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Economic Research

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U.S. Economic Forecast: The Summer Wind
Credit Market Services: Beth Ann Bovino, Deputy Chief Economist, New York (1) 212-438-1652; bethann.bovino@standardandpoors.com

Table Of Contents
Hot Fun In The Summertime Summertime Blues What's Gonna Happen When Summer's Gone? Cruel Summer Separation Anxiety The Other Side Of Summer The Downside Case: Cooling Down The Upside Case: A Sunnier Forecast

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U.S. Economic Forecast: The Summer Wind
With summer upon us and Americans brushing the dust off their air conditioners, the U.S. economic recovery is staying warm despite the cooling headwinds coming out of Washington. Even amid the twin fiscal shocks of fiscal-cliff squabbling and sequestration, the world's biggest economy has been surprisingly resilient: In the first quarter, consumers have spent at the fastest pace in two years. Additionally, the housing market continues to improve, and although business investment has slowed, managers are still hiring. While the Federal Reserve has hinted in its June statement that it may begin tapering its asset purchases as soon as September (we expect the Fed will want a meeting followed by a press conference to give it the attention it deserves), it has tied the move to a strengthening jobs markets and stable inflation. The Fed also made it clear that it can reverse course to increase bond purchases "as the outlook for the labor market or inflation changes." Although the Fed deemed the recent signs of disinflation as "transitory," they will, in our view, likely keep the Fed reluctant to reduce this medicine. We now expect the Fed will start tapering purchases in December, after the fiscal fog from both the debt ceiling and continuing resolution has passed. Our baseline forecast sees little risk of a return to recession, or deflation. Still, the longer that sequestration drags on, the harder it will be for the private sector to keep up a recovery. We expect the biggest effects of federal spending cuts will be felt in the second quarter. And while we still expect lawmakers to reach a compromise sometime in the third quarter, government inaction has increased the risk of failure. No action through year end means our forecast for 2013 GDP growth would fall to about 2% from 2.4%.

Hot Fun In The Summertime
The private sector is spending and investing enough to bolster the economic recovery, despite sharp government spending cuts. If government spending had instead been flat, GDP growth would have been 1.8% in the fourth quarter and about 3.4% in the first. That's not surprising because, after four years of building financial reserves, the private sector has squirreled away enough nuts to weather a Washington winter. Overview • We expect U.S. GDP growth of about 2.4% this year and 3.3% in 2014. • We assess the overall risk of another recession in the next year at 10%-15%. • We see the chance of a quick turnaround at 15%-20%.

There are now few analysts who doubt that the housing market will continue to recover. Prices are rising, and inventories are at historically low levels. (The inventory of new homes for sale is near a 49-year low, and the supply of existing homes is at 5.1 months in May after reaching an eight-year low of 4.3 months in January.) Although buyer traffic is up 29% over last year, supply bottlenecks have kept the building boom at bay, with builders complaining

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about high materials costs and worrying about the supply of developed lots and available labor. Given the low inventory, an improving jobs market, increased buyer expectations for home price gains, higher investor demand, and a smaller share of foreclosed homes to total sales, we now expect home prices (as per the S&P Case-Shiller 20-city home price index) to climb 11% this year. The improvement in the residential housing market is a major component of our forecast for a strengthening economic rebound. For every single-family home built, somewhere between two and three jobs are created–not just in construction, but in housing-related businesses such as home furnishings. And, though still stricter than pre-crisis levels, there are signs that bank lending standards have eased from the stringent conditions of 2008-2010. If that continues, it will, in turn, help home sales to balloon. Meanwhile, after growing 11.8% in the fourth quarter, capital equipment investment rose a much smaller 4.6% in the first. Part of that softer reading is that investment activity was likely pushed into the fourth quarter to take advantage of the bonus depreciation that expired at year end. And spending is showing signs of fatigue in the second quarter as sequestration weighs on investment decisions. We expect gains later this year once the fiscal fog clears, and we forecast growth of 6.8% for the full year and 9.5% in 2014. Growth trends can find support in other areas. The U.S. economy has added an average of 194,000 jobs a month in the six months through May. This has offset some, but not all, of Americans' disappointment from higher taxes. The unemployment rate has ticked up to 7.6% from 7.5%, but for the right reasons: As people got jobs, even more began looking for work, encouraged that they'll find work. That the pace of jobs growth will continue in the face of sequestration, however, is unlikely. Already sequestration is resulting in reduced hours worked, partly from businesses furloughing workers, likely in response to lost government contracts. That helps explain why nonresidential construction has taken a beating in the first quarter, down 3.5%. Businesses held back on expanding capacity given the gridlock in Congress, and problems abroad make the outlook uncertain. We expect modest gains of 5.5% this year, accelerating to 8.9% the next. Still, the improving jobs market boosted consumer confidence and spending in May, as climbing stock and home prices helped offset tax hikes, sequestration, and ongoing political dysfunction in Washington.

