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W
EEKLY
E
CONOMIC
&
 
F
INANCIAL
C
OMMENTARY
 
February 20, 2009
U.S. Review Global Review
Total Industrial Production Growth
Output Growth by Volume, not Revenue-20%-15%-10%-5%0%5%10%15%878991939597990103050709-20%-15%-10%-5%0%5%10%15%3-Month Annual Rate: Jan @ -13.8% Year-over-Year Change: Jan @ -8.0%
Both Series are 3-Month Moving Averages
 
Japanese Real GDP
Bars = Compound Annual Rate Line = Yr/Yr % Change-15%-10%-5%0%5%10%200020012002200320042005200620072008-15%-10%-5%0%5%10%Compound Annual Growth: Q4 @ -12.7% Year-over-Year Percent Change: Q4 @ -4.6%
 
Global GDP Tanked Last Quarter
GDP data for foreign economieshave trickled in over the past fewweeks, and the outturns have beenuniversally bad. As we reportedpreviously, the British and theEuro-zone economies eachcontracted roughly six percent(annualized rate) in the fourthquarter. It was Asia’s turn this weekand the news was even worse. Asshown in the chart at the left, realGDP in Japan plunged at anannualized rate of 12.7 percent.Moreover, the 4.6 percent year-over-over contraction in JapaneseGDP in the fourth quarter was thesharpest decline since recordsbegan in 1955. Japan appears to bein its worst downturn since the endof the Second World War.The sharp drop in Japaneseeconomic activity in the fourthquarter was due at least in part tothe eye-popping 45 percent declinein exports. Japan is an importantsupplier of capital goods to the rest
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Recent Special Commentary
Is There A Silver Lining?
This week saw another run of rotteneconomic news. Housing startsplummeted, industrial productionfell sharply, the Philadelphia Fedindex hit its lowest level in morethan 18 years, and first-timeunemployment claims increased.Even the Fed minutes had a weakertone. With this much crummynews, we wonder if there is a silverlining somewhere.An apparent bright spot was a risein the index of leading economicindicators. Though January marksthe second consecutive monthly risefor the LEI, it does not likely mark aturn. Most of the improvement inrecent months has come from themoney supply and interest ratespread. Consumer expectations alsoimproved in January. Expectationsturned back down in February,however, and many other indicatorsalso look like they will decline thismonth as well.The January price data are bothgood and bad news. Both rose morethan expected in January. Larger-than-expected rises in both indiceswould normally be bad news. Butwith so many folks worried aboutdeflation, a little more heat in thePPI and CPI is not all that bad.
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DateTitleAuthors
February-12Global Chartbook - February 2009Bryson & QuinlanFebruary-12Housing Chartbook - February 2009Vitner & YorkFebruary-10Five Key Questions for Decision-MakersSilviaFebruary-04Economic Downturn Challenges State and Local Tax Revenue Vitner & Khan
 
U.S. Forecast
ActualForecastActualForecast200820092005200620072008200920101Q2Q3Q4Q1Q2Q3Q4Q
Real Gross Domestic Product
1
0.92.8-0.5-3.8-6.7-1.9-0.40.62.92.82.01.3-2.71.1Personal Consumption0.91.2-3.8-3.5-2.9-0.40.11.13.03.02.80.3-1.81.0Inflation Indicators
2
"Core" PCE Deflator2.22.32.31.81.41.20.91.22.12.32.22.21.21.6Consumer Price Index4.24.35.31.5-0.3-1.3-2.60.13.43.22.93.8-1.11.7Industrial Production
1
0.4-3.4-8.9-11.5-14.5-7.2-2.50.43.32.21.7-1.7-8.90.6Corporate Profits Before Taxes
2
-1.5-8.3-9.2-17.5-25.0-24.0-20.0-14.017.615.2-1.6-9.1-21.05.2Trade Weighted Dollar Index
3
70.371.076.179.485.689.391.390.986.081.573.379.490.978.7Unemployment Rate4.95.46.16.97.78.38.99.35.14.64.65.88.69.6Housing Starts
4
1.051.030.880.660.470.510.570.612.071.811.340.900.540.77Quarter-End Interest RatesFederal Funds Target Rate2.252.002.000.250.250.250.250.254.255.254.250.250.250.5010 Year Note3.453.993.852.253.003.103.103.104.394.714.042.253.103.50
Data As of: February 11, 2009
1
Compound Annual Growth Rate Quarter-over-Quarter
3
Federal Reserve Major Currency Index, 1973=100 - Quarter End
2
Year-over-Year Percentage Change
4
Millions of Units
 
I
NSIDE
 
U.S. Review 2U.S. Outlook 3Global Review 4Global Outlook 5Point of View 6Market Data 7
 
U.S. Review Economics Group
U.S. Review
Real Personal Consumption Expenditures
Bars = Compound Annual Growth Rate Line = Yr/Yr Percent Change-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%200020022004200620082010-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%PCE - CAGR: Q4 @ -3.5%PCE - Yr/Yr Percent Change: Q4 @ -1.3%Forecast
 
U.S. Consumer Price Index
Month-over-Month Percent Change-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%0002040608-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%CPI: Jan @ 0.3%
 
