uma mime vol 8 3q08
TRANSCRIPT
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(Memorandum of Industry Momentum and Economics)Third Quarter 2008 Vol. 08
This publication will address economic and industry performance important to Utah and Intermountain businesses, as well as specific industries
and sectors of significance to UM&A. We will attempt to include as many national and regional indicators as needed to convey need-to-know
information that can assist us in business development and on-going projects. When applicable, we will also wave our own flags of
achievement.
EconomicOverview
Theresilienceofournationaleconomycontinuestobetestedatthiswriting. ThefinalupdatetosecondquarterGrossDomestic
Productshowsgrowthatanannualizedrateof2.8percent,followinga0.2percentannualizeddeclineinthefourthquarter2007
anda0.9percentinclinelastquarter. In perspective,thefourthquarterssliderepresentedtheworstperformancesincethird
quarter2001,whenoureconomywaslastinrecession. Whilecurrentperformancedisturbstheprevailingrecessionarytrend
(whichdidnotcorrespondtotheconventionaldefinitionofrecessione.g.twoconsecutivequartersofdecliningrealGDP),it
hewsto thesuddenslowdownduringthewinter,andthetemporarynatureof[$94billionin]federaltaxrebatesdistributedto
consumers.
Moreover,it
does
not
reflect
slowing
global
economic
conditions
which
over
the
past
three
years
have
contributed
to
exportgrowthamajorbuoyofGDPuntilnow.
GDPsincreasewasdrivenbyexports,personalconsumptionexpenditures,federalgovernmentspending,nonresidential
construction,andstatelocalgovernmentspending.Exportsgrewatablisteringrateof12.3percentduringthequarter,following
5.1percentinthefirstquarter. (Imports,whichdepressGDP,decreased 7.3percent,vs.0.8percentlastquarter.)RealPersonal
Consumptionexpendituresincreased1.2 percent,comparedwith0.9percentlastquarter. RealNonResidentialfixedinvestment
increased2.5percent,steadywith2.4percent. NonResidentialStructuresincreased18.5percent,doublethepreviousquarters
8.6percent. Theseareconsistentwithunderlyingbusinesscapitalinvestmenttrendsthroughtheeconomicslowdown.
Offsetscomprised
business
inventory
investment,
residential
fixed
investment,
equipment
and
software.
More
to
this
point:
Final
salesofcomputerscontributed0.15percenttosecondquartergrowth,following0.05percentlastquarter,andmotorvehicle
outputsubtracted1.01percentfromsecondquartergrowth,followingasubtractionof0.41percentlastquarter. Conventional
calculationsofpriceinflation(excludingvolatilefoodandenergy)increased2.2percent,thesameamountaslastquarter.
Declinesinthepriceofrefinedpetroleumproductssincethefirstquarterhaveyettobedigestedbythesupplychain,and,
converselyhavebeenretainedbyseveralindustriesagribusiness,miningandconstructionevenasglobaldemandhas
slackened. Preliminarystudiesrevealthebumpindisposableincomeattributedtoourtaxrebateswasconsumedinnondurable
goodsandothermassmerchandiseproducts,whoserelativeweightwasgreaterinlowincomehouseholds. TheU.S.Labor
Departmentsrevised2nd
quarterProductivity&Costsreportindicatedproductivity(theamountofoutputforanhourofwork)rose
ata4.3
percent
annual
rate
during
the
quarter;
this
was
afull
percentage
point
higher
than
most
economists
expected.
Correspondinglaborcostsslid0.5percent;thecombinationofhigherproductivityandlowercostsshouldhelpcontainprice
inflationandgivetheFederalReserveBoardmorelatitudeoncreditpolicygoingforward.
AfewmacroeconomicobservationsAsthecurrentfinancialcrisesinsubprimelending,structuredproductsandbankexposurescontinuetounwind,thereappear
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Amongthepitfallsofrelyingexclusivelyonmonetarypolicy,forinstance,thereare:
Potentialbuildupofpriceinflationpressuresifsuchpolicyremainsslackfortoolong. (i.e.whileitseasytoimplementthepolicy,itisconsiderablymoredifficulttoreverseitonceitgainsmomentumandspreadsthroughtheeconomy)
Monetarypolicystransmissionmechanismdependsonafluidfinancialsystem,operatingwithinanotablynarrownetworkwithnodesthataresensitivetothecostofcredit,suchashousingandautomobiles.