Summertime Blues
The Fed's Survey on Consumer Finances highlighted the recession's heavy toll on Americans. The survey, which comes after a long lag, showed that the net worth (the value of real estate and stock holdings) of middle-class families was crushed from 2007-2010. Adjusted for inflation, median income fell 7.7%, to $45,800. If that's not enough, median net worth fell 38.8%, to $77,300, an 18-year low. The results aren't surprising, given we went through the worst downturn since the Great Depression, but they help explain why the recovery has been so dismal. The survey also highlights the especially hard hit that middle-income family finances took. While the middle class suffered the biggest drop in wealth, more than 40%, the top 10% actually saw an increase of 1.8%. This was mostly because, in the middle class, real estate represents a larger share of net worth than among the wealthy or those in the

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lowest income bracket (see chart).

The U.S. households added a few more eggs to their nests since then, thanks to gains in equities and home values, as well as their reluctance to take on more debt. U.S. household wealth climbed $3 trillion (9.6% year over year) to $70.3 trillion in the first quarter, surpassing the $65.8 trillion in the second quarter of 2007 for a new record since 1945, according to the Fed's Flow of Funds report. All told, it has become easier for households to repair their balance sheets. But total aggregate wealth can be misleading. Average household net wealth, adjusted for inflation and population growth, is still well below where it was before the recession, according to a study by the St. Louis Fed. In addition, stock market gains are largely concentrated on the balance sheets of wealthy households, which the report noted explains the uneven recovery of wealth. The report said that "a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified." A prolonged gain in household wealth will be tough to achieve until home prices rise steadily, which is just now starting to occur.

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What's Gonna Happen When Summer's Gone?
In short, the economic landscape has improved, but most people still don't feel it. Just more than half of respondents to the Employee Benefit Research Institute's (EBRI) 2013 Retirement Confidence Survey said they thought they had enough money for a comfortable retirement (13% are very confident and 38% are somewhat confident). That's essentially unchanged from the record lows in 2011. As it stands, 28% (up from 23% in 2012) are not at all confident, while 21% are not too confident. One possible reason that workers are depressed despite an improving economic outlook is that they now realize just how much more they must save. Asked how much they believe they will need for a financially secure retirement, a striking number of workers cite large savings targets: One-fifth say they need to save 20%-29% of their income, and slightly more than that say they need to save 30% or more. Given that most workers say that their net savings, excluding home values and defined benefits, is less than $25,000, that's a big shift in attitudes. That's also why this recovery has been so weak. People have saved more and spent less. As usual, we're torn between our belief that Americans need to save more in the long run and our hope for stronger demand in the short run. Spending now means less saved, placing Americans in a bind when they reach retirement. So when more than half of full-time workers in a recent Towers Watson survey said that they doubt they'll save enough to last them through retirement, we weren't surprised. Most Americans haven't saved anything, and the few who have generally haven't saved enough. What's more, as the Fed's Survey of Consumer Finances made so painfully clear, the 2008 recession and the drops in stock and home prices have decimated the funds Americans had put away. With the still-high cost of living–as the gas pump reminds us–Baby Boomers' meager savings won't be enough to cushion that extra tax. And while Americans are way behind on their retirement savings, with their pensions likely to be far shy of their needs, federal underfunding dwarfs these shortfalls. Certain projections for federal programs such as Social Security and Medicare indicate that both will run out of money sooner than expected–within the lifetimes of most Boomers. Historically, most Americans have relied on the government to fund their retirements, but they're also losing confidence in this option, according to the EBRI survey. Under current projections, Social Security would become insolvent by 2033, and the Medicare trust fund would disappear by 2026, two years later than previously forecast thanks to the Affordable Care Act's limits on the more expensive Medicare Advantage, according to Social Security and Medicare Trustees reports. As a result, many people may end up having to work past the traditional retirement age. There's no question that the system needs fixing. And with the first batch of Baby Boomers having just turned 65, we are rapidly running out of time.

