US Economics Analyst

Issue No: 09/38 September 25, 2009
Goldman Sachs Global Economics, Commodities and Strategy Research at https://360.gs.com

Why Health Reform Matters
Congress is likely to enact health reform legislation at some point over the next several months. Whatever proposal is finally adopted is likely to represent the most significant expansion of public health benefits since the 1960s, when Medicare and Medicaid were established, and will require substantial changes to the federal budget in order to finance it. The healthcare system faces four significant challenges: (1) total health spending is outstripping sources of financing, which holds down real non-health consumption growth; (2) federal health programs are especially underfinanced due to an aging population and a greater willingness to finance health spending out of budget deficits; (3) the rising costs of health benefits constrain cash compensation growth; and (4) over 40 million individuals lack coverage. The effects on the federal budget and labor market will depend largely on how the bill is financed, and what restrictions are placed on employers. One proposal, in the House of Representatives, would finance more than half its cost with income tax revenues, which are unlikely to keep up with spending over time. The other leading proposal, in the Senate, avoids that problem but runs a risk that companies will shift benefit costs to the public sector, despite policies intended to prevent this. Medicare Will Require Greater Resources
Percent 50 45 12 40 35 30 25 20 15 10 Percent of General Revenues (left) 5 0 2010 2020 2030 2040 2050 2060 2070 2080 Source: Medicare Trustees Report. Our calculations. Payroll Tax Rate (right) 0 2 Level Required to Keep Medicare Out of Deficit: 6 10 Rate 14

Jan Hatzius jan.hatzius@gs.com 212 902 0394 Ed McKelvey ed.mckelvey@gs.com 212 902 3393 Alec Phillips alec.phillips@gs.com 202 637 3746 Andrew Tilton andrew.tilton@gs.com 212 357 2619 David Kelley david.kelley@gs.com 212 902 3053

8

4

Financing Health Reform
Billions of Dollars 200 2010-2014 180 160 140 120 100 80 60 40 20 0 Average annual amount of: New subsidy spending Spending cuts Tax increases 120 100 80 60 40 20 0 2015-2019 180 160 140 Billions of Dollars 200

House Bill

Senate Bill

House Bill

Senate Bill

Source: Congressional Budget Office (preliminary estimates).

Important disclosures appear at the back of this document.

GS Global ECS US Research

US Economics Analyst

I. Why Health Reform Matters
Over the next several weeks, both chambers of Congress will consider health reform legislation that would add health spending equal to one percent of GDP to the federal budget, and is intended to be fully financed through tax hikes and spending cuts. The motivation for passing the legislation is to (1) expand health insurance to nearly all individuals and (2) slow the growth of health spending. However, these two goals do not fit naturally together, and proposals thus far appear to lean much more toward expanding coverage than controlling costs. Exhibit 1: Health Spending Constrains NonHealth Consumption
Percent of GDP 100 90 80 70 60 50 40 30 20 10 0 50 55 60 65 70 75 80 85 90 *Consumption component of health spending only. Source: Dept. of Commerce. Our calculations. 95 00 05 Health* Non-Health Percent of GDP 100 90 80 70 60 50 40 30 20 10 0

What’s the Point of Reform?

Healthcare has been a central piece of the political debate for years, with a focus on expanding coverage or providing certain benefits to those who lack them. Although some of the primary arguments made in favor of reform deal with equity, there are several economic issues to be addressed. Slow the rate of growth of health spending. The share of GDP devoted to health spending has risen on average by one percentage point every four years since the 1960s. Financing this spending has become increasingly challenging for the public sector, which bears a growing share of the total cost, as well as the private sector, which for now is still responsible for the majority of spending. If left unchecked, health spending will continue to constrain non-health consumption, as it has for many years (see Exhibit 1). This may be acceptable to a degree—as real incomes increase, individuals may choose to spend a greater amount of those gains on healthcare rather than other consumer goods or services—but there is likely to be a limit to how much of a decline in non-health consumption consumers will tolerate.1 Reduce the long-term public health financing gap. Even if a greater share of consumption devoted to healthcare is acceptable or desired, it still must be financed. This is particularly problematic for the federal government, and nearly as much for state governments, as they will bear a larger share of healthcare spending over time. Federal programs today account for around 35% of health spending, with another 13% financed by state and local governments. The vast majority of this spending is related to Medicare and Medicaid. As is frequently noted, policymakers have three general options to address this imbalance:

