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W
EEKLY
E
CONOMIC
&
 
F
INANCIAL
C
OMMENTARY
 
May 1, 2009
U.S. Review Global Review
Real GDP
Bars = Compound Annual Rate Line = Yr/Yr % Change-8%-6%-4%-2%0%2%4%6%8%9697989900010203040506070809-8%-6%-4%-2%0%2%4%6%8%Real GDP: Q1 @ -6.1%Real GDP: Q1 @ -2.6%
 
Spanish Real GDP
Bars = Compound Annual Rate Line = Yr/Yr % Change-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%20002002200420062008-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%Compound Annual Growth: Q1 @ -7.2% Year-over-Year Percent Change: Q1 @ -2.9%
 
Euro-zone in Deep Recession
Unlike the United States, the Euro-zone has not yet released officialGDP data for the first quarter of theyear. However, preliminaryestimates from some individualcountries suggest that the officialoutturn will not be pretty when it isreleased on May 15. As shown inthe chart at the left, real GDP inSpain plunged at an annualized rateof 7 percent in the first quarterrelative to the fourth quarter of2008, the sharpest rate ofcontraction in years if not decades.A breakdown of Spanish real GDPinto its underlying demandcomponents is not yet available, butthe 10 percent drop in nominalretail sales in the first quarter (year-over-year change) suggests thatconsumer spending was a majorreason overall GDP growthdropped as sharply as it did. TheSpanish labor market has fallencompletely apart. From the eightpercent or so rate that prevailed
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Recent Special Commentary
On The Road To Recovery
The past week’s first quarter GDPreport likely marks the end of theeconomy’s free fall, which beganwhen Lehman Brothers declaredbankruptcy. A similar fall isunlikely to follow yesterday’sannouncement that Chrysler isseeking bankruptcy protection andthe economy should be able tohandle whatever resolution unfoldsfor General Motors.Real GDP declined at a 6.1 percentannual rate during the first quarter,with a huge $103.7 billion plunge ininventories accounting for 2.8percentage points of the drop.Consumer spending reboundedslightly during the quarter butbusiness fixed investment wasastonishingly weak. Governmentspending was another surprisinglyweak sector and net exports added2.0 percentage points to the firstquarter figures. Imports fell morethan exports during the quarter.While the first quarter’s declinenearly matches the fourth quarter’s6.3 percent plunge, the compositionwas very different. The huge dropin inventories helps pave the wayfor a rebound in orders and outputand puts the economy firmly backon the road to recovery.
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DateTitleAuthors
April-30Is What’s Good for GM Still Good for the Country?VitnerApril-29North Carolina - Momentum Slows in the Tar Heel StateSilvia, York & WhelanApril-28Economic Effects of the Swine Flue - Mexico and BeyondBrysonApril-22The Global Economy: Who Gets Out of the Gate First?Bryson
 
U.S. Forecast
ActualForecastActualForecast200820092005200620072008200920101Q2Q3Q4Q1Q2Q3Q4Q
Real Gross Domestic Product
1
0.92.8-0.5-6.3-5.8-0.9-1.70.32.92.82.01.1-2.90.9Personal Consumption0.91.2-3.8-4.31.30.30.71.23.03.02.80.2-0.71.2Inflation Indicators
2
"Core" PCE Deflator2.22.32.31.91.71.41.00.92.12.32.22.21.30.9Consumer Price Index4.24.35.21.5-0.2-1.5-2.9-0.53.43.22.93.8-1.31.2Industrial Production
1
0.2-4.6-9.0-12.7-19.6-7.6-2.50.43.32.31.5-2.2-10.61.7Corporate Profits Before Taxes
2
-1.5-8.3-9.2-21.5-32.0-30.0-26.0-14.017.615.2-1.6-10.1-26.14.5Trade Weighted Dollar Index
3
70.371.076.179.482.585.087.689.986.081.573.379.489.987.1Unemployment Rate4.95.46.16.98.19.19.710.15.14.64.65.89.210.6Housing Starts
4
1.051.030.880.660.520.480.510.552.071.811.340.900.510.74Quarter-End Interest RatesFederal Funds Target Rate2.252.002.000.250.250.250.250.254.255.254.250.250.250.5010 Year Note3.453.993.852.252.712.802.902.904.394.714.042.252.903.60
Data As of: April 8, 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 Government Consumption & Investment
Bars = Seasonally Adjusted Annual Rate Line = Yr/Yr % Change-6%-4%-2%0%2%4%6%8%10%1996199820002002200420062008-6%-4%-2%0%2%4%6%8%10%Government Consumption & Investment: Q1 @ -3.9%Government Consumption & Investment: Q1 @ 1.7%
 
Real Consumer Spending
Both Series are 3-M Moving Averages-6%-4%-2%0%2%4%6%8%929496980002040608-6%-4%-2%0%2%4%6%8%Real Spending 3-M Annual Rate: Mar @ 2.2%Real Spending Year-over-Year Percent Change: Mar @ -1.2%
 