Cruel Summer
Declines in federal government spending of 14.8% and 8.7% in the fourth and first quarters, respectively, suggest that budget officers may have decided to rip off the bandage quickly rather than suffer through grinding pain of the

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sequester the entire year. The drop was largely the result of huge declines in defense spending, but it's still a surprise because many thought budget officers would have pushed spending into fiscal-year 2012, before sequestration took effect. Outlays in March were down about $87 billion ($1 trillion, annualized), from a year earlier, according to a Treasury report. The estimated $95 billion in dividend payments to the Treasury from mortgage giants Fannie Mae and Freddie Mac could explain some of the drop because it's an offsetting receipt, so it shows up as a reduction in outlays. But, while the sequester amounts to just $85 billion, the Congressional Budget Office (CBO) now projects that the U.S. deficit will shrink to $642 billion this year, from more than $1 trillion the past four years. This suggests there may be less fiscal drag ahead than we have seen already. This doesn't mean all is well, of course. A strengthening economy and piecemeal fiscal consolidation amid historically low borrowing costs have bought the government some time. But lawmakers still need to cope with the growth of Social Security, Medicare, and other entitlements. Meanwhile, with the debt already at its limit, the Treasury is using its "standard set of extraordinary measures" to keep this from binding. However, Washington is focused on the IRS scandal, a farm bill, immigration, 2014 spending, and a host of nonfiscal priorities. The expiry of the continuing resolution is right around the time when the debt ceiling looks to bind (when the Treasury runs out of extraordinary measures), and it is unlikely to come to the forefront until the end of summer. Eventually, Democrats and Republicans will explore pathways toward a deal. While the debt ceiling rhetoric may ramp up, both sides have signaled that they see little benefit in playing chicken. We don't see any real risk of a default or crisis. Still, betting on what the government will do is always risky. We expect a combination of revenue-enhancing tax reforms and spending cuts–including to entitlements, such as the implementation of President Barack Obama's proposal to change the inflation index used to calculate cost-of-living adjustments for Social Security. In any event, the CBO now estimates that the cliff deal and sequestration aren't enough to reverse the climb in government debt because of an aging population, rising health care costs, and federal subsidies for health insurance—the usual suspects. The group projects that, if current laws don't change, publicly held U.S. government debt will equal 74% of GDP in 2023, almost twice the 39% average of the past four decades. Moreover, the CBO rightly expects that borrowing costs will eventually climb, making for growing interest payments on federal debt. The drop in rates to record lows has given Uncle Sam a break by restraining the budgetary cost of servicing the government's debts. But once rates reverse course, that perk will disappear. Using the CBO's interest rate projections, net interest would make up about 14% of the budget outlay in 10 years, doubling its share in fiscal-year 2012.

Separation Anxiety
The May jobs report gave the Fed–and markets–some breathing room concerning when the central bank will start to taper its purchases of $85 billion of assets. As we expected, the Goldilocks-ian "not too hot, not too cold" report kept

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the Fed standing pat on policy action in June. Still, the Federal Open Market Committee's (FOMC) June statement indicated a committee that was a little more eager to pull the trigger than we earlier thought. Markets certainly weren't ready to say goodbye to the Fed's purchasing program just yet, given the stock market drop since the announcement. Two lines in the statement suggest a leaning toward tapering sooner rather than later. The statement said that "the committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall." It also recognized that "inflation has been running below the committee's longer-run objective," though it said that partly reflects "transitory influences." Chairman Ben Bernanke downplayed the disinflation (missing the inflation target from below), but we suspect the minutes will show members getting concerned about this as a risk factor. It would explain St. Louis President James Bullard's dissent, and his later statement that "officials should do more to signal they are willing to defend their inflation goal, in light of low readings for consumer-price growth." Sounds like President Bullard had Chairman Bernanke in mind when he made that comment. Although markets have priced in a September move, we believe that several factors weigh against that. First, while the jobs market is improving, we expect the Fed would want to see more numbers that confirm underlying economic momentum is self-sustaining without Fed support. Second, a Fed move in September comes at a time when two pivotal dates are approaching: the expiration of the continuing resolution and when the Treasury runs out of extraordinary measures to avoid breeching the debt ceiling. We now expect the FOMC will want to wait until its December meeting before it announces the start date.