Theriskthataprotractedperiodoflow(butofcourse,attractive)interestratesmaydistortlongterminvestmentdecisions,provokinga[global]searchforyieldswhichalsocanresultinexcessiverisktaking. (which,inrecenthistory,has
contributedtoglobalassetpricebubbles)
Consequently,anincreasingchorusofeconomistsconsidersmonetarypolicytobeourfirstlineofdefense,nottobereliedupon
exclusively,fortoolong. Moreover,taking[alternative]preemptivemeasurestoreducethelikelihoodordepthoffinancialcriseswouldobviatetheneedtoexercisemonetarymuscle,withitsglobalmultipliereffects. Amongthethemesexpressedbyaconsensus
groupofeconomistsisgreatermarketdiscipline;thatis,bothinvestorsandcreditorsneedtimely/accurate information,butmore
significantly,thewakeupcallthattheircapitalisatriskallthetime. Ofcourse,thedemandforgreatertransparency[and
standardization]willbuildthisconsciousnesslevel,butitismoredifficulttoconveytocreditors,forinstancethattheir
investmentsinthelargestfinancialinstitutionsareatrisk! Butmarketdisciplineofitselfisnottheonlyalternative.
SincetheincreasedcadenceoffinancialinnovationstraddlingtheGlassSteagallActsrescission(1999),ithasbecomeextremely
difficult
for
both
market
players
and
regulators
to
keep
current
with
the
financial
landscape.
One
of
the
basic
antidotes
proffered
by
aconsensusofindustryeconomistsaddressestheneedforanewsetofbestpracticesinthefinancialsector,anditscorporate
utilitycounterpartselsewhere. IncontextofthecurrentfinancialstabilitylegislationpassedbytheU.S.Congress,itremainstobe
seenifthisupdatedregulatoryregimenwillbe1)builtintothelawand2)implementedintimelyfashion,toassuagetheglobal
financialmarketsconcerns. Consideringglobalmonetaryauthorityactionsrecently,theflatworldisflatterthanever.
Belowweaddresskeyperformanceindicatorsnationally,andrecenttrendsregionally:
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Thisphenomenonhasbledintomanufacturingandtransportation,alongwiththecostsoffuel. Asthehousingballoonhasdeflated,
alongwiththeequitiesmarketaperceptionoflosthouseholdwealthretailers(whichincludesrestaurantsandmotorvehicle
dealers)havealsolosttraffic.
Withinthemanufacturingsector,Durablegoodsareusuallythefirsttoshowweaknessinaslowdown;volumeinthewhitegoods
marketofmotorvehicles/majorapplianceshasdepressedprofitsinfabricatedmetalsandelectricalequipment,ona36monthlag.
Wereitnotforexports,thissectorwouldhavesufferedmorelosses.
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EmploymentTrendsintheIntermountainRegion
Overtheperiodspanningourmostrecenteconomicgrowth,20032007,theIntermountainRegionhasgrownatapacemuch
greaterthan
the
rest
of
the
country.
The
following
conclusions
can
be
drawn
regarding
Intermountain
employment
growth
in
key
industrycontributorsduringthesefiveyears,andinthepastyear:
1. TotalNonFarmEmployment20032007: TotalNonFarmEmployment20072008(2Q)Arizona 16.5% 1.1%
Colorado 8.7% 1.3%
Idaho 15.2% 0.6%
Nevada 19.9% 0.5%
Utah 17.2% 1.0%
Wyoming
15.2%
2.8%
2. Construction&MiningEmployment20032007: Construction&MiningEmployment20072008(2Q)Arizona 13.1% 13.4%
Colorado 19.8% 0.5%
Idaho 32.5% 8.6%
Nevada 24.1% 8.8%
Utah 44.6% 8.5%
Wyoming 56.8% 9.4%
3. ManufacturingEmployment20032007 ManufacturingEmployment20072008(2Q)Arizona 1.7% 2.2%
Colorado 7.1% 2.7%
Idaho 0.0% 7.5%
Nevada 18.6% 0.0%
Utah 14.3% 0.0%
Wyoming 11.1% 0.0%
4. Prof/Tech/SciEmployment 20032007 Prof/Tech/SciEmployment 20072008(2Q)Arizona 25.1% 1.1%
Colorado 22.4% 1.7%
Idaho 18.6% 0.0%
Nevada 30.5% 3.1%
Utah 26.0% 2.5%
Wyoming 18.8% 5.6%
5. Education/Health SvcEmployment20032007 Education/Health SvcEmployment20072008(2Q)Arizona 27.1% 3.3%
