2 247.4 446.8 213.7 2454.0 412.0 12.8 192.1 1147.9 701.8

8504.3 1242.5 579.0 258.6 444.9 216.3 2471.3 415.5 12.8 194.3 1153.7 707.3

8574.4 1259.0 588.4 270.4 449.2 219.9 2488.9 419.3 12.8 195.9 1159.7 714.0

8650.6 1277.0 600.8 283.0 451.8 224.4 2509.0 424.1 12.8 197.3 1166.5 721.7

8718.9 1289.3 612.9 295.5 450.1 228.4 2527.6 428.7 12.8 198.6 1172.5 729.2

8789.1 1308.7 623.2 309.0 456.8 231.4 2545.2 432.6 12.9 200.3 1178.8 735.0

8861.5 1323.2 635.1 323.2 458.1 234.4 2565.1 437.3 13.0 202.0 1185.4 742.2

8947.9 1350.9 649.6 338.2 467.6 238.9 2586.6 443.3 13.0 203.8 1192.1 749.9

3.2 3.8 8.1 17.6 -1.5 7.1 3.0 4.3 1.3 2.6 2.1 4.1

3.2 6.0 6.7 18.3 5.9 5.3 2.8 3.7 1.3 3.4 2.2 3.2

3.3 4.4 7.7 18.4 1.2 5.3 3.1 4.3 2.1 3.5 2.2 3.9

3.9 8.4 9.1 18.6 8.3 7.7 3.4 5.6 1.9 3.5 2.3 4.2

Real Consumer Expenditures Annual Growth Rate 2.8 4.3 3.0 17.0 5.0 5.5 2.5 3.3 -1.3 3.3 1.9 2.9

3.3 5.3 4.8 18.0 5.6 6.0 2.8 4.0 -0.7 4.8 2.1 2.8

2.9 2.0 4.7 18.1 -1.7 5.0 2.8 3.4 1.0 4.8 2.0 3.1

3.3 5.3 6.5 18.2 3.9 6.6 2.8 3.6 -1.7 3.2 2.1 3.8

3.6 5.7 8.5 18.7 2.3 8.1 3.2 4.6 1.2 2.9 2.3 4.3

Institute for Economic Competitiveness

25

u . s . f o r eca s t T A B L E S Table Personal Consumption Expenditures (2000 Dollars) Table 13.13.

Personal C onsumption Expenditures (2000 Dollars) History 1998

1999

2000

2001

Forecast 2002

2003

2004

2005

2006

2007

2008

2009

Consumer Expenditures by Type Billions Current Dollars

Consumer spending on‌ all goods & services durable goods furniture & appliances computers & software motor vehicles & parts other durable goods nondurables clothing & shoes fuel oil & coal gasoline & motor oil food other nondurable goods

5879.5 750.2 273.1 37.0 336.1 121.0 1683.6 270.9 11.5 122.4 829.8 449.0

6282.5 817.6 293.9 40.4 370.8 132.1 1804.8 286.3 11.9 137.9 873.1 495.6

6739.4 863.3 312.9 43.8 386.5 141.8 1947.2 297.7 15.8 175.7 925.2 532.9

7055.0 883.7 312.1 42.0 407.9 143.0 2017.1 297.7 15.4 171.6 967.9 564.4

all goods & services durable goods furniture & appliances computers & software motor vehicles & parts other durable goods nondurables clothing & shoes fuel oil & coal gasoline & motor oil food other nondurable goods