1. Cut Medicare and Medicaid spending. Benefit reductions would reduce spending, but are politically difficult (if not impossible). Increased cost sharing is more plausible, but can make up only a small portion of the imbalance. An increase in the eligibility age for Medicare has been discussed but would be ineffective—most of the program’s costs relate to older beneficiaries—and other eligibility restrictions seem unlikely. This leaves price reductions, in the form of cuts in payments to the providers of health services. However, even legislated reductions in the spending growth rate can be undone, as the large cuts enacted in 1997 were reversed in several rounds of subsequent legislation (see Exhibit 2). 2. Raise taxes. The difficulty with tax increases is that most sources of revenue simply don’t grow as quickly as health spending. In 2008, the dedicated 2.9% payroll tax covered almost all of the costs of Medicare hospital insurance, while 11% of income tax revenues were used to finance the rest of Medicare (mainly physician and drug benefits). Assuming no change to policy, these would need to rise to over 4% and 17% by 2020, and more significantly thereafter in order to keep Medicare from running cash deficits (see Exhibit 3).2 This would be equivalent to nearly a two percentage
2

1

“Is Technological Change In Medicine Worth It?” David M. Cutler and Mark McClellan, Health Affairs, September 2001.

A somewhat easier goal would be to keep the programs solvent through a given date, which would allow the programs to operate in deficit and spend down the existing “trust fund” balance. However, since the fund is just an accounting entry, the cash balance is probably the more relevant measure.
September 25, 2009

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GS Global ECS US Research

US Economics Analyst

Exhibit 2: Spending Cuts: What Can Be Done Can Be Undone
Percent of GDP 8 Federal Health Spending 7 Projected Spending in 1997 Effect of Balance Budget Act of 1997 Effect of Subsequent Legislation 1998-2009 Effect of Senate Health Reform Bill 6 Effect of House Health Reform Bill 6 7 Percent of GDP 8

Exhibit 3: Medicare Will Require Greater Resources
Percent 50 45 12 40 35 30 25 10 Rate 14

8

5

5

20 15 Level Required to Keep Medicare Out of Deficit: Percent of General Revenues (left) 5 Payroll Tax Rate (right)

6

4

4

4

10 2

3 97 99 00 02 04 06 08 10 12 Source: Congressional Budget Office. Our calculations. 14 16 18

3

0 2010 2020 2030 2040 2050 2060 2070 2080 Source: Medicare Trustees Report. Our calculations.

0

point income tax increase, just to pay for Medicare growth through 2020. 3. Crowd out other spending. It appears inevitable that health spending will grow even more quickly as a share of the federal and state budgets than as a share of the economy as (1) the front edge of the baby boomer generation becomes eligible for Medicare in 2011 and (2) the federal government’s ability to run deficits allows it to avoid making difficult choices despite its greater ability to set prices than the private sector. Address labor market distortions caused by employer-sponsored health insurance. Employersponsored insurance can cause distortions in at least three ways. First, health insurance costs make up a disproportionate share of compensation growth. In the last ten years, health benefit costs have accounted for 30% of the increase in hourly compensation, yet health benefits comprise only 8% of employers’ compensation costs (see Exhibit 4). This implies that companies have incentives to avoid full-time hires that might otherwise be appropriate. A second and related factor is the exclusion of employer-sponsored health benefits from taxable income, which in aggregate reduces federal and state personal income tax revenue by roughly 6% or $180 billion per year. Third, labor mobility is likely reduced by the link between employment and health insurance. Large employers benefit from economies of scale, so they can purchase insurance more cheaply than smaller firms or individuals. Workers who need insurance— particularly those with medical problems—are likely

