Economic Outlook Don t Think Twice It s All Right

Economic Outlook: Don’t Think Twice, It’s All Right CFT Banks’ Forum May 25, 2011 Todd P. Martin Economic Services 203 -218 -9825 Toddpmartin@yahoo. com TPMES 1

Economic Outlook Source: WWW. investors. com/cartoons TPMES 2

The Royal Wedding Source: toledoblade. com TPMES 3

Economic Outlook Source: USA Today, The Columbus Dispatch TPMES 4

US Economic Backdrop • Moderate US economic recovery continues, but momentum slowed in 1 st Q 2011 due to weather, Middle-East, and oil prices • Positives: Strong corporate profits should = better job growth and investment, extremely supportive Fed, Banking System and household balance sheets improving slowly, Technology boom boasting productivity • Concerns: Rising commodity & oil prices, Housing market in depression, European debt crisis worsening, massive US deficits & Debt (political stalemate), S&L budgets drag on growth. • Forecast for moderate growth to continue (i. e. , 3% GDP 2011), unemployment declines to 8% by 2012, Fed begins to tighten (fed funds 1. 5%) by 2012. TPMES 5

Real GDP up for 7 quarters, slows 1 st Q Source: www. calculatedriskblog. com TPMES 6

U. S. Economy added 244, 000 jobs in April…. • Source: Briefing. com, BLS TPMES 7

…. But recovery is still painfully slow Source: Calculatedriskblog. com TPMES 8

Trend in Initial Jobless Claims improving…. Source: Federal Reserve Bank of St. Louis, BLS TPMES 9

…but long-term unemployment still very high Source: Federal Reserve Bank of St. Louis, BLS TPMES 10

Financial stress has eased dramatically Based on bank stocks, stock option prices, interest rates and other measures. Readings below zero suggest stress in the financial markets is below its long-run average. Source: Federal Reserve bank of St. Louis, The Wall Street Journal TPMES 11

Record low rates -- Steep yield curve Source: The New York Times, Bloomberg. TPMES 12

Strong profits should = more jobs Source: Moody’s Analytics TPMES 13

“Official” Inflation rates still quite low • Source: FR Bank of St. Louis, BLS TPMES 14

Why 29% think we are in a Depression? Gold$/ounce Corn/cents/bushel Sources: (1) U. S. Energy Information Administration(2) Wall Street Journal(3) Bureau of Labor Statistics(4) Census Bureau(5) USD(6) U. S. Dept. Of Labor (7) FHFA(8) Standard & Poor's/Case-Shiller(9) Realty. Trac(10) Heritage Foundation and WSJ(11) The Conference Board(12) FDIC; (13) Federal Reserve(14) U. S. Treasury, New York Times TPMES 15

Rise in Gas prices acts like a tax hike $1. 00 increase in Gas prices is the equivalent of a $125 billion tax hike Source: Gas. Buddy. com TPMES 16

Consumers feeling a bit better …. Source: Briefing. com, Conference Board TPMES 17

…. and spending more Source: FR Bank of St. Louis, Census Bureau TPMES 18

Stock prices up 100% from 2009 lows Source: FR Bank of St. Louis, Dow Jones & Co. , TPM Economic Services TPMES 19

Extremely accommodative monetary policy "Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued. ” FOMC Press Release - 4/27/11 TPMES 20

Huge expansion of the Fed’s B/S The Fed's balance sheet has more than doubled in size since the Lehman bankruptcy. The focus of policy-makers has been on the asset side of the balance sheet, so-called "Credit Easing". Agency/MBS Treasuries Source: Federal Reserve, Stone & Mc. Carthy Research TPMES 21

Excess Reserves have exploded The explosion on the asset side of the balance sheet was matched by an offsetting explosion on the liability side of the balance sheet, especially an explosion in bank reserve balances held at the Fed. These reserve balances represent immediately available funds. Source: Federal Reserve, Stone & Mc. Carthy Research Reserve Balances TPMES 22

Housing sector is still in depression Source: FR Bank of St. Louis, Census Bureau, NAR, Stone & Mc. Carthy Research TPMES 23

Home inventories still high; prices still falling Source: Stone & Mc. Carthy Research, Zillow. com, Wall Street Journal TPMES 24

Record level of foreclosures & delinquencies Source: www. calculatedriskblog. com TPMES 25

Home prices need lower unemployment rate Source: www. calculatedriskblog. com TPMES 26

Some signs of life in Commercial RE? Source: Wall Street Journal, AII, Mc. Graw-Hill, Trepp LLC TPMES 27

Tax Revenues barely cover entitlements Source: Heritage Foundation, Census Bureau & CBO TPMES 28

Fiscal Policy is out of control Source: Heritage. org, White House OMB, CBO TPMES 29

European debt crisis continues Source: Moody’s Analytics TPMES 30

CT Economic Outlook • Connecticut Economy is slowly beginning to add back some of the 119, 000 jobs lost during the recession. 31, 600 net new jobs have been created since the trough – a recovery rate of 27%. All jobs lost not expected to be regained by 2015. • Unemployment rate at 9. 1% in April (above the US rate of 9. 0%). NEEP expects rate to fall to 8. 6% in 2012 – still historically very high. • $3. 4 billion state budget gap solved by record tax hikes and “union concessions” – overall spending continues to climb. General Assembly avoids making tough choices – huge unfunded liabilities among the worst in the U. S. • CT rated 47 th worst tax climate for business: Large employers expanding elsewhere (UTC, Pfizer, etc. ) • CT housing market still depressed – prices down, marketing times up, sales down, and permits off 88% from 1980 s peak. TPMES 31

CT has added 19, 300 jobs year-over-year CT has regained 31, 600 of the 119, 000 jobs it lost during the recession, or 27%. US has regained 1. 7 million of the 8. 6 million of the jobs it lost, or 20. 4% Source: BLS, FR Bank of St. Louis TPMES 32