6125.8 720.3 244.7 22.0 339.0 116.9 1794.4 263.1 16.0 170.3 865.6 481.1

6438.6 804.5 280.7 32.9 372.4 130.3 1876.6 282.7 16.4 176.3 893.6 508.6

6739.4 863.3 312.9 43.8 386.5 141.8 1947.2 297.7 15.8 175.7 925.2 532.9

6910.4 900.7 331.8 55.4 405.8 143.1 1986.7 303.7 15.2 178.3 940.2 549.2

7350.8 923.9 323.1 44.6 429.3 149.7 2079.6 303.5 14.2 164.5 1001.9 595.5

7703.6 942.7 331.5 46.6 431.7 157.1 2190.2 310.9 16.9 192.7 1046.0 623.7

8211.5 986.3 356.5 51.6 437.9 168.5 2345.2 325.1 18.3 230.4 1114.8 656.5

8742.4 1033.1 377.2 55.4 448.2 182.7 2539.3 341.8 21.9 280.2 1201.4 694.0

9287.5 1067.2 403.5 59.8 443.2 192.9 2730.9 357.1 23.4 329.7 1282.4 738.2

9755.1 10250.7 10783.6 1069.7 1109.4 1159.6 401.4 408.3 428.5 62.8 66.8 71.4 437.9 457.8 471.5 201.8 213.3 227.6 2846.2 2962.0 3083.4 364.9 376.6 391.1 23.3 22.5 22.3 339.6 345.0 345.0 1339.4 1395.9 1450.5 778.9 822.0 874.5

Consumer Expenditures by Type Billions 2000 Dollars 7099.3 964.8 364.3 74.1 429.0 151.3 2037.1 318.3 15.5 181.9 954.6 567.1

7295.4 1020.6 397.8 94.8 442.1 161.9 2103.0 334.2 15.4 183.2 977.7 593.2

7577.1 1085.7 446.0 118.5 450.4 173.9 2179.2 350.9 14.6 186.0 1011.0 618.5

7841.2 1145.3 490.6 147.4 452.9 190.0 2276.8 372.7 13.7 185.9 1065.7 643.9

8087.9 1198.1 547.9 185.0 445.6 199.5 2361.8 392.3 12.7 184.4 1111.9 671.3

8291.3 1206.4 561.1 222.2 435.5 207.0 2414.7 403.2 12.8 186.7 1134.2 690.9

8543.2 1253.7 585.1 264.8 448.2 218.6 2480.8 417.7 12.8 194.9 1156.9 711.2

8829.4 1318.0 630.2 316.5 458.2 233.3 2556.1 435.5 12.9 201.2 1182.2 739.1

2.5 0.7 2.4 20.2 -2.3 3.8 2.2 2.8 0.5 1.2 2.0 2.9

3.0 3.9 4.3 19.2 2.9 5.6 2.7 3.6 0.3 4.4 2.0 2.9

3.3 5.1 7.7 19.5 2.2 6.7 3.0 4.2 1.0 3.2 2.2 3.9

Real Consumer Expenditures Annual Growth Rate all goods & services durable goods furniture & appliances computers & software motor vehicles & parts other durable goods nondurables clothing & shoes fuel oil & coal gasoline & motor oil food other nondurable goods

26

U.S. Forecast

5.0 11.3 13.1 59.9 11.2 8.5 4.0 7.0 -5.3 4.6 2.4 5.4

5.1 11.8 14.7 50.9 10.2 11.4 4.6 7.5 2.3 3.5 3.2 5.7

4.7 7.4 11.6 33.6 3.9 8.9 3.8 5.3 -3.4 -0.3 3.5 4.8

2.5 4.3 6.0 26.2 5.1 0.9 2.0 2.0 -3.9 1.5 1.6 3.1

2.7 7.2 9.8 34.1 6.1 5.8 2.5 4.8 2.7 2.1 1.5 3.3

2.8 5.8 9.1 27.6 3.1 7.0 3.2 5.0 -0.6 0.7 2.4 4.6

3.9 6.4 12.2 25.4 1.9 7.5 3.6 5.0 -5.0 1.5 3.4 4.3

3.5 5.5 10.0 24.4 0.6 9.3 4.5 6.2 -6.2 0.0 5.4 4.1

3.1 4.6 11.7 25.5 -1.5 5.1 3.7 5.3 -7.3 -0.8 4.3 4.3

u . s . f o r eca s t T A B L E S Table Business Fixed Investment Table 14.14.