Colorado 17.4% 4.2%
Idaho 22.6% 2.7%
Nevada 28.0% 4.3%
Utah 23.7% 5.0%
Wyoming 9 7% 3 0%
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7. Leisure&HospitalityEmployment20032007 Leisure&HospitalityEmployment20072008(2Q)
Arizona 18.5% 1.1%
Colorado 13.1% 2.2%
Idaho
18.5%
0.0%Nevada 12.3% 0.0%
Utah 17.2% 2.7%
Wyoming 9.7% 3.0%
8. FinancialServicesEmployment20032007 FinancialServicesEmployment20072008(2Q)Arizona 11.9% 3.8%
Colorado 2.6% 1.3%
Idaho 22.2% 0.0%
Nevada
8.6%3.1%
Utah 13.8% 1.3%
Wyoming 20.0% 9.1%
IndicatorsofoverrelianceontheConstructionindustrycanbeseenacrosstheregion(exceptingWyoming,whichenjoysaresilient
Miningsector);therelativecompetitivestatureofManufacturingandProfessional/Scientific/Technicalservicessectorsshowthat
overall,UtahandColoradoarebestpositionedtowithstandthecurrenteconomicslowdown.TheFinancialServices sector,astied
tomortgagebanking,consumerandcommerciallending,showstheeffectsofeconomicslowdown,beginninginmid2007. Impacts
onthis
sector
will
depend
on
the
severity
of
job
losses
in
other
industries
and
the
longevity
of
the
current
financial
crisis.
The
demographiccompositionoftheIntermountainRegion,nonetheless,willcontinuetosupportmodestexpansionof
Education/Health Servicesemployment,whileLeisure/Hospitalitywhicharemoredependentondisposableincomeandoutof
statevisitorshavealreadyshowndeclines.
Adepictionofrelativeindustryemploymentsharesfollows:
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DisposablePersonalIncomeTrends
AnotherindicatorofeconomichealthrelativetotheindividualhouseholdsofourregionisDisposablePersonalIncome,whichis
definedasPersonalIncomelessPersonalCurrentTaxes. PersonalCurrentTaxesconsistsofincometaxes,motorvehiclelicenses,
andpersonalpropertytaxes. Duringthemostrecenteconomicgrowthcycle,theIntermountainRegionhassurpassedthenational
averagegrowthpaceofbothDisposablePersonalIncomeandDisposablePerCapitaPersonalincome,andthisisexpectedto
continuethroughthecurrenteconomicdownturn.
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AtStatelevel,DisposablePersonalIncomegrewthefastestinNevada(42%),followedbyArizonaandUtah(35%),Wyoming(33%),
Idaho(31%)
and
Colorado
(26%).
This
compares
favorably
with
the
national
cumulative
25%,
and
is
attributable
to
migration
of
manufacturing,professional/technical/scientificservices,alongwithconstructionactivity;alloftheseindustriesalsohavewages
aboveaverage,andgeneratehigherdisposableincomeforretail,hospitalityandleisureactivity. Athouseholdlevel,DisposablePer
CapitaPersonalIncomegrowthexceededthenationalaverage(20%)inWyoming,NevadaandUtah27%,24%,21%,
respectivelybuttrailedbysimilarmarginsinArizona,IdahoandColorado. Inabsoluteterms:
DisposablePerCapitaPersonalIncomeTrends
%Change
2003 2004 2005 2006 2007 200307
Arizona $24,391 $25,957 $27,034 $28,190 $29,056 19.1%
Colorado 30,269 31,716 33,211 34,627 35,760 18.1%
Idaho 23,169 24,906 25,299 26,525 27,513 18.7%
Nevada 28,508 30,772 33,074 34,151 35,300 23.8%
Utah 22,574 23,634 24,928 25,961 27,390 21.3%
Wyoming
29,817
32,096
33,237
35,970 37,969 27.3%
Nat'lAvg $28,053 $29,563 $30,576 $32,222 $33,667 20.0%
(Source: U.S.DepartmentofCommerce/Bureau ofEconomicAnalysis)
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GeneralEconomicConditionsinUtahincontextofSeptember2008NationalFinancialCrisis
Favorable:
Utahsunemploymentrateisup,butonlyto3.7%,whichreflectscontinuedqualityjobgrowth,andremainsbelowthatofthenation(6.1%). Majorindustriesarestillhiring,andthepreviouslaborshortagesaresomewhatalleviated. HelpWantedadvertising
remainsrobust.