CT Unemployment rate higher than US rate CT = 9. 1% as of April 2011 US = 9. 0% as of April 2011 Source: BLS, FR Bank of St. Louis TPMES 33

Construction lost 20, 500 jobs or 30% peak to trough Up 1, 300 jobs (2. 7%) from Dec. 2010. Source: BLS, FR Bank of St. Louis TPMES 34

CT Financial jobs are still trending lower CT has lost 10, 800 Financial Activities jobs during the recession, a drop of 7. 4%. Source: BLS, FR Bank of St. Louis TPMES 35

Health & Ed. the strongest job sectors in CT Health & Ed. jobs have increased steadily from 1990, growing by 122100 or 63% since 2/90. Source: BLS, FR Bank of St. Louis TPMES 36

CT Mfg. jobs cut in half; Gov. jobs +23% since 1990 s CT Gov. jobs (including casinos) rose 47, 600, or 23. 2% from 7/91 – 5/08. Since then, 11, 200 (4. 6%) Gov. jobs have been lost. CT has lost 140, 200 manufacturing jobs since 1/90, or 45% Source: BLS, FR Bank of St. Louis TPMES 37

Where CT has lost jobs over the last 12 months Change in CT Non-Farm Employment April 2011 vs. April 2010 ( Not SA ) Source: CT Labor Department, TPM Economic Services TPMES 38

Where jobs were created last year Change in CT Non-Farm Employment April 2011 vs. April 2010 ( Not SA) Source: CT Labor Department, TPM Economic Services TPMES 39

Housing permits in CT still very depressed CT Home Permits Authorized Down 88% from cycle peak in 1986. 2011 -2015 is forecast Source: CT DECD, New England Economic Partnership, Economy. com, TPM Economic Services TPMES 40

CT Home Prices still trending lower Source: FHFA, FR Bank of St. Louis TPMES 41

CT Homes taking longer to sell in 2011…. CT Single Family Home Sales - Days on Market - 1 st Q 2010 vs. 1 st Q 2011 0 20 40 60 80 100 120 140 160 170 128 147 177 Litchfield 188 171 Middlesex New Haven New London Tolland 200 158 Fairfield Hartford 180 183 143 152 154 170 147 150 155 159 Windham Days on Mkt 2010 Days on Mkt 2011 CT Source: Prudential CT Realty CT RE Market Report, TPM Economic Services 148 161 TPMES 42

…. and prices are a bit softer CT Single Family Median Home Prices - 1 st Q 2010 vs. 1 st Q 2011 $ - $ 50, 000 $ 100, 000 $ 150, 000 $ 200, 000 $ 250, 000 $ 300, 000 $ 350, 000 $ 400, 000 $ 450, 000 $ 425, 000 $ 420, 000 Fairfield $ 220, 000 $ 214, 500 Hartford $ 230, 000 $ 225, 750 Litchfield $ 260, 000 $ 267, 500 Middlesex New Haven $ 210, 000 New London $ 223, 000 $ 200, 000 $ 230, 000 $ 223, 500 Tolland Windham $ 170, 000 $ 150, 000 Median Price 2010 CT Source: Prudential CT Realty CT RE Market Report, TPM Economic Services $ 245, 000 $ 240, 000 Median Price 2011 TPMES 43

Home sales continued to fall in the 1 st Q…. CT %Change in Single Family Median Home Sales - 1 st Q 2010 vs. 1 st Q 2011 -24. 0% -22. 0% -20. 0% -18. 0% -16. 0% Fairfield -14. 0% -8. 0% -6. 0% -4. 0% -2. 0% 0. 0% -11. 0% Litchfield -11. 3% -14. 8% Middlesex -20. 1% New London -8. 2% Tolland -11. 1% Windham CT -10. 0% -11. 8% Hartford New Haven -12. 0% -5. 4% -13. 0% Source: Prudential CT Realty CT RE Market Report, TPM Economic Services TPMES 44

…. And so did prices (ex Middlesex & NH) CT % Change in Single Family Median Home Prices - 1 st Q 2010 vs. 1 st Q 2011 -14. 0% -12. 0% -10. 0% -8. 0% -6. 0% -4. 0% -2. 0% Fairfield 0. 0% 4. 0% -1. 2% Hartford -2. 5% Litchfield -1. 8% Middlesex 2. 9% New Haven 0. 0% New London -10. 3% Tolland Windham 2. 0% -2. 8% -11. 8% CT Source: Prudential CT Realty CT RE Market Report, TPM Economic Services -2. 0% TPMES 45

CT Spending outpaces GSP, Inflation & Pop Sources: Wall Street Journal, Hartford Courant, CT OPM, Yankee Institute TPMES 46

Summary • Moderate US Economic recovery still underway – GDP should average 3% in 2011 but unemployment remains high, Future growth likely to remain sub-par – Good News: Job growth slowly improving, financial stress easing, corporate profits strong, Fed accommodative, large banks profitable, productivity gains – Bad News: Rising oil prices, Middle-East unrest, European debt crisis, continued slide in home values – rise in foreclosures, massive US deficits & debt • Fed on hold (fed funds @ 0% - 0. 25%) until late 2011 – 1. 5% by year end 2012? How will unwinding QE 2 play out? • Watch: Jobless Claims – Purchasing Managers Index – Housing Inventories & Prices – Oil Prices -- Stock Prices – Auto Sales – Consumer Confidence – 2012 Campaign Themes TPMES 47

Economic Outlook: Don’t Think Twice, It’s All Right CFT Banks’ Forum May 25, 2011 Todd P. Martin Economic Services 203 -218 -9825 Toddpmartin@yahoo. com TPMES 48