Business Fixed Investment History 2001 2002

1998

1999

2000

2003

Business Fixed Investment Producers Dur. Equipment Nonresidential Structures Non-Farm Buildings Commercial Industrial Other Buildings Utilities Mines & Wells

1052.5 777.3 275.2 203.1 100.0 40.5 62.6 39.5 23.4

1133.9 851.7 282.2 207.6 109.1 32.6 65.8 44.5 20.6

1232.1 918.9 313.2 222.8 121.3 31.8 69.7 51.5 27.2

1176.8 854.2 322.6 216.4 118.2 29.5 68.7 54.4 39.2

1066.3 787.1 279.2 180.6 97.0 17.8 65.8 54.6 35.6

Business Fixed Investment Producers Dur. Equipment Nonresidential Structures Non-Farm Buildings Commercial Industrial Other Buildings Utilities Mines & Wells

1037.8 745.6 294.5 221.2 108.7 43.7 68.8 41.0 23.3

1133.3 840.2 293.2 216.6 113.5 33.9 69.2 45.9 21.3

1232.1 918.9 313.2 222.8 121.3 31.8 69.7 51.5 27.2

1180.5 874.2 306.1 208.4 114.2 28.5 65.6 52.8 32.0

1071.5 820.2 253.8 170.0 91.2 16.7 62.1 51.8 24.5

Business Fixed Investment Producers Dur. Equipment Nonresidential Structures Non-Farm Buildings Commercial Industrial Other Buildings Utilities Mines & Wells

8.7 8.3 10.0 10.1 12.2 7.7 8.3 16.8 5.0

7.7 9.6 2.6 2.3 9.2 -19.4 5.4 12.6 -11.9

8.7 7.9 10.9 7.4 11.2 -1.9 6.0 15.8 31.9

-4.4 -7.0 3.2 -2.7 -2.3 -7.0 -1.5 5.5 45.3

-9.3 -7.7 -13.4 -16.5 -17.8 -39.5 -4.2 1.3 -8.8

2004

Forecast 2007 2008

2005

2006

2009

1265.7 927.1 338.6 204.4 109.9 24.1 70.3 47.2 76.4

1410.9 996.2 414.7 239.4 122.8 29.2 87.4 51.9 111.8

1527.1 1066.9 460.2 262.4 132.2 33.0 97.1 56.6 128.4

1590.7 1129.2 461.5 271.4 133.6 38.1 99.7 60.0 115.8

1670.8 1195.0 475.8 294.5 144.7 45.0 104.8 62.6 103.2

1223.8 984.9 251.5 163.0 86.2 19.6 57.1 38.7 36.4

1324.5 1058.6 276.4 178.1 89.8 22.2 66.3 40.8 41.8

1415.8 1118.4 303.6 189.3 93.9 24.0 71.6 42.9 50.4

1477.1 1176.9 310.3 192.8 93.7 26.8 72.5 44.3 51.3

1550.0 1250.3 315.8 203.9 99.0 30.7 74.4 45.1 47.0

9.6 8.5 12.6 8.4 8.6 31.0 2.3 0.2 38.8

11.5 7.5 22.4 17.1 11.7 21.4 24.2 10.3 46.5

8.3 7.1 11.4 9.9 8.0 13.0 11.5 9.0 16.2

4.2 5.9 0.3 3.4 1.1 15.4 2.6 6.1 -9.8

5.0 5.8 3.1 8.5 8.2 18.1 5.1 4.3 -10.8

Billions C urrent Dollars 1077.4 800.2 277.2 174.7 91.7 16.7 66.2 49.2 45.7

1155.3 854.5 300.8 188.6 101.3 18.5 68.9 47.2 54.9

Billions 2000 Dollars 1081.8 843.1 243.5 160.3 83.9 15.4 61.0 45.6 29.0

1145.8 904.2 248.7 163.4 87.1 16.2 60.0 40.8 32.8

Annual G rowth Rate 1.1 1.7 -0.6 -3.1 -5.1 -4.6 0.6 -9.6 28.8

7.2 6.8 8.5 8.0 10.5 10.4 4.0 -3.9 20.2

Institute for Economic Competitiveness

27

u . s . f o r eca s t T A B L E S Table Government Receipts and Expenditures Table 15.15.