to gravitate toward employers who offer coverage, while those who do not are more likely to accept jobs with employers who do not offer insurance. Strengthen the social safety net. Income-based health subsidies would add to the automatic fiscal stabilizers that exist today, reducing (though hardly eliminating) the need for discretionary stimulus. A first step in this direction was taken in the American Reconstruction and Recovery Act (ARRA), which subsidizes insurance for job losers. The benefits under health reform would be somewhat different but may serve a similar function. An expanded safety net might also encourage greater consumption among those who gain coverage, as they will no longer need to save up for medical expenses that would normally be covered by insurance. The likelihood that the household saving rate will rise over the next few years makes this an intriguing possibility, but it is hard to know whether a stronger health safety net would reverse much of this expected increase.

The Building Blocks of Reform
There are two major proposals being debated. The first has been pending in the House since the summer, and represents the products of three committees that have been combined into one bill. The second bill comes from the Senate Finance Committee, which represents a politically centrist alternative to the House bill. (There is in fact a third bill, from a different Senate committee, but it is largely similar to the House bill so we disregard it in what follows.) The proposals have three sets of common elements:

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September 25, 2009

GS Global ECS US Research

US Economics Analyst

Exhibit 4: Benefits Crowd Out Wage Growth
Percent change, year ago Percent change, year ago

employees), and Medicaid spending would be expanded by roughly 35%. While there is some common ground in Congress on the concepts above (if not the details), there is strong disagreement on other aspects. The most prominent among these is the “public option” that would create a new government program to provide insurance in the “exchange.” The House bill includes this option, the Senate does not.

2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5
Contribution to change in real compensation attributable to: Wages Other Benefits Health

2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 01 02 03 04 05 06 07 08 09

How Effective Will Reform Be?

99

00

In short, health reform legislation wending its way through Congress is likely to reduce the number of uninsured by 50% to 70%. However, it would boost federal health spending by between 0.7% of GDP (in the case of the Senate Finance Committee proposal) to 1.1% (the House proposal). The legislation will reduce the per-capita cost of federal health spending, but may raise other health costs. Once it is fully implemented, the legislation would add 28 to 35 million individuals to the 100 million covered by federal health programs. This would reduce the per-capita cost of federal coverage, assuming that some resources are shifted from Medicare to finance it. However, it is less likely to reduce total health spending for two reasons: 1. Cost shifting. If Medicare cuts are deep enough, it is plausible that healthcare providers will shift some costs to private insurers to compensate. Although this shouldn’t occur—firms that have the ability to raise prices should normally do so— several studies of the period following the severe Medicare cuts in 1997 indicate that something like one-quarter of the amount cut from Medicare was ultimately borne by private insurance.3 A related issue is that the private sector may only finance a small portion of the costs of treating the uninsured, so it may benefit only slightly from their coverage. One estimate puts the private insurance share at 15% to 25% of the $54bn in estimated uncompensated care last year, which would equate to one or two percent of private sector costs. 4 2. Increased use of health care. When previously uninsured individuals gain coverage, their health spending increases on average by 70%. In 2008, this would have equated to an increase of around $120 billion if all uninsured were covered, or
3

Source: Department of Labor. Our calculations.

1. Market reforms. All of the pending proposals would combine the less efficient segments of the insurance market into a single pool or “exchange” in which private companies will offer benefits to any eligible individual within a fairly narrow price band. This is meant to reduce the reliance on small firms to provide insurance that they are not well equipped to provide. 2. Mandates. Since the risk pool must be as broad as possible to discourage only those with the most expensive health needs from enrolling, all of the relevant congressional proposals would mandate that individuals obtain coverage. Those who do not would face a tax of $750 in the Senate bill; the penalty in the House bill would vary with income but would be greater in many cases (for instance $1,250 assuming $50,000 in income). Similarly, employers may face a mandate to provide coverage, which could take two forms: (1) a stronger mandate that requires employers to provide minimum health benefits to all employees or make equivalent payments to the government; or (2) a weaker mandate that only requires employers to reimburse the government for some of the subsidies it provides to a firm’s employees. The House proposal includes the former, while the Senate includes the latter. 3. Subsidies. If mandates are the stick, subsidies are the carrot. All of the proposals would cover a significant portion of health insurance costs for individuals with incomes less than around $65,000 per year (for a family of four), through refundable tax credits would be available for a portion of the cost of plans in the exchange. Additional subsidies would be available for small employers (usually defined as less than 50
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See for instance “The Cost-Shift Payment ‘Hydraulic’: Foundation, History, and Implications,” Health Affairs, January 2006. “Covering the Uninsured in 2008,” Jack Hadley et al., Kaiser Commission on Medicaid and the Uninsured, August 2008.
September 25, 2009