Utahshousingmarketsareslipping,butcomparedwithArizonaandNevada,ourdownturnisstillmilder,andwillrecoversooner.
Housingpricesdidnotjumpasquickly,andinventoriesareconsidered closetoequilibriumStatewide. Commercialandindustrial
spaceisstillbarelykeepingaheadofdemand.
Pricesforfuelandfoodaremoderating,reflectingnationaltrends. However,sinceUtahisamajortransportationanddistribution
hub,pricespikesaremoderated. Laborwageincreaseshavealsobeenmuted,duetotheslowpaceofeconomicgrowthlately. Still,
there
remain
spot
shortages
in
skilled
manufacturing,
health
care
and
professional/scientific/technical
services,
which
have
contributedtowageincreasesinthosesectors.
Tourismandhospitalityareresilient,duetotherelativeweaknessoftheU.S.dollar,andprevalenceofstaycationsthisyear.
Absentadverseweather,theskiindustryexpectsanotherrecordyear,duetoresortupgrades.Tradeshowsandconventions,
typicallybookedyearsahead,compriseafullschedule,andarenotassensitivetomildeconomicdownturns.
Recentglobaldemandforenergyandmineralshaskeptactivityathighlevels,anddemandwillremainstrongasUtahisamajor
producerofpetroleumproducts,naturalgasandcoalforpowerplants. DiscoveriesofcrudeoilandnaturalgasinCentraland
EasternUtah,respectively,willsustainthesector,irrespectiveofpoliticalchanges.
NationalresearchstudiesincludeUtahinthetoptenhightechnologycentersagain,andthesectorisconsideredrobust. The
biotechand
medical
device
sub
sectors
are
the
fastest
expanding
beyond
the
Wasatch
Front,
attracting
European
partners,
while
computersoftwarepushesoutfromSaltLaketoadjacentcounties.
Utahsfinancialservicessectorisnotasaffectedaselsewhere,exceptingthosecompaniestieddirectlytothehomemortgage
industry. Commercialbanksandcreditunionsdidnotoverextendthemselves,evenasrealtorspushedformorebusinessduringthe
housingboom.
Utahsventurecapitalistscontinuetoenjoynationalattention,anditsFundofFundswhichinvestsinventurecapitalcompanies
hasearnedanotherinjectionofseveraltensofmillionsdollarsfromDeutscheBank. As[nationallyowned]commercialbanks
tightentheirlendingstandardsduringthisrebound,venturecapitalbusinesswillbecomeamoreimportantpartofthetotalfinancial
servicessector.
Unfavorable:
UtahreleaseditsworstemploymentreportinfiveyearsinSeptember,asjobcreationwasdownto0.1percent(net1,800jobsyear
todate);thiswasnotablybehindthepeakachievedatfiscalyearend2006,when54,000jobswerepropagated. About48,000
UtahnswereunemployedinSeptember,comparedwith38,000thepreviousyear.Thelargestlosseswereexperiencedin
construction,financeandrealestate,andareexpectedtobleedintomanufacturing/wholesaletradebeforethecalendaryearis
over.
The
unemployment
rate,
nonetheless,
is
3.7
percent,
compared
with
a
national
rate
of
6.1
percent.
WhileUtahshomepricesdidnotexperiencetherunupsinmajorcitiesfrom20022006,saleshaveslowedandpricesaredown10
20%fromlastyear. Thereisnosignofabottomyet. Newhomeconstructionhasslowedinresponsetothenationaleconomic
perceptionandmoreforsalesignsinpricierneighborhoods.
Theslowinghousingmarket,combinedwithscarcitiesinotherbuildingmaterials,havesoftenedpricesformineralcommodities. The
creditcrunchisadverselyaffectingsmallerenergycompanies,whichneedcapitaltoexpandexistingoil+gasfieldstomeetpresent
energydemand. Laborandequipment,nonetheless,areinshortsupply.
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IdahoEconomicConditionsandupdatedoutlook
Idahosofficialeconomicauthorities,andindependentbankingsourcesrevisedtheirstatewideEconomicOutlookdownwardduring
thequarter.