G overnment Receipts and Expenditures History 2001 2002

2003

2004

2005

2006

Forecast 2007 2008

1998

1999

2000

2009

Receipts Personal Tax and Nontax Receipts Corp. Profits Tax Accruals Indirect Business Tax and Nontax Accruals Contributions for Social Insurance

1773.8 825.8 204.3 81.1 613.8

1891.2 893.0 213.0 83.9 651.7

2053.9 999.1 219.5 87.8 691.7

2016.2 994.5 164.7 85.8 717.5

1853.2 830.5 150.5 87.3 734.3

1879.9 774.5 197.8 89.7 758.9

2001.0 801.4 244.5 94.6 802.2

2246.8 927.9 326.4 101.1 855.4

2567.6 1077.2 388.9 103.5 932.1

2681.9 1136.4 385.3 108.3 982.9

2771.0 1162.5 390.0 111.8 1034.1

2949.2 1265.6 400.4 114.8 1091.8

Expenditures Purchases Goods & Services National Defense Other Transfer Payments To Persons To Foreigners Grants in Aid to State & Local Gov't Net Interest Subsidies less Surplus of Gov't Entities Surplus (+) or Deficit (-)

1735.0 530.5 345.7 184.7 946.5 716.9 14.6 212.8 281.2 34.9 38.8

1787.6 555.8 360.6 195.2 986.1 735.7 15.2 232.9 264.7 44.1 103.6

1864.4 578.8 370.3 208.5 1038.1 770.0 18.3 247.3 263.2 46.1 189.5

1969.5 612.9 392.6 220.3 1131.4 838.7 14.0 276.1 240.2 53.1 46.7

2101.1 679.7 437.1 242.5 1243.0 916.9 18.8 304.6 213.7 39.1 -248.0

2252.1 756.4 497.2 259.2 1328.7 963.7 23.6 338.5 196.5 45.4 -372.2

2383.0 825.9 551.3 274.7 1393.3 1015.4 25.9 349.0 205.3 45.5 -382.0

2555.9 878.3 589.3 289.0 1476.7 1078.6 33.9 361.1 238.0 61.8 -309.2

2703.0 929.9 622.0 307.9 1558.8 1172.3 23.7 359.5 265.4 54.5 -135.4

2865.8 966.1 646.4 319.7 1665.8 1247.6 30.0 384.7 291.4 53.4 -183.9

3016.3 995.7 664.1 331.6 1770.0 1323.9 31.5 411.1 310.6 53.8 -245.4

3157.1 1019.6 676.5 343.1 1868.0 1395.9 33.5 434.8 331.4 54.3 -207.9

794.9 201.2 34.9 558.8 10.4 212.8

840.4 214.5 35.8 590.2 9.8 232.9

893.2 236.6 35.6 621.1 11.0 247.3

915.8 242.7 30.2 642.8 13.7 276.1

929.0 221.3 32.2 675.5 15.8 304.6

979.5 226.6 35.3 717.5 19.8 338.5

1060.9 248.4 43.1 769.4 24.3 349.0

1154.4 275.2 58.0 821.2 25.3 361.1

1236.3 302.2 68.5 865.6 24.9 359.5

1278.1 307.9 66.6 903.6 25.7 384.7

1339.9 326.5 66.9 946.5 26.7 411.1

1403.1 348.9 67.0 987.2 28.1 434.8

