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

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NameDirector, Associate Service

The Conference Board

Trusted Insights for Business Worldwide

PROGRESS, FOR NOW

Ken Goldstein

WWW.CONFERENCE-BOARD.ORG

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Overview:

Recovery Has Some Momentum

Ditto Global Economy - Even In Euro-Zone

(4.2% in 2011, 4.5% in 2012)

Food + Energy + Commodity Prices: Rising

Housing Still A Drag

Currency Speculation

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  2011 2012 2010-2015        U S 2.5 2.6 1.8 Euro Area 1.5 1.8 1.3 Japan 1.5 2.0 0.9 Other Advanced Economies 1.7 - 2.9  Developing Asia (ex. China and India) 5.2 - 5.1 China 9.6 9.5 9.2 India 8.4 8.0 8.3

Latin America 4.0 4.2 4.0 Middle East 5.1 4.8 4.5 Africa 5.5 5.7 4.7  World Total 4.2 4.5 4.1

Global Economy Coming Back

Source: IMF, The Conference Board

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The Changing Make Up Of The Work Force

-4

-2

0

2

4

6

1990 1995 2000 2005 2010

(% change, annualized)

Older

Younger

U.S

-4

-2

0

2

4

1990 1995 2000 2005 2010

Older

Younger

(% change, annualized)

JAPAN

Note: younger = from 16 to 24, older = 55 and overSource: BLS, Statistics Bureau (Japan), The Conference Board

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-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Nov. '10

6-month annualized percent change

US LEI

Asia LEI Euro Area LEI

In All Regions – Even The Euro-Zone

Note: Shaded areas represent recessionsSource: The Conference Board

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0

40

80

120

160

200

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Index, 1985=100

Dec.'10

Expectation

Present Stuation

Iffy Prospects For Service Sector Jobs

Note: Shaded areas represent recessionsSource: TNS, NFO, The Conference Board

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-4

-3

-2

-1

0

1

2

3

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Nov. '10

Percent (3MA), normalized scale

Expectations for six months hence

Income

Employment

Dimmer Prospects For Incomes

Note: Shaded areas represent recessionsSource: TNS, The Conference Board

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-40

-30

-20

-10

0

10

20

2006 2007 2008 2009 2010

Percent change, y-o-y

Nov. 10

ETI

West

Rest of US

-50

-40

-30

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010

Percent change, y-o-y

Dec. 10

HWOL

West

Rest of US

-80

-60

-40

-20

0

20

40

60

80

100

2006 2007 2008 2009 2010

Percent change, y-o-y

Ded. 10

CCI

West

Rest of US

-15

-10

-5

0

5

10

15

2006 2007 2008 2009 2010

Percent change, y-o-y

'10 3Q

HomePrice

West

Rest of US

Housing Still a DragWest

Source: Freddie Mac, The Conference Board

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Progress, For Now

2010 2011 2011 2012 III Q* IV Q I Q II Q III Q ANNUAL ANNUAL---------------------------------------------------------------------------------------------------------------------------------------------------

Real GDP 2.6 3.5 2.3 1.8 2.5 2.5 2.6-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------CPI Inflation 1.5 2.1 1.4 1.5 1.8 1.5 1.9-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Real Consumer Spending 2.4 4.3 2.1 2.3 2.7 2.7 2.2-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Real Capital Spending 10.0 4.8 6.9 7.2 8.9 7.8 8.8-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Net Exports Bil. '00$ -505.0 -446.1 -429.3 -441.3 -448.3 -440.3 -444.7-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Industrial Production 5.8 1.3 2.3 1.9 2.5 2.9 2.7Unemployment Rate (%) 9.6 9.7 9.7 9.8 9.7 9.7 9.4-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------90 Day T-Bills (%) 0.15 0.15 0.18 0.18 0.18 0.18 0.5010 Yr Treas Bonds (%) 2.79 2.90 3.35 3.40 3.50 3.44 3.87-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------$/EURO 1.29 1.36 1.32 1.34 1.30 1.32 1.26 Yen/$ 86 83 83 84 86 85 93

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Price Split

Source: Department of Energy, The Conference Board

0

1

2

3

4

0

2

4

6

8

10

12

1419

94 1

Q

1995

1Q

1996

1Q

1997

1Q

1998

1Q

1999

1Q

2000

1Q

2001

1Q

2002

1Q

2003

1Q

2004

1Q

2005

1Q

2006

1Q

2007

1Q

2008

1Q

2009

1Q

2010

1Q

$ per thousand cubic feet $ per gallon

Gasoline (right scale)

Natural Gas (left scale)

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Wealth destruction phase Cresting

Note: Shaded areas represent recessionsSource: The Conference Board

-4

-2

0

2

4

6

8

10

12

14

16

88 90 92 94 96 98 00 02 04 06 08 10 12

October1987Crash

JunkBondCrashandFridaythe 13thmini crash

AsianCrisis

Long TermCapital

CorporateAccountingScandals

Burstingof EquityBubble

CreditCrunch

Nov '10

Bear SternsCollapse

LehmanBrothersCollapse

The Conference Board's Experimental Monthly Financial Instability Index

SovereignDebt Crisis in Europe

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Euro Premium Drowning In Greece

Note: Shaded areas represent recessionsSource: FRB, The Conference Board

1.0

1.1

1.2

1.3

1.4

1.5

1.6

2003 2004 2005 2006 2007 2008 2009 2010 2011

U Forecast

-Stdev

Trend Jan. '03 - Dec. '10

+Stdev

USD/EUR

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In A Panicky World – Flight To Safety

Note: Shaded areas represent recessionsSource: FRB, The Conference Board

80

85

90

95

100

105

110

115

120

125

130

2003 2004 2005 2006 2007 2008 2009 2010 2011

Y

+Stdev

-Stdev

Forecast

Trend Jan.'03 - Dec. '10

JPY/USD

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Investment Constrained

Source: SBA, The Conference Board

-15

-10

-5

0

5

10

15

20

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Percent

Capital Spending