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GS Global ECS US Research

US Economics Analyst

around $80 billion if only those lacking coverage throughout the year were targeted. This spending will be partly financed by reduced Medicare payments, but the quantity of health-related goods and services used will increase significantly, potentially resulting in increased costs. Health reform won’t affect the budget for several years… Neither the House nor the Senate bill is estimated to increase the ten-year deficit, and both would actually save a bit of money in the first few years after enactment. Over the longer term, two factors will influence the cost of these proposals: 1. Financing sources that keep up with spending. The House bill taxes ordinary income to cover more than half the cost of subsidies. The Senate, on the other hand, finances the entire cost of its provisions through cuts to health spending programs and tax increases tied to healthcare (mainly the taxation of health benefits), which will grow at a faster rate over time. 2. The timing of new spending and the savings to offset it. Both bills would implement (smaller) deficit reduction provisions before the (larger) subsidies. While this evens out over the first ten years, it would result in a substantial imbalance later. For exempt, the House bill would add roughly $30 billion to the deficit each year once it is fully implemented in 2016, even though it is estimated to have a negligible fiscal effect over the 2010-2019 period (see Exhibit 5).5 …but could add to longer-term risks. If the final reform legislation is close to the Senate’s proposal in structure, as seems likely, the short- and medium-term fiscal effects should be minimal. However, the basic concept of the legislation still poses a fiscal problem over the longer term. While cutting existing health spending to finance new benefits is preferable to financing them with tax revenue, cutting Medicare spending to increase benefits elsewhere limits the ability of future policymakers to cut spending for deficit reduction. A second and potentially more significant fiscal issue is the potential to shift costs to the government beyond what the official estimates predict. However, this depends almost entirely on the details, as noted below. Firms (and ultimately employees) could face increased costs or reap a windfall, depending on the details. Both pending reform proposals include mechanisms to prevent employers from shifting the
5

Exhibit 5: Financing Health Reform
Billions of Dollars 200 2010-2014 180 160 140 120 100 80 60 40 20 0 Average annual amount of: New subsidy spending Spending cuts Tax increases 120 100 80 60 40 20 0 2015-2019 180 160 140 Billions of Dollars 200

House Bill

Senate Bill

House Bill

Senate Bill

Source: Congressional Budget Office (preliminary estimates).

benefit costs to the government, but it is unclear how effective they will be. For example, the tax subsidy today for a worker with $55,000 in income and an employer-provided insurance policy that costs $13,000 is around $4,000. Under the House and Senate proposals, the employee would be eligible for around $9,000 in subsidies through the exchange. In that event, the worker’s wages should increase accordingly (employers might be able to capture a share of this gain as well, at least temporarily). To prevent this, both proposals penalize employers who do not finance employee health benefits. In the House bill, the penalty is an 8% payroll tax, which should be roughly equal to the gain from the potential subsidy (though it depends on the employee). In the Senate bill, the penalty would work out to only a fraction of the potential gain for shifting employees to the more generous federal subsidy. The Congressional Budget Office does not estimate that workers will migrate to public coverage, but this appears to be a significant fiscal risk nevertheless.