Plunges
in
home
construction,
high
energy
prices,
soft
housing
values,
and
consumer
caution
(tied
to
recent
negative
economicperceptions)haveallcontributed. Currentestimatesshowtheweakestemploymentsince2002,withover8,000jobslost
duringthelastyearintheconstructionandmanufacturingsectors.Overthesameperiod,allofIdahosjobcreationhasbeen
providedbytheservicesector,ledbyeducation&healthservices,leisure&hospitality,informationservicesandlocalgovernment
employment. Overall,NonFarmEmploymentfellata2.2%[seasonallyadjustedannual]rateduringthefirstquarter,andslipped
by0.4%inthesecondquarter. WhileIdahosunemploymentraterankedamongthenationslowest(3.1%)earlierin2008,inthe
thirdquarteritexceeded4%. ManyIdahobusinesseshavefelttheGemStateisgenerallyinsulatedfromglobaldevelopmentsbut
highcommodityprices,increasedminingactivity,widercreditspreads,narrowercreditavailabilityandtighterlendingstandardsare
currentlyaffectingthewholestate. DespiteMicronsMarchselectionofBoiseforanexpandedprocessingfacility,theyhavejust
announcedaglobal
cutback
which
is
expected
to
eliminate
1,500
jobs
in
Idaho.
On
the
bright
side,
with
projects
like
Hoku
ScientificsnewpolysiliconplantandNordicWindpowersturbineplantinPocatello,itisprojectedthatIdahoseconomywillresume
solidgrowthby2010.
ArizonaEconomicConditionsandupdatedoutlook
Sincethe
fourth
quarter
of
2007,
Arizonas
economy
has
continued
to
shed
jobs,
30,000
alone
in
the
construction
sector,
which
accountedfornearlyallofthenetlossesthroughthesecondquarter2008. EmploymentgrowthintheGreaterPhoenixMSAhas
deceleratedfromapeakof7.2%yearonyearinSeptember2005to 1.5%attheendofsecondquarter2008,resultingina4.5%
unemploymentrate.Statewide,FinancialServicesjobshavebeendrainedbythesubprimemortgagefallout,and
Professional/Scientific/Technicalserviceshavefollowed. Manufacturinghasseencontractionsfor18months,despiteregionaland
globaldemand.Evengovernmentpayrollshaveseenlossesthepastyear. TheonlysectorsdisplayingstrengthareEducationand
HealthServices,whichhaveadded10,000jobsoverthelastyear,and30,000sinceSeptember2005. Homepricescontinueto
tumble,asthejobmarkethasdeteriorated;speculatorshavewithdrawnfromthemarketandforeclosureshavespiked,leaving
supplyanddemanddisproportionatelyoutofbalance. Creditqualityhascontinueddeteriorating,intandemwiththerisein
mortgagedelinquencies
and
foreclosures,
in
both
prime
and
sub
prime
markets.
Further
slowing
in
the
national
economy,
protractedconcernsaboutcreditandtheongoinghousingpriceslumpwillweighonthestate,andeconomistsatWellsFargoBank
haveforecastacontractionof0.4%in2008fortheGreaterPhoenixMSA. Employmentisprojectedtoshrinkby0.8%,andthe
unemploymentratetoendat4.2%. AsmeasuredbytheCaseShillerPriceIndex,homepricesareforecasttofall26.7%in2008and
afurther15.4%in2009. ItisgenerallybelievedthatuntilthisIndexfallstothelevelof2004prices,thehousingcrisiswillcontinue.
NevadaEconomicConditionsandupdatedoutlook
Atmidyear,acombinationofpersistenthousingmarketslippageandseasonalityposedmoreseriouschallengestoNevadas
economy. Thestatewide[seasonallyadjusted]unemploymentratejumpedto6.6%,anincreaseof1.7%overtheyear. Thisreflects
thelossof27,000jobs,mostofthemintheconstructionandfinancialservices industry,sincethepeakofNevadaseconomiccycle
inmid2006. Bycomparison,theTrade/Transportation/Utilitiessectorhasgainedabout10,000jobssince,buthasslippedrecently,
andtheEducation/HealthCaresectorcontinuestogrowsteadily. Normally,seasonalemploymentlossesoccuratthistime;
however State & Local Government employment fell by nearly 6 000 this year and was not absorbed by the private sector To add
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slowdramatically. TheheadlineinTheLasVegasSunofSeptember28saiditclearly: WhatwecanexpectLessspending,fewer
newresorts,slowergrowthgetusedtoit.