The Other Side Of Summer
There's always a chance things could turn out better or worse than we're expecting. So each quarter, Standard & Poor's projects two additional scenarios, one with slower growth than the baseline, and one faster. We can then use the downside case to estimate the credit impact of a worse-than-expected economic outlook.

The Downside Case: Cooling Down
In our downside scenario, the U.S. would avoid recession in the most common sense of the term (consecutive quarters of contraction), but the country would enter a period of low growth as ongoing political wrangling results in the government's failure to agree on a sound deficit-cutting plan this year. In this scenario, policymakers would allow the automatic spending cuts to take effect in full in 2013. People would initially absorb the fiscal shock rather well. But with political gridlock settling in, policymakers would further cut discretionary spending in 2014. Realizing that this austerity-by-default is here to stay, private-sector confidence would drop dramatically in the fourth quarter, and the stock market would crash to near-2009 levels. Housing activity slows, credit tightens again, and the once-promising economic recovery would take a turn for the worse at year end. The additional spending cuts next year would take another chunk out of growth in an already weak economy as high-income earners and workers adjust to less aftertax income from the January cliff deal. Despite central bank efforts, the eurozone would continue to wallow in fiscal austerity and its political backlash, a deep recession, financial system turmoil, and a loss of investor and consumer confidence. And emerging Asian economies would continue their

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slowdown, amplifying the U.S. slump as exports take a hit. In this scenario, the U.S. sluggishness would last into next year, with government austerity weighing heavily on the economy. Consumer confidence would weaken significantly in response to political gridlock. Despite being blessed with lower gas prices, higher taxes and sequestration cuts would hammer the jobs market, and consumer spending might advance just 2.0% and 1.3% in 2013 and 2014, respectively. Despite tensions in the Middle East, a global slump would push oil prices lower–perhaps down to $84.55 per barrel in 2014. In this light, the Consumer Price Index (CPI) could decelerate this year to 1.2%, compared with 1.7% in our baseline forecast. Core inflation, excluding food and fuel, could flirt with the bottom of the Fed's target of 1.5% to 2.5% through the year. The Fed would keep a very accommodating stance through 2016. Consumer confidence and Americans' spending appetite would weaken significantly in response to political gridlock. The decline in consumer spending, together with economic slumps in Europe, China, and the U.S., could slash corporate revenues and damage business confidence. Equipment investment spending could rise just 4.0% for the year. Nonresidential construction would also lose steam, rising by just 2.1% in 2013, erasing last year's improvements, and drifting lower in 2014. Stock prices would likely tumble, and the deeper downturn in Europe and China would keep U.S. exports weak. As businesses reined in hiring and government jobs disappeared, the unemployment rate could peak above 8% in 2014. Consequently, the housing recovery would falter. Gains in housing starts would disappear later this year. By the third quarter, starts could remain in a holding pattern below the million unit mark though 2014, which is significantly weaker than the growth to 1.24 million units we expect in our baseline forecast. Housing prices would again fall because of weaker demand and even tighter credit conditions, though not enough to reach the 2012 low.

The Upside Case: A Sunnier Forecast
In our optimistic scenario, stronger consumer and business confidence, an improving jobs market, better economic growth abroad, and a rapid calming of the financial markets would help relieve some of the strains on the U.S. economy. Washington lawmakers would agree on a sound deficit-reduction budget plan, reversing sequestration's excessive austerity. As a result, business and consumer confidence would climb, keeping private demand alive, and a revival in productivity would keep inflation under control. Pent-up demand, helped by a better jobs situation and still-low mortgage rates, would continue to fuel the real estate recovery. Housing would also get a boost from government policies that sop up the excess inventory of unsold homes and process foreclosures faster. The baseline recovery expects modest performance coming out of recession. Our high-growth scenario is a more normal, albeit delayed, upturn. In this projection, the housing sector would rebound faster than in the baseline scenario because of lower mortgage rates and continuing strong demand. Housing starts would rise to 1.08 million in 2013, and in 2014 reach 1.5 million–the level needed to keep up with household formation–one year earlier than in the baseline. In the upside case, a recovering economy and improving credit conditions would bolster capital spending. Borrowing conditions would continue to improve, with quality spreads narrowing to normal levels in 2013. Although business borrowing restrictions could continue to weigh on spending, the credit market problems might improve faster than in

