Presented by:

Morris Segall, President

SPG Trend Advisors
THE ECONOMY
 Gross Domestic Product
Q1 2001 – Q1 2009

Source: Bureau of Economic Analysis

 Contributions to GDP Growth by Component
Q1 2008 – Q1 2009

Source: Bureau of Economic Analysis

 Historic and Projected Real GDP Growth
2007 – 2011*
World Bank’s GDP growth projection is more dire compared to the projection by the IMF. The recovery process is expected to take
longer even with various policy efforts of governments partly because the crisis is so severe and has penetrated throughout the world.
Economies are in worse conditions than expected.

*2007/08 data are actual

Source: World Bank

 Year-over-year Percentage Changes in
Corporate Profit before Tax

Source: Bureau of Economic Analysis

 Year-over-year Percentage Changes in Non-financial
Sector Corporate Profit before Tax
Q1 2001-Q1 2009

Source: Bureau of Economic Analysis

 Industrial Production
January, 2008 - May, 2009

% decline Jan. 08-

May. 09: 15%

Source: Federal Reserve Bank

 Capacity Utilization by Status of Production
January, 2008 - May, 2009

Source: Federal Reserve Bank

 Manufacturers Durable Goods Orders & Shipments
Excluding Transportation
January, 2008 – May, 2009

Much has been made of the

increase in orders since March.
Note the absolute low levels and
the shortfall versus shipments.
Shipment levels will decline if
orders do not pick up substantially
from current levels.

Source: Census Bureau

 Net Change in U.S. Jobs (Total Non-farm)
June, 2005 – June, 2009

Source: Bureau of Labor Statistics

 National Nonfarm Employment by Industry Sector Groups
January, 2008 – June, 2009

Source: Bureau of Labor Statistics

 National Nonfarm Employment by Industry Sector Groups
September, 2008 – June, 2009

Source: Bureau of Labor Statistics

 Initial Unemployment Claims
January, 2009 – June, 2009

Reflecting the rise in unemployment, new job losses rose

dramatically in the first quarter of this year. However, the
trend of new job losses appears to have peaked at around
660,000 since March. Normally we would be prepared to
predict a peaking in unemployment is at hand based on this
trend. However, we believe a new surge in job losses is
coming over the summer as the auto industry downsizes.

Source: Department of Labor

 Continued Unemployment Claims
June, 2006 – June, 2009

Source: Department of Labor

Retail Sales Less Food and Fuel Consumer Credit
May, 2007 – May, 2009 Q2 2006 – April, 2009
Since the third quarter of 2008 consumer spending has been declining and the consumer is currently paying down
outstanding debt. These trends have been negative for the economy in the short term but the reduction of consumer debt
and an increase in consumer savings is positive for the economy and the improved creditworthiness of the consumer longer
term.

Source: (Left) Census Bureau, (Right) Federal Reserve Bank

 National Saving Rate
as Percentage of Personal Disposable Income
Q1 2005 – Q1 2009

Source: Bureau of Economic Analysis

 New Home Sales Units Sold
Existing Home Sales v. Length on Market

v. Length on Market
March, 2006 - May, 2009
March, 2006 - May, 2009
Housing remains weak but new home inventories may have peaked as new home construction , home prices and mortgage interest
rates have declined. The latter will also help the existing home market. We expect the rate of decline in housing sales to diminish
over the remainder of this year.

Source: (Left) National Association of Realtors, (Right) Census Bureau

 S&P/Case-Shiller Home Price Index
2006 – April, 2009

Source: Standard and Poors

 Conference Board Consumer Confidence
2005 – June, 2009

Source: Conference Board

 Commercial Mortgage Backed Securities Delinquency Rates
among Major Investor Groups
January, 2008 - March, 2009

Source: Intex, Trepp (Deutsche Bank)

 Real Estate Loan Delinquency Rates: All Banks
Q1 2006 –Q1 2009

Source: Federal Reserve Bank

While inflation has declined precipitously in the recession led by the collapse in energy and commodity prices, we are not in agreement
with a fear of deflation hitting the U.S. economy. Basic services, healthcare and education prices remain stubbornly high.