1111.2 987.9 235.8 -1.0 -9.8 1.7 0.0 52.0

1186.3 1065.0 252.4 -3.8 -10.0 1.8 0.0 50.4

1269.5 1142.8 271.7 -4.5 -7.1 1.9 0.0 50.0

1368.2 1212.8 305.2 5.2 3.6 2.0 0.0 4.8

1444.3 1281.5 332.0 16.5 -1.6 2.0 0.0 -34.2

1514.6 1336.0 353.0 24.8 0.7 2.2 0.0 -20.4

1605.5 1400.4 382.9 29.7 4.1 2.4 0.0 -12.9

1703.9 1494.5 402.3 30.7 10.8 2.4 0.0 -3.3

1778.4 1600.2 395.4 32.2 7.7 2.6 0.0 14.9

1866.0 1687.4 421.7 33.0 3.9 2.7 0.0 8.9

1954.7 1768.2 454.3 32.9 1.1 2.7 0.0 23.0

2058.9 1848.7 489.0 35.9 0.3 2.8 0.0 19.2

Federal Government Receipts and Expenditures

State and Local Government Receipts and Expenditures Receipts Personal Tax/Nontax Receipts Corporate Profits Indirect Business Tax and Nontax Accruals Contributions for Social Insurance Federal Grants-In-Aid Expenditures Purchases Goods & Services Transfer Payments Interest Received Net Subsidies Dividends Received Net Wage Accruals Surplus (+) or Deficit (-)

28

U.S. Forecast

u . s . f o r eca s t T A B L E S Table 16.16.

U.S. U.S. ExportsExports and Importsand of G oods and Services Table Imports of Goods and Services History 2001 2002

1998

1999

2000

2003

Net Exports Goods & Services Current Account Exports - Goods & Services Merchandise Balance Food, Feed & Beverage Industrial Supplies Excl Petroleum Motor Vehicles & Parts Capital Goods, Excl. MVP Computer Equipment Other Consumer Goods, Excl. MVP Other Consumer Services

-160.0 -213.5 955.9 -246.7 46.43 142.9 72.4 299.9 45.3 201.1 80.3 39.1 275.1

-260.5 -299.8 991.3 -346.0 45.98 142.4 75.3 311.3 46.8 211.6 80.9 41.4 294.1

-379.5 -415.2 1096.3 -452.4 47.85 166.7 80.4 357.0 55.5 253.4 89.4 43.1 312.0

-367.0 -389.0 1032.8 -427.2 49.43 155.3 75.4 321.7 47.6 221.6 88.3 41.0 301.6

-424.4 -472.4 1005.9 -482.3 49.60 153.5 78.9 290.5 38.6 201.5 84.4 40.7 308.4

-499.4 -527.5 1040.8 -547.3 55.03 168.3 80.7 293.7 39.9 207.1 89.9 36.9 316.4

Imports - Goods & Services Merchandise Food, Feed & Beverage Petroleum & Products Industrial Supplies Excl Petroleum Motor Vehicles & Parts Capital Goods, Excl. MVP Computer Equipment Other Consumer Goods, Excl. MVP Other Consumer Services

