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2009 V

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331-4400

Real Savings Rate 0.9%, Not BEA’s 6.9%Consumers in Worse Shape Than Government Statistics IndicateTrimTabs Estimates U.S. Economy Sheds 472,000 Jobs in June

Spotlight: Real Savings Rate 0.9%, Not BEA’s 6.9%; Year-over-Year Growth in Wages and Salaries-4.8% in May, Not -1.1% as BEA Reports

The U.S. economy is in far worse shape than U.S. government statistics indicate. The Personal Income reportreleased Friday by the Bureau of Economic Analysis (BEA) grossly overstates personal savings, wages andsalaries, and personal income. Real-time data indicates the personal savings rate was 2.8% in May, not 6.9% asthe BEA reports. Worse still, when savings is adjusted for the impact of the “Making Work Pay” tax credit andone-time stimulus payments to recipients of Social Security and other government retirement programs, the realsavings rate drops to 0.9%.In addition, real-time tax data indicates wages and salaries fell 4.8% y-o-y in May, not 1.1% y-o-y as the BEAreports. And while the BEA reports that personal income rose 0.3% y-o-y in May, real-time tax data shows itfell 3.6% y-o-y. Consumers are in much worse shape than government statistics suggest and have little moneyleft over to repair their tattered balance sheets.

Bottom Line

In response to a question about a potential economic recovery, Warren Buffett quipped, “You can’t produce ababy in one month by getting nine women pregnant.” We agree with Mr. Buffett. We do not expect economicgrowth to turn positive until sometime in 2010.Real-time data shows the economy lost 472,000 jobs in June, far exceeding the revised 380,000 job loss in May.The unemployment rate is likely to hit 9.7% to 9.8% in June, and it could hit 10.0% in July. Other indicatorsconfirm the labor market’s weakness. Weekly unemployment claims and continuing unemployment claimsreversed course in this past week after declining for several weeks. While the TrimTabs Online Job PostingsIndex rose 3.2% in June, it is still consistent with an extremely weak labor market. Also, real-time dataindicates declines in wages and salaries are accelerating.Mortgage rates pulled back in this past week, but they are still much higher than earlier this year. We believeforecasters pricing in a housing recovery by the end of 2009 will be in for a nasty surprise.

This Week’s Summary

Employment– U.S. Economy Loses 472,000 Jobs in June. Unemployment Rate Likely to Hit 9.7% to 9.8% in June and 10.0% in July.

We estimate the U.S. economy shed 472,000 jobs in June after losing arevised 380,000 jobs in May. June’s job loss will likely push the unemployment rate to 9.7% to 9.8% in Junefrom 9.4% in May. The TrimTabs Online Job Postings Index rose 3.2% in June after holding steady in May.Weekly unemployment claims jumped 15,000 in this past week to 627,000, keeping the four-week movingaverage above 600,000 for the twentieth consecutive week. Continuing unemployment claims increased 29,000to 6.74 million in the latest reporting week, just below the record high of 6.84 million reached two weeks ago.

Income– Income Tax Withholdings Plunge Adjusted 5.8% Y-o-Y in June.

Income tax withholdings fell5.8% y-o-y in June after dropping 4.8% y-o-y in May, indicating wage declines and job losses have accelerated.“Other” taxes plunged 33.5% y-o-y in the past four weeks after falling 33.6% y-o-y in May. Corporate incometaxes have fallen 35.6% y-o-y in the past four weeks after dropping 12.3% y-o-y in May.

Housing– New and Existing Home Sales Jump 4.6% in Past Two Months, While Average Home PricesReach Highest Level since January.

New and existing home sales jumped 108,000, or 2.2%, in May.Meanwhile, the inventory of unsold homes fell 148,000, or 3.5%. Mortgage rates fell 21 basis points to 5.38%in the latest reporting week, fueling an increase in both mortgage purchases and refinance applications.California foreclosure activity fell 19.8% in the past week, most likely in response to the new Californiaforeclosure law that went into effect June 15.