Source: Bureau of Labor Statistics

 Crude Oil Spot Prices in U.S. Dollars
June, 2004– June, 2009

Source: Energy Information Administration

 Nominal Broad Dollar Index*
June, 2000 – June, 2009

* Broad Dollar Index: a weighted average of the Source: Federal Reserve Board
foreign exchange value of the U.S. dollar against the
currencies of a broad group of major U.S. trading
THE GOVERNMENT’S
RESPONSE
 Money Supply (M2):
January, 2007 – June, 2009

Source: Federal Reserve Bank

 Federal Budget Deficit
(exclusive of Social Security Trust funds)
FY 2006 – May, 2009

Source: FMS, U.S. Treasury Department

 U.S. Federal Budget Deficit, 1995-2011*
*2009-2011 data are projections

Source: Congressional Budget Office

 Federal Reserve Balance Sheet: Reserve Bank Credit
June, 2008 – June, 2009

Source: Federal Reserve Bank

 Federal Fund Rates, 3-month LIBOR rates lent in $US
January, 2008 - June, 2009 January, 2008 - June, 2009
The Fed and European Central Bank have cut interest rates to the banking systems here and abroad thus
driving down the cost of bank funds to facilitate bank lending.

Source: (Left) Federal Reserve Bank, (Right) British Banker’s Association

What’s on the other side?
2009 - Recession Bottoms with Housing and
Unemployment
Housing bottoms late this year
Bank loan losses start to peak at the end of this year
Unemployment peaks at the end of this year
Lower Energy Prices alleviate pressure on consumer
spending – but virtually no economic growth or recovery
Obama Administration
Increased economic stimulus spending programs will
begin to help economy in the second half of 2009
Increased spending on energy, healthcare and education
will result in increased federal budget deficits and higher
What’s on the other side? (cont.)
2009 – Business
Cost of goods declines from current levels as interest
rates, labor costs and commodity prices decline but
business is facing zero consumer and business demand.
Corporate profits in decline for most of this year.
Weak consumer spending but pent-up demand building
2010 – Economy Makes Gradual Cyclical
Recovery
Increased employment = increased consumer spending
Increased Corporate Sales = increased corporate profits =
increased capital spending
Increased interest rates and rising prices from higher
demand, less accommodative Fed policy and continuing
Where are the opportunities?
Healthcare – Water Conservation
National Program – New Supplies and
Education Recycling
Agriculture U.S. Government
Energy Procurement and
Conservation Outsourcing – Base
Realignment
Environmental Program (BRAC)
Solutions
Real Estate –
Electric Power
Recycle and Rehab
Transportation – Existing Commercial
 Conclusions
We have been in a deep and protracted recession that


began in the fourth quarter of 2007. It began in housing

and has spread through the entire U.S. and overseas
economies. Economic weakness intensified through 2008
and has worsened through the first quarter of 2009. The
first quarter should be the nadir of the economic
contraction in the current recession cycle but there will
be no economic recovery this year.
Continuing near term economic pressures include:


 high cost and reduced availability of credit

 lower corporate profits

 increased unemployment

 continued weak levels of corporate capital and

Conclusions continued
 Severe reductions in State and Local
Government spending and eroded
municipal financial strength
 Weak exports as overseas economies
continue in recession
 Continued credit pressures in residential
housing and consumer lending spread to
commercial real estate markets and
corporate lending
 Conclusions continued
However, a bottoming of the housing cycle and a
peaking in unemployment late this year, aided
importantly by increased federal stimulus spending in
the second half of this year, should set the stage for
cyclical capital markets and economic improvements
in 2009 and 2010. Indeed, capital markets in the U.S.
and abroad have already staged a large recovery off
what we believe are market cycle lows in the first
quarter.
After an expected cyclical recovery in 2010-2012, we

believe the longer term socio-economic issues facing

this country will result in slower future economic
growth for the United States.
 Thank You
You can always reach me at
msegall@spgtrend.com
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410.522.7243
Please contact us when you require

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