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our baseline forecast. Amid renewed business confidence that the recovery is on track, with less fiscal uncertainty from Washington, spending on capital equipment could grow 6.7% and 12.7% in 2013 and 2014, respectively, compared with 6.8% and 9.5% in the baseline prediction. Nonresidential construction could grow 6.3% this year, a bit better than our baseline forecast of 5.5%. Core inflation rates would heat up faster, stirring inflation fears. In response to much stronger growth and a healthier jobs market, the Fed could end its stimulus policy much sooner than expected and hike interest rates early next year. This tightening would continue through 2015, helping to bring core CPI back down to 2.1% by 2015, closer to the central bank's target rate but higher than the 2.0% we see in our baseline forecast. The expansion in consumer spending would be stronger than in the baseline scenario because of a better jobs market and the easing of uncertainty over U.S. fiscal policy, despite a decrease in purchasing power from higher prices at the gas pump. Consumer spending could rise 2.8% this year, faster than the 2.5% we see in our baseline forecast. Spending would then climb 3.7% in 2014. The unemployment rate would fall below 6% by the third quarter of 2014, finally around the 60-year historical average.
Table 1

Standard & Poor's Economic Outlook
June 2013 2012 Q4 (% change) Real GDP Real final sales Consumer spending Equipment investment Nonresidential construction Residential construction Federal government State and local government Exports Imports CPI Core CPI Nonfarm unit labor costs Nonfarm productivity Levels Unemployment rate (%) Payroll employment (mil.) Federal funds rate 10-year Treasury-note yield 'AAA' corporate bond yield Mortgage rate (30-year conventional) 7.8 7.7 7.5 7.4 7.2 9.3 130.9 0.2 3.3 5.3 5.0 9.6 129.9 0.2 3.2 4.9 4.7 8.9 131.5 0.1 2.8 4.6 4.5 8.1 133.7 0.1 1.8 3.7 3.7 7.4 136.1 0.1 2.0 3.9 3.6 6.8 139.0 0.2 2.5 4.3 4.1 6.2 141.7 0.6 3.2 4.9 4.8 0.4 1.9 1.8 11.8 16.7 17.9 (14.8) (1.5) (2.8) (4.2) 2.2 1.7 11.8 (1.7) 2.4 1.8 3.4 4.6 (3.5) 12.1 (8.7) (2.4) 0.8 1.9 1.4 2.1 (4.3) 0.5 2.6 1.8 2.3 6.9 4.8 20.8 (8.9) (0.5) 2.5 3.3 (0.5) 1.1 0.3 2.1 3.7 3.4 2.9 11.0 15.1 31.5 (0.3) (0.1) 5.4 8.8 1.7 2.0 1.4 1.0 4.3 4.1 3.5 13.1 10.4 35.9 0.2 0.6 6.4 9.9 1.4 2.0 1.4 1.3 (3.1) (2.3) (1.9) (16.4) (21.1) (22.7) 6.1 2.2 (9.1) (13.5) (0.3) 1.7 (1.4) 2.9 2.4 0.9 1.8 8.9 (15.6) (3.9) 4.5 (1.8) 11.1 12.5 1.6 1.0 (1.1) 3.1 1.8 2.0 2.5 11.0 2.7 (1.6) (2.8) (3.4) 6.7 4.8 3.1 1.7 1.9 0.6 2.2 2.1 1.9 6.9 10.8 12.3 (2.2) (1.4) 3.4 2.4 2.1 2.1 1.1 0.9 2.4 2.2 2.5 6.8 5.5 18.7 (5.8) (1.0) 1.8 2.1 1.3 1.8 1.1 0.9 3.3 3.4 3.0 9.5 8.9 18.8 0.3 0.6 5.3 6.8 1.7 2.1 2.1 0.9 3.2 3.3 2.6 6.7 4.9 20.0 (1.0) 0.6 5.6 3.7 1.8 2.0 2.2 1.1 Q1 --2013-Q2e Q3e Q4e 2009 2010 2011 2012 2013e 2014e 2015e