Global
Economic
Outlook
AstheprevailingwindsofeconomicslowdowncontinuedriftingacrosstheAtlantic,wethoughtittimelytosharethe
viewsofrespondentstoamidyearsurveyconductedbyMergermarket,thepurveyorofonlineM&Atransactional
information. Amongitsfindings:
Totalrespondentshadagenerallybleakoutlookforglobaleconomicgrowthin2009. Overall,61%expectadecreaseingrowth,whileonly15%expectanincrease. Corporaterespondentshadacomparativelypositiveoutlook,however,witha
belowaverage52%expectingadecreaseandanaboveaverage30%expectinganincrease.
Privateequityexecutiveswerethemostexpectantofadecreaseineconomicgrowth,butnoneexpectedthedecreasetobesignificant.Themostnotablekeywordsincluded: growthinothercountrieswillkeeptheglobaleconomyhealthyand
considerthegrowthofChina,India,BrazilandEasternEurope.
Mostrespondentshighlightedtheimpedimenttogrowthposedbycreditproblems,anditsrelationshiptoconsumerspending. Instability,ingeneral,wasblamedforalackofconsumerconfidenceworldwide,which,inturn,wouldaffect
spendingpatterns.
Amajorityofrespondents(61%)believetheU.S.economyisineitherpoororverypoorcondition. Again,corporaterespondentswerethemostoptimistic,andfinancialadvisorstheleastoptimistic. Still,thecorporateoptimistswerea
minority,as
slightly
less
than
half
(48%)
gave
the
U.S.
economy
apoor
rating,
and
only
4%
rating
it
healthy.
Curiously,65%ofEuropeanrespondentslabeltheU.S.economypoor,comparedwith45%ofAmericanrespondents.
Whileasmall(butstillaboveaverage)5%ofAmericanrespondentssaidtheU.S.economywashealthy,noEuropean
respondentsagreed.
Allbut22%ofoverallrespondentsexpecttheU.S.toenterarecession;themajority78%couldnotagreeonwhen,however. Some40%forecastarecessionbeforetheendof2008,whileasimilar38%predictedtheonsetduringorafter
2009.
Consistentwiththerelativeoptimismofthecorporaterespondents,42%ofthemdonotseearecessioninournearfuture.Althoughstillaminority,thisisnearlytripletheamountofprivateequityexecutivesandfinancialadvisorsexpressinga
positiveoutlook
for
the
U.S.
economy.
NationalEconomicOutlook
Severalprofessionalsurveysconductedduringthelastmonthaddressingtherealtimeissueswhichaffectbusinessesand
consumerswereconsistentinthedownwardrevisionsoftheirforecaststhroughnextyear. Amongtheanecdotalresponses,the
generalconsensusacrossseveraleconomictradeassociationsis:
1) Theyseenogrowthinthefourthquarter2008,incontextofannualized[realGDP]growthof1.0percentinthethirdquarter. Theyexpecttheeconomytoremainsluggishthroughthefirstquarter2009,growingatanannualizedrateof
1.3%.
2) DespiteforecastsofnoquarterlydeclineinGDP,twothirdsnowbelievearecessionhasalreadybegun,orwillbeginduringthefourthquarter2008.
3) Recent credit market deteriorationswill drive the unemployment rate up to 7 0 percent by mid year 2009 a full
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increaseshouldbemutedto2.3percent(4
thQuarteron4
thQuarter2009),incontrastwiththisyears4.2percent.
Note: theslowingisinrangeofFedscomfortzone.
8) OneofthefiscaleffectsoftheslowdownisawideningoftheFederalBudgetDeficittomorethan$480billionin2009,comparedwithestimatesof$410billioninfiscal2008. Note:thisdoesnotincludeexpectedimpactofthe
EmergencyEconomicStabilizationpackage.
9) AFederalReserveBankfedfundstargetrateincreasepreviouslyexpectedbyfirstquarter2009hasnowbeenprojectedfordelayuntilatleastmidyear,withayearend2009rateat3.00percent.
10) Corporateprofitsareexpectedtodeclineby5.9percentatyearend2008,andrebound4.4%in2009.Anothereconomicconsensusgroupsuggeststhatsincetheonlyfavorableelementofgrowthhasbeenforeigndemand,andtheU.S.