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Neither Deflation Nor Inflation Will Be A Problem In 2009
 January’s slightly larger-than-expected rise in the PPI and CPI doesnot impact our inflation outlook at all. The PPI for total finishedgoods rose 0.8 percent in January and prices excluding food andenergy rose 0.4 percent. Most of the increase in the headline indexwas due to sharply higher gasoline prices, which rose 15 percent in January, following twenty percent plus plunges in each of the threeprevious months. The bounce back in energy prices is not thatsurprising given how sharply they declined last fall. Energy pricesare expected to remain low for the foreseeable future, which shouldlead to further declines in the year-to-year PPI figures.Prices outside the energy sector also perked up a bit, withwholesale prices for consumer goods rising 1.0 percent. Here too,prices had declined for some time and a bounce back is not totallyunexpected. Consumer goods prices fell 2.5 percent in Decemberand were down 3.2 percent in November. Even with January’sincrease, prices are down at a startling 17.7 percent annual rateover the past three months. Moreover, prices continue to tumblefurther back in the production pipeline. Prices for intermediategoods and services fell 0.7 percent in January and are down at a31.5 percent annual rate over the past three months. Coreintermediate goods prices, which have historically shown thestrongest relationship to the CPI, fell 1.1 percent in January and aredown at a 22.2 percent pace over the past three months.The Consumer Price Index rose 0.3 percent in January, which wasright in line with expectations. As with the PPI, rising gasolineprices accounted for most of the increase. Prices excluding foodand energy items rose a larger-than-expected 0.2 percent. Theincrease was broad based but once again, most of the categoriesposting increases had been down sharply in recent months.Rent of primary residence and owners’ equivalent rent both rose0.3 percent. The increases seem to fly in the face of the obviousoversupply of housing present throughout the country. TheCensus Bureau’s quarterly survey shows rental vacancy rates at10.1 percent nationwide. High and rising vacancy rates, along withgrowing competition from single-family homes and condominiumsnow being put out for rent, should be driving rents lower. January’s rise in rent of primary residence may be a statisticalfluke. Many rental agreements include utilities. Since rents areusually fixed for one year terms, a drop in utility costs actuallyraises the computed rent. This seems to have been the case in January, when prices for fuel oil and other fuels declined 2.7percent and prices for gas and electricity declined 0.8 percent.
Selected Current Data
2
Gross Domestic Product - CAGRQ4 - 2008-3.8%GDP Year-over-YearQ4 - 2008-0.2%Personal ConsumptionQ4 - 2008-3.5%Business Fixed InvestmentQ4 - 2008-19.1%Consumer Price IndexJanuary - 20090.0%"Core" CPIJanuary - 20091.7%"Core" PCE DeflatorDecember - 20081.7%Industrial ProductionJanuary - 2009-10.0%UnemploymentJanuary - 20097.6%Federal Funds Target RateFeb - 200.25%
 
Producer Price Index
Month-over-Month Percent Changes-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%9900010203040506070809-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%PPI: Jan @ 0.8%
 
 
U.S. Outlook Economics Group
Consumer Confidence • Tuesday
Consumer confidence, as measured by the Conference Board, fell toa new all-time low for the third time in four months. Consumersare grappling with rising unemployment, plunging home pricesand a continued credit crunch.This particular measure of consumer confidence has historicallyhad a significant correlation with the health of the labor market.Employment losses have deepened considerably in recent months,and total job losses are now over 3.5 million since employmentpeak in December 2007. We expect deterioration in the labormarket to continue with the unemployment rate topping out above9.5 percent in 2010. Given that the labor market will remainseverely challenged for all of 2009, we expect consumer confidencewill remain depressed for the foreseeable future. This will putconsiderable downward pressure on economic growth prospects.
Previous: 37.7 Wachovia: 31.2Consensus: 36.0
Consumer Confidence Index
Conference Board2040608010012014016087899193959799010305070920406080100120140160Confidence Yr/Yr % Chg: Jan @ -56.8%Confidence: Jan @ 37.712-Month Moving Average: Jan @ 53.8
 
Existing Home Sales • Wednesday
Existing home sales ended 2008 on an upswing, 6.5 percent higherin December. While sales moved higher, they still remained belowthe range that had held for more than a year through October. TheNational Association of Realtors noted that the sales figurescontinued to be bolstered by foreclosure sales, which they estimateaccounted for 45 percent of December’s total.Existing homes sales should slip to a 4.60 million annual pace in January. Sales may be volatile in coming months as foreclosuremitigation programs gain a foothold. With nearly half of all salesbeing driven by foreclosure activity, median prices will likely bepushed lower for the seventh consecutive month.
Existing Home Resales
Seasonally Adjusted Annual Rate - In Millions4.04.55.05.56.06.57.07.5199920012003200520074.04.55.05.56.06.57.07.5Existing Home Sales: Dec @ 4.74 Million
 
Previous: 4.74M Wachovia: 4.60MConsensus: 4.81M
Durable Goods • Thursday
Durable goods orders for the month of December fell 2.6 percent. Itwas the fourth decline in five months, and orders were led lowerby significant declines in computer & electronics products andprimary metals. Businesses are cutting back drastically to survivethe recession.Driven by slowing business and consumer demand, orders fordurable goods could fall 7.8 percent in January. Vehicles and partswill likely continue to post significant declines. With corporateprofits weakening and credit conditions exceptionally tight,business fixed investment will decline in the coming quarters.
Previous: -2.6% Wachovia: -7.8%Consensus: -2.3%
Durable Goods New Orders
Series are 3-Month Moving Averages-50%-40%-30%-20%-10%0%10%20%30%93949596979899000102030405060708-50%-40%-30%-20%-10%0%10%20%30%3-Month Annual Rate: Dec @ -43.3% Year-Over-Year Percent Change: Dec @ -16.5%
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