134.5 135.1 135.8 136.4 137.2 0.2 1.7 3.5 3.4 0.1 2.0 3.9 3.5 0.1 1.9 3.8 3.5 0.1 2.1 3.9 3.7 0.1 2.2 3.9 3.8

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Table 1

Standard & Poor's Economic Outlook (cont.)
Three-month Treasury-bill rate S&P 500 Index S&P operating earnings ($/share) Current account ($ bil.) Exchange rate (major trade partners) Crude Oil ($/bbl, WTI) Saving rate Housing starts (mil.) Unit sales of light vehicles (mil.) Federal surplus (fiscal year unified, $ bil.) e--Estimate. 0.1 0.1 0.1 0.1 0.1 0.2 947 56.86 (382) 93.0 61.69 4.7 0.55 10.4 0.1 1,139 83.77 (442) 90.0 79.41 5.1 0.59 11.6 0.1 1,269 96.44 (466) 84.0 95.07 4.3 0.61 12.7 0.1 1,380 0.1 1,615 0.1 1,780 0.6 1,787 1,418 1,515 1,613 1,651 1,679 23.15 25.74 27.11 27.71 28.57 (442) 87.0 (476) 89.0 (457) 91.0 (445) 93.0 (465) 92.0

96.82 109.12 119.58 126.91 (475) 88.0 94.21 4.1 0.78 14.4 (461) 91.0 93.66 2.4 1.01 15.6 (758) (480) 91.0 89.28 3.1 1.24 16.1 (564) (489) 90.0 90.02 3.8 1.56 16.3 (485)

88.17 94.35 94.19 94.30 91.82 5.3 0.90 15.0 (293) 2.3 0.96 15.3 (307) 2.4 0.92 15.2 (6) 2.4 1.04 15.6 (152) 2.5 1.11 16.2

(197) (1,416) (1,294) (1,297) (1,089)

Table 2

Downside Case
June 2013 2009 (% change) Real GDP Real final sales Consumer spending Equipment investment Nonresidential construction Residential construction Federal government State and local government Exports Imports CPI Core CPI Nonfarm unit labor costs Nonfarm productivity Levels Unemployment rate (%) Payroll employment (mil.) Federal funds rate 10-year Treasury-note yield 'AAA' corporate bond yield Mortgage rate (30-year conventional) Three-month Treasury-bill rate S&P 500 Index S&P operating earnings ($/share) Current account ($ bil.) 9.3 130.9 0.2 3.3 5.3 5.0 0.2 947 56.86 (382) 9.6 129.9 0.2 3.2 4.9 4.7 0.1 1,139 83.77 (442) 8.9 131.5 0.1 2.8 4.6 4.5 0.1 1,269 96.44 (466) 8.1 133.7 0.1 1.8 3.7 3.7 0.1 1,380 7.7 135.6 0.1 1.7 3.7 3.5 0.1 1,526 8.1 136.2 0.1 1.5 3.8 3.5 0.1 1,516 8.1 137.2 0.1 2.2 4.4 4.2 0.1 1,521 (3.1) (2.3) (1.9) (16.4) (21.1) (22.7) 6.1 2.2 (9.1) (13.5) (0.3) 1.7 (1.4) 2.9 2.4 0.9 1.8 8.9 (15.6) (3.9) 4.5 (1.8) 11.1 12.5 1.6 1.0 (1.1) 3.1 1.8 2.0 2.5 11.0 2.8 (1.6) (2.8) (3.4) 6.7 4.8 3.1 1.7 1.9 0.6 2.2 2.1 1.9 6.9 10.8 12.3 (2.2) (1.4) 3.4 2.4 2.1 2.1 1.1 0.9 1.5 1.4 2.0 4.0 2.1 13.0 (5.9) (1.6) 0.9 1.0 1.0 1.6 1.5 0.3 0.6 1.1 1.3 3.5 0.7 4.0 (3.7) (0.8) 1.1 0.3 1.2 1.6 2.5 (0.1) 2.2 2.1 1.1 4.9 3.5 13.6 (0.3) (0.5) 3.6 (0.3) 2.1 1.8 1.3 1.4 2010 2011 2012 2013e 2014e 2015e

