39th Annual Economic Forecast

Conference

2011 FORECAST: A LOOK AHEAD Moderator:

Emory Thomas Jr., Puget Sound Business Journal

Panelists:

- Ken Goldstein, The Conference Board

- Mike Dueker, Russell Investments

- Dick Conway, Puget Sound Economic Forecaster

www.enterpriseSeattle.org

THE PUGET SOUND

ECONOMIC FORECASTER

PUGET SOUND ECONOMIC OUTLOOK

Dick Conway

The Puget Sound Economic Forecaster

Conway Pedersen Economics, Inc.

www.economicforecaster.com

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ECONOMIC FORECASTER

Positive Signs for the U.S. Economy

• Leading indexes are rising sharply, suggesting accelerating growth.

• Stock market has regained two-thirds of the value lost during the last plunge.

• Spread between 3-month LIBOR and T-bill rate signals little, if any, stress in the credit markets.

• Despite recent declines, home prices have been generally stable since March 2009.

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Puget Sound RecoveryThree Things to Think About

• Puget Sound region was hard-hit by the recession and will likely trail the nation coming out of it.

• In terms of jobs, the root of the recession was construction and financial activities.

• The recession was far-reaching, damaging almost every state.

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Puget UnitedSound States

Peak to trough (quarters)8 7

Employment (% change) -7.4 -6.0

Construction -34.1 -27.3

Financial activities -17.1 -9.2

Peak unemployment rate (%) 9.1 10.0

Unemployment rate (% change)* 5.1 5.5

*Percentage point change.

The Great RecessionEmployment Change

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PercentChange Change

Construction employment -45,000 -34.1

Financial activities employment -18,700 -17.1

Indirect employment* -61,200 ---

Total employment impact-124,900 -6.7

Total employment change -138,200 -7.4

*Due to multiplier effect.

The Great RecessionConstruction and Financial Activities Impact

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Puget Sound and U.S. EmploymentAnnual Percent Change

2007.1 2007.3 2008.1 2008.3 2009.1 2009.3 2010.1 2010.3-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Puget Sound United States

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Exports of Goods and Services

• On a per capita basis, Puget Sound region tops the nation in foreign exports.

• Boeing and Microsoft are our two biggest overseas sellers.

• Since the mid-2009 turnaround in U.S. real GDP, exports have been the fastest growing sector.

• The regional impact of export growth will be muted, since Boeing is close to peak production.

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Government Expenditures

• The federal government was the only positive growth force during the Great Recession.

• With the focus now on balancing the budget, it will reduce spending and trim employment.

• Due to a record drop in tax revenue, state and local governments will also cut expenditures.

• Financial problems in the public sector will cost the region 10,000 government jobs.

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U.S. Fixed Investment

2004 2006 2008 2010 2012-25

-20

-15

-10

-5

0

5

10

15

20

Equipment and software Structures

Percent Change

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U.S. Real Gross Domestic Product andPersonal Consumption Expenditures

2000 2002 2004 2006 2008 2010 2012-4.0

-2.0

0.0

2.0

4.0

6.0

1.0

2.0

3.0

4.0

5.0

6.0

GDP (l) Consumption (l) Savings rate (r)

Percent Change Percent

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2009 2010 2011 2012

Employment -4.9 -1.9 1.2 2.4

Personal income -1.6 1.9 3.8 5.1

Consumer price index 0.6 0.5 1.5 1.7

Housing permits -50.1 22.9 4.0 36.9

Population 1.5 0.9 0.6 0.8

Puget Sound Economic ForecastPercent Change

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2009 2010 2011 2012

Retail sales -4.5 3.1 4.1 4.7

Taxable retail sales -12.4 -1.0 3.0 7.2

Home sales -2.5 0.9 10.2 9.9

Average home price -11.7 -0.2 1.3 5.5

Apartment vacancy (%) 6.9 5.5 4.9 4.8

Puget Sound Economic Forecast (2)Percent Change

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Puget Sound Leading Index and Employment

Series1

0.920

0.960

1.000

1.040

1.080

1.120

1.160

1.200

1600

1650

1700

1750

1800

1850

1900

1950

Leading index (l) Employment (r)

1987=1.000 Thousands

Note: Shaded areas designate recessions.

1999 2001 2003 2005 2007 2009