Spotlight: Real Savings Rate 0.9%, Not BEA’s 6.9%; Year-over-Year Growth in Wages and Salaries-4.8% in May, Not -1.1% as BEA Reports

BEA Overestimates Personal Income in May, Inflating Personal Savings Rate

The latest Personal Income report from the Bureau of Economic Analysis (BEA) presents an inaccurate pictureof the financial health of American consumers. According to the BEA, personal savings as a percentage of personal disposable income was a whopping 6.9% in May, the highest since December 1993. For comparison,the savings rate for all of 2008 averaged 1.8%. Our analysis based on real-time income tax deposits indicatesthe real savings rate is a paltry 0.9%. Consumers are in much worse shape than government statistics suggestand have little money left over to repair their tattered balance sheets.Two temporary factors inflated the savings rate in May:1.

Individuals receiving Social Security and other qualifying government retirement programs received aone-time payment of $250, totaling about $160 billion annualized.2.

Incomes were elevated due to the “Making Work Pay” tax credit, which amounts to $60 billionannualized.After adjusting for these two factors, the BEA’s savings rate estimate drops to 4.8%.Moreover, the BEA is overstating income from wages and salaries and income from non-wage sources, whichinflates the savings rate. Income tax deposits to the U.S. Treasury, which are reported in the Daily Treasury

TrimTabs Weekly Macro AnalysisJune 30, 2009Page 3 of 15Copyright © 2009 TrimTabs Investment Research. All rights reserved.Statement, show the economy is contracting much faster than the BEA is reporting. Using this real-time data,we estimate the savings rate was only 2.8% in May. Backing out the impact of the “Making Work Pay” taxcredit and the one-time payout to Social Security and other government retirement beneficiaries in May, and thesavings rate drops to 0.9%.The BEA does not use real-time data to compute its most recent estimates of wages and salaries. Instead, it usesthe Quarterly Census of Employment and Wages (QCEW), which is based on quarterly tax reports submitted tostate unemployment agencies. The QCEW covers more than 8 million employers subject to stateunemployment insurance laws, and it captures the wages and salaries of 99.7% of all workers. To computecurrent wages and salaries, the BEA interpolates and extrapolates the lagged QCEW data forward, using inputsfrom the Bureau of Labor Statistics to make necessary adjustments.The May 2009 BEA personal income data is based on QCEW data from Q4 2008. Unfortunately, the QCEWdata does not fully reflect wage declines across the entire labor market. The QCEW is essentially anunemployment survey. Most employers pay unemployment taxes on only a small portion of their workers’salaries, and most of these payments are made at the beginning of the year. So the QCEW data from Q4 2008only captures unemployment taxes paid by workers hired late in the year, not the entire workforce.The BEA reported that in May—in the midst of the worst economic downturn since the 1930s—personalincome rose 0.3% y-o-y, while wages and salaries fell only 1.1% y-o-y. When we incorporate real-time datainto the results, we find that personal income fell 3.6% y-o-y, while wages and salaries dropped 4.8% y-o-y. Inaddition, personal savings drops from a reported $769 billion, or 6.9% of disposable personal income, to $302billion, or 2.8% of disposable personal income.

Personal Income (Billions of $)Reported byBureau ofEconomicAnalysis - May2008Reported byBureau ofEconomicAnalysis - May2009Reported byTrimTabs UsingIncome TaxWithholdings -May 2009

Personal Income $12,220 $12,261 $11,776Less: Personal Current Taxes $1,148 $1,172 $1,154Equals: Disposable Personal Income $11,072 $11,089 $10,622Less: Personal Outlays $10,544 $10,320 $10,320Equals: Personal Savings $528 $769 $302Personal Savings as % of Disposable Personal Income 4.8% 6.9% 2.8%

Source: Bureau of Economic Analysis – www.bea.gov and TrimTabs Investment Research – www.trimtabs.com The BEA will continue to overstate wages and salaries, personal income, and the savings rate until QCEW datafrom Q1 2009 is available in August. The Q1 2009 data will provide more accurate data on wages and salariesbecause unemployment taxes are paid on all employees in the first quarter of each year.We asked BEA economists about the huge discrepancy between the tax data and their income estimates. Theydid not have a ready answer. One BEA economist did point out that the quarterly tax data the BEA collects