96.82 108.92 116.47 116.47 (475) (423) (343) (362)

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Table 2

Downside Case (cont.)
Exchange rate (major trade partners) Crude Oil ($/bbl, WTI) Saving rate Housing starts (mil.) Unit sales of light vehicles (mil.) Federal surplus (fiscal year unified, $ bil.) e--Estimate. 93.0 61.69 4.7 0.55 10.4 90.0 79.41 5.1 0.59 11.6 84.0 95.07 4.3 0.61 12.7 88.0 94.21 4.1 0.78 14.4 93.0 88.80 2.7 0.96 14.9 (774) 94.0 84.55 3.4 0.96 14.1 (647) 91.0 96.23 4.0 1.16 14.0 (641)

(1,416) (1,294) (1,297) (1,089)

Table 3

Upside Case
June 2013 2009 (% change) Real GDP Real final sales Consumer spending Equipment investment Nonresidential construction Residential construction Federal government State and local government Exports Imports CPI Core CPI Nonfarm unit labor costs Nonfarm productivity Levels Unemployment rate (%) Payroll employment (mil.) Federal funds rate 10-year Treasury-note yield 'AAA' corporate bond yield Mortgage rate (30-year conventional) Three-month Treasury-bill rate S&P 500 Index S&P operating earnings ($/share) Current account ($ bil.) Exchange rate (major trade partners) Crude Oil ($/bbl, WTI) Saving rate Housing starts (mil.) 9.3 130.9 0.2 3.3 5.3 5.0 0.2 947 56.86 (382) 93.0 61.69 4.7 0.55 9.6 129.9 0.2 3.2 4.9 4.7 0.1 1,139 83.77 (442) 90.0 79.41 5.1 0.59 8.9 131.5 0.1 2.8 4.6 4.5 0.1 1,269 96.44 (466) 84.0 95.07 4.3 0.61 8.1 133.7 0.1 1.8 3.7 3.7 0.1 1,380 7.3 136.3 0.2 2.6 4.2 3.9 0.1 1,725 6.0 140.3 0.8 4.0 5.3 5.1 0.8 2,024 5.0 144.1 3.0 4.4 5.8 6.1 2.8 2,030 (3.1) (2.3) (1.9) (16.4) (21.1) (22.7) 6.1 2.2 (9.1) (13.5) (0.3) 1.7 (1.4) 2.9 2.4 0.9 1.8 8.9 (15.6) (3.9) 4.5 (1.8) 11.1 12.5 1.6 1.0 (1.1) 3.1 1.8 2.0 2.5 11.0 2.7 (1.6) (2.8) (3.4) 6.7 4.8 3.1 1.7 1.9 0.6 2.2 2.1 1.9 6.9 10.8 12.3 (2.2) (1.4) 3.4 2.4 2.1 2.1 1.1 0.9 2.6 2.5 2.8 6.7 6.3 20.7 (5.4) (0.9) 2.0 2.2 1.8 2.0 1.0 1.0 4.9 4.7 3.7 12.7 12.9 32.1 0.9 1.1 7.6 8.2 1.9 2.6 1.5 1.5 4.0 4.0 3.9 9.8 6.2 16.3 (0.9) 1.6 6.0 7.6 1.5 2.1 2.3 1.1 2010 2011 2012 2013e 2014e 2015e

96.82 108.92 116.47 116.47 (475) 88.0 (519) 88.0 (561) 89.0 92.79 2.7 1.51 (582) 92.0 84.43 3.8 1.81

94.21 101.19 4.1 0.78 1.9 1.08

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Economic Research: U.S. Economic Forecast: The Summer Wind

Table 3

Upside Case (cont.)
Unit sales of light vehicles (mil.) Federal surplus (fiscal year unified, $ bil.) e--Estimate. 10.4 11.6 12.7 14.4 15.9 (751) 17.3 (532) 17.6 (420) (1,416) (1,294) (1,297) (1,089)

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