Dollarhasgainedvalueagainstmanycurrencies,aglobalslowdowncouldindeedwashbackonus. Signsofslowdownhavealready
dampenedpriceinflationhere,andinternationalcrudeoilpriceshavebeendrivenbelow$80.00abarrelsincetheendof
September. TheFederalReserveBoardisnowtakingintoaccountthemediumterminflationsituation,increasedhousehold
borrowingcosts,
tighter
credit
conditions
and
aprotracted
housing
market
retrenchment.
It
remains
to
seen
through
the
economictroughwhetherenergydrivenpriceswillberetainedbythesupplychain,orasseenalreadyinchemicalsand
institutionaltransportationcarriersiftheywillpassthecostsalongtoendusers. Analogouswiththecompetitiveenvironmentof
eachindustry,italreadyappearsmanysupplychaincompanieshavedeterminedthisisaonetimeopportunitytoplaytothe
inflationaryexpectationsofconsumers,andbuildinsurchargestotheirpricesthroughtheendof2008. Thiswillsqueezeretail
consumersfurther,anddiscretionaryspendingwillbecurtailedastheChristmasholidayseasonapproaches.
TheglobalbankingenigmawillbediscussedinournextUM&AMIME;inthemeantime,wewillrelaycommentaryofnotable
developmentsastheyoccur.
Prepared by Dean C. Dinas, Research Director, United Mergers & Acquisitions
Informationin
this
report
has
been
obtained
by
UM&A
from
sources
believed
to
be
reliable.
UM&A
cannot,
however
guarantee
the
accuracyorcompletenessofthisinformation,norisUM&Aresponsibleforanyerrors,omissionsordamagesarisingfromtheuseof
thisinformation.
2008UnitedMergers&Acquisitions,6985UnionParkCenter,SaltLakeCity,Utah84047. ALLRIGHTSRESERVED.
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ForecastofKeyEconomicIndicatorsatSeptember2008ForecastPeriods
2007 2008 2009 2010
Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2
RealGrossDomesticProduct 4.8 0.2 0.9 3.3 0.7 0.2 1.0 2.0 2.6 2.9 3.1 3.2
%change,yearonyear 2.8 2.3 2.5 2.2 1.2 1.3 1.3 1.0 1.4 2.1 2.6 2.9
RealDisposablePersonalIncome 3.1 0.6 0.7 11.4 6.9 0.9 2.8 2.6 2.5 2.9 3.5 3.4
%change,yearonyear 3.1 1.8 0.6 3.5 0.9 0.5 1.4 0.7 1.7 2.7 2.9 3.1
RealBusinessInvestment 8.8 3.4 2.4 2.3 0.5 0.6 1.8 0.2 1.6 2.9 3.2 4.2
%change,yearonyear 5.3 6.4 6.2 4.2 2.1 1.4 0.4 0.2 0.0 0.6 1.9 3.0
ChangeinBusinessInventories 16.0 8.1 10.2 49.4 26.3 20.7 12.3 3.8 7.3 16.8 22.5 29.7
($bn,chained2000px,annualrate)
IndustrialProduction 3.6 0.3 0.4 3.2 0.6 0.2 0.2 1.6 2.7 2.8 3.0 3.4
%change,yearonyear 1.8 2.1 1.8 0.2 0.5 0.5 0.6 0.6 1.2 1.8 2.5 3.0
ConsumerPrices 2.8 5.1 4.4 5.1 6.2 2.4 2.4 2.0 2.4 2.3 2.3 2.3
%change,yearonyear 2.4 4.0 4.2 4.3 5.1 4.5 4.0 3.2 2.3 2.3 2.2 2.3
ProducerPrices 1.6 9.2 9.3 10.7 8.1 2.5 1.4 0.9 1.7 1.5 1.5 1.8
%change,yearonyear 3.6 6.7 7.1 7.6 9.5 7.8 5.8 3.4 1.6 1.4 1.4 1.6
UnemploymentRate% 4.7 4.8 4.9 5.3 5.8 6.1 6.2 6.3 6.3 6.2 6.1 6.0
3monthTreasuryBillRate 3.7 3.3 1.4 1.8 1.8 1.8 2.0 2.2 2.6 2.9 3.4 3.6
10yearTreasuryBondYield 4.6 4.2 3.4 4.0 3.9 4.0 4.1 4.2 4.4 4.6 4.9 4.9
1ChangefrompriorquarteratSeasonallyAdjustedAnnualRate 2EndofQuarter Source: ConsensusEconomics,Inc.