(Continued from Page 1)
The Road To Recovery Will Likely Have a Few Potholes in It
Being on the road to recovery is not the same thing as being in arecovery. Excesses that developed before the recession still needto be corrected and this will take more time. Progress is underway.Inventories are coming down and planned shutdowns by Chryslerin May and General Motors this summer should go a long waytoward clearing out the oversupply of cars and light trucks.Government spending is also poised to rebound now that thestimulus package is rolling out. The pace of government spendingmay prove to be less than many are expecting, however. Federaloutlays fell at a 4.0 percent annual rate in the first quarter, withspending for national defense falling at a 6.4 percent pace.Apparently, the unwinding of the Iraq War has led to cutbacks inequipment purchases and the planned buildup in Afghanistan isnot large enough to offset them. Further cutbacks in militaryprocurement are likely, although part of these cuts will be offsetwith increased outlays for military construction.State and local government outlays fell at a 3.9 percent pace, withcutbacks in construction, equipment purchases, and manpoweraccounting for the drop. Many municipalities are facing severefinancial challenges and are limited as to how much they can raisetaxes or issue debt. As a result, many state and local governmentshave dipped into rainy-day funds, trust funds and maintenanceaccounts. Spending for actual maintenance and repairs is beingdeferred. As a result, increased funding from the federalgovernment may not provide as much of a lift as many peopleexpected. Instead of building new highways and bridges, federalmoney may end up going toward fixing potholes.Another potential challenge for the economy is the consumer.While spending rebounded at a 2.2 percent annual rate, it ended ona weak note, with spending falling 0.2 percent in March. Thatmeans we will have to see hefty gains in April and May just to keepoutlays from falling in the second quarter. While there is someanecdotal evidence that the tax cuts are helping we do not expect itto be enough. Our first look at the second quarter calls for outlaysto fall at a 1.5 percent annual rate, which will make it tougher tobring inventories completely back into balance.The ISM manufacturing survey, as well as most regionalmanufacturing surveys, improved during April. New orders andorder backlogs have increased and inventories continue to decline.The indices remain firmly in recession territory but are moving inthe right direction and show the factory sector is actually a littlefurther down the road to recovery that the economy as a whole.
Selected Current Data
2
Gross Domestic Product - CAGRQ1 - 2009-6.1%GDP Year-over-YearQ1 - 2009-2.6%Personal ConsumptionQ1 - 20092.2%Business Fixed InvestmentQ1 - 2009-37.9%Consumer Price IndexMarch - 2009-0.4%"Core" CPIMarch - 20091.8%"Core" PCE DeflatorMarch - 20091.8%Industrial ProductionMarch - 2009-12.8%UnemploymentMarch - 20098.5%Federal Funds Target RateMay - 010.25%
 
ISM New Orders Index
Diffusion Index202530354045505560657075878991939597990103050709202530354045505560657075ISM New Orders Index: Apr @ 47.212-Month Moving Average: Apr @ 39.0
 
 
U.S. Outlook Economics Group
Construction Spending • Monday
Total construction spending was down 0.9 percent in February,which was significantly less than previous declines. Nonresidentialconstruction spending increased 0.5 percent, but we do not expectthe gain to stick. The economic downturn and tight creditconditions should continue to put downward pressure on totalconstruction spending throughout the rest of the year. Whileresidential construction has accounted for the bulk of declines inrecent months, signs of tentative stabilization in the housing marketshould begin to help slow the pace of declines. However,nonresidential construction spending, which tends to be a laggingindicator, should begin to show large declines over the comingquarters. Recently released first quarter GDP numbers shownonresidential structures fell at a record 44.2 percent rate led by asubstantial decline in petroleum structures. We should continue tosee nonresidential construction spending decline well into 2010.
Previous: -0.9% Wachovia: -1.0%Consensus: -1.5%
Total Construction
Month to Month Percent Change-4%-3%-2%-1%0%1%2%3%4%010203040506070809-4%-3%-2%-1%0%1%2%3%4%Total Construction: Feb @ -0.9%
 
Nonfarm Productivity • Thursday
Productivity growth contributes to corporate profitability. Outputat nonfarm businesses declined at an 8.7 percent annual rate duringthe fourth quarter, while hours worked fell at just an 8.3 percentpace. The net result was a 0.4 percent drop in productivity.However, recent figures show hours worked fell more than grossvalue added in the non-farm sector, which suggests thatproductivity increased in the first quarter and means businessesmay be getting a better handle on production and employment,which are preconditions for an economic recovery.However, while we are beginning to see tentative signs ofstabilization, we are not out of the woods yet. Employment tendsto be a lagging indicator and should continue to show declines wellinto 2010, albeit at a slower pace.
Productivity - Total Nonfarm
 Year-over-Year Percent Change, 3-Year Moving Average-1.0%0.0%1.0%2.0%3.0%4.0%5.0%60657075808590950005-1.0%0.0%1.0%2.0%3.0%4.0%5.0%Nonfarm Productivity: Q4 @ 1.7%
Dashed Line - Long-Run Average 1950-2008: 2.2%
 
Previous: -0.4% Wachovia: 2.3%Consensus: 0.9%
Employment • Friday
 Job losses have been extraordinarily broad based, with virtuallyevery industry other than government, education and healthcareposting employment declines. The largest losses continue to be inmanufacturing and construction, where close to half the 5.1 millionoverall job losses have been. Even once considered recessionresistant areas like state and local government are being hit hard.However, weekly first-time unemployment claims suggest joblosses may be leveling off with the four-week moving averagedeclining for the third consecutive week.Additionally, the insured unemployment rate has been rising atenth of a percentage point a week which has matched nearlyperfectly with the rise in the unemployment rate. The latest figuressuggest the unemployment rate will climb to around nine percentin April. We continue to expect the unemployment rate to risethroughout 2010, peaking at well over 10 percent.
Previous: -663K Wachovia: -605KConsensus: -610K
Nonfarm Employment Change
Change in Employment, In Thousands-800-600-400-20002004006002000200120022003200420052006200720082009-800-600-400-2000200400600Nonfarm Employment Change: Mar @ -663,000
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