1115.9 928.9 41.2 50.6 142.5 148.7 269.5 72.5 175.2 217.2 59.3 186.9

1251.8 1045.5 43.6 67.8 147.9 179.0 295.7 81.5 190.5 242.1 69.5 206.3

1475.8 1243.5 46.0 120.2 172.8 195.9 347.0 89.8 230.9 282.0 79.6 232.3

1399.9 1168.0 46.6 103.6 164.8 189.8 298.0 74.0 192.7 284.5 80.7 231.9

1430.3 1189.4 49.7 103.5 158.4 203.8 283.3 75.2 182.7 308.0 82.8 241.0

1540.2 1284.0 55.8 133.1 174.4 210.1 295.9 76.5 195.3 334.0 80.6 256.2

Net Exports Goods & Services Exports G & S Imports G & S

-203.8 966.5 1170.3

-296.2 1008.2 1304.5

-379.5 1096.3 1475.8

-399.1 1036.7 1435.8

-471.4 1013.3 1484.6

0.1 5.6 2.5 11.7

3.7 12.1 4.3 11.4

10.6 18.0 8.8 13.2

-5.6 -4.9 -5.3 -2.6

-2.3 2.6 -2.0 3.5

2004

Forecast 2007 2008

2005

2006

2009

-716.7 -791.5 1303.2 -782.7 58.95 227.5 98.6 362.7 45.6 256.4 115.7 44.0 395.6

-781.6 -866.5 1470.2 -848.8 66.36 270.9 106.9 416.7 49.0 293.2 129.6 48.6 431.1

-780.4 -890.7 1646.6 -877.2 67.60 306.4 122.1 469.4 57.4 327.0 146.9 53.5 480.6

-730.1 -874.1 1816.2 -861.1 70.66 325.8 136.7 523.9 66.5 360.6 167.5 57.6 534.1

-693.0 -878.2 1978.8 -850.6 72.28 341.6 150.4 578.3 74.9 395.3 190.1 61.4 584.7

2019.9 1699.0 68.1 251.8 264.9 239.5 379.2 93.3 260.2 407.3 88.1 320.9

2251.9 1902.2 74.1 327.2 292.2 257.4 419.2 101.2 289.7 434.0 98.0 349.7

2427.1 2057.4 79.4 364.2 324.7 259.1 461.1 110.2 318.5 462.3 106.7 369.7

2546.3 2157.0 84.4 357.8 339.3 275.7 498.7 121.3 340.0 487.7 113.3 389.3

2671.8 2258.1 86.6 344.6 350.8 294.3 533.5 132.8 359.1 525.1 123.3 413.6

-620.3 1302.5 1922.7

-579.3 1419.7 1999.0

-537.3 1549.0 2086.3

-532.9 1681.1 2213.9

12.8 11.5 8.9 5.9

12.0 7.8 9.0 4.0

10.3 4.9 9.1 4.4

9.0 4.9 8.5 6.1

Billions of Dollars -613.3 -665.3 1178.1 -665.4 56.60 199.5 89.2 331.6 42.8 238.8 103.1 38.9 359.3

Billions of Dollars 1791.4 1495.2 62.1 180.5 225.2 228.2 343.5 88.6 230.6 373.1 82.7 296.2

Billions 2000 Dollars -518.9 1026.1 1545.0

-590.9 1120.4 1711.3

-619.2 1196.1 1815.3

Exports & Imports % C hange Exports G & S Imports G & S Real Exports G & S Real Imports G & S

3.5 7.8 1.3 4.1

13.2 16.3 9.2 10.8

10.6 12.8 6.8 6.1

Institute for Economic Competitiveness

29

Director, Institute for Economic Competitiveness.

Ph.D., Pennsylvania State University 1996; M.A., Pennsylvania State University 1994, B.S., Allegheny College 1989.

Sean M. Snaith, Ph.D. Sean Snaith is Director of the Institute for Economic Competitiveness in the College of Business Administration at the University of Central Florida.

Dr. Snaith received his B.S. in Economics from Allegheny College, and his M.A. and Ph.D. in Economics from Pennsylvania State University. He has taught at Penn State, the American University in Cairo, the University of North Dakota and the University of the Pacific. While at the University of North Dakota he served as the Director of the Bureau of Business and Economic Research and as Director of the Business Forecasting Center at the University of the Pacific.

Snaith also served with International Planning and Research, a Boston area consulting firm, where his work included forecasting, market sizing, economic analyses, and econometric modeling for a variety of clients including IBM, Dell, Compaq, and HewlettPackard.

Snaith is a director of the Association of University Business of Economic Research, a member of the National Association of Business Economics, and the American Economics Association. He is also a member of the Western Blue Chip Economic Forecast Panel, the Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, Livingston Survey, Bloomberg U.S. Economic Indicator Survey and USA Today’s Quarterly Survey of Top Economists. He is frequently quoted in the media and has published articles on a variety of topics including exchange rate modeling, predicting educational outcomes, the economics of information technology, and telemedicine.

For more information Sean Snaith, Director Institute for Economic Competitiveness College of Business Administration University of Central Florida P.O. Box 161400 Orlando, FL 32816 PH: 407.823.1451 FAX: 407.823.1454 EMAIL: ssnaith@bus.ucf.edu www.iec.ucf.edu

UniVeRSitY OF CentRaL FLORiDa College of Business administration institute for economic Competitiveness P. O . B o x 1 6 1 4 0 0 , O r l a n d o , F l o r i d a 3 2 8 1 6 Ph 407.823.1453

FaX 407.823.1454

w w w. i e c . u c f . e d u