So How Will Reform Play Out?
The most likely scenario appears to be enactment of a slightly scaled back but still substantial reform package, potentially resembling the bill moving through the Senate currently. The House’s more substantial bill seems much less likely to become law in its current form, due to a lack of political support in the Senate. Of course, there is always the possibility that the entire process will unravel, but the odds that major legislation is enacted still seem high given that it is the top political priority for President Obama and Democratic Congressional leaders.

We exclude roughly $20bn per year of spending on physician payments, which Congress approves each year and which we already include it in our budget projections.

Alec Phillips

Issue No: 09/38

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September 25, 2009

GS Global ECS US Research

US Economics Analyst

II. Forecast Highlights
1. We expect real GDP to rise at a 3% annual rate during the second half of 2009. The strength comes from three factors: (a) a swing in the inventory cycle toward significantly less liquidation, (b) federal fiscal stimulus, which should have its largest effects on quarterly growth rates during this period, and (c) a near-term rebound in home building from extremely depressed levels. 2. However, recovery in 2010 is apt to be more anemic. The growth contributions from inventories and federal stimulus, currently about 4 percentage points at an annual rate in combination, will peter out by the second half of 2010. Meanwhile, the US economy faces several structural headwinds. Among them: (a) efforts by households to boost saving out of current income, aggravated by (b) weakness in labor income, reflecting the impact of high unemployment on wages and employers’ reluctance to rehire aggressively, (c) fiscal drag from the state and local sector, (d) large overhangs of vacant homes and unused industrial capacity, which limit the potential for major improvements in private-sector investment, and (e) limited credit availability from a financial sector that is still on the mend. As a result, we expect growth to slow to an annual rate of 2% in the first half of 2010 and 1½% in the second half. 3. The unemployment rate should continue to drift up, to about 10¼% by year-end 2010. We think the “jobless recovery” pattern of the 1991-1992 and 20012003 economic recoveries provides a better template for corporate hiring decisions over the next year or two than the more robust payroll rebounds of earlier cycles. If this judgment is right, then net hiring will not absorb all of the influx into the labor force that is apt to occur during this period, in which case the cyclical peak in unemployment will again lag far behind the bottom in real GDP. 4. Inflation is not a significant threat, at least for the next few years. Although highly expansionary fiscal and monetary policies have caused many market participants to worry about inflation, these concerns miss the point that the policies have been undertaken to combat a large and growing gap between actual and potential output. Under any reasonable economic scenario, the aggregate US output gap will be huge— currently about 8% of GDP and potentially as large as 10%—and thus require years of above-trend growth to eliminate. Given this prospect, we expect year-to-year inflation in the core index of consumer prices—now at 1½%—to approach zero in late 2010. 5. Monetary tightening is highly unlikely before the end of 2010. With evidence accumulating of progress 6 toward stability in the financial and housing markets, the outlook for Fed policy now hinges more on traditional criteria: how strong will the incipient recovery be, and what does it mean for inflation? On the first point, we think most members of the Federal Open Market Committee (FOMC) will be reluctant to raise the funds rate target—even from its near-zero current setting—until they have some confidence that the unemployment rate has reached its cyclical peak or will do so shortly. This is especially true if our outlook for further disinflation is right. Accordingly, we see the FOMC’s strong commitment to low interest rates as expressed in its most recent policy statement as consistent with our outlook for stability in the funds rate through year-end 2010. 6. Treasury yields should come down further. In our view, the Treasury yield curve builds in too much probability of inflation and of near-term Fed tightening. We expect 10-year note yields to fall back toward 3% over the next few months as final demand remains sluggish and disinflation continues. We also remain convinced that the increase in Treasury supply is less important for bond yields than many investors believe, for two reasons. First, increased saving by households and businesses creates a potential demand for Treasury securities as well as less competition for lenders’ funds; flow of funds data and bank balance sheet reports confirm that the domestic private sector is increasing its allocation to Treasury securities. Second, the Treasury’s auction schedule for coupon securities is now more than adequate to meet funding needs over the next few years; as this becomes evident, concerns about further increases in auction sizes should abate.

Data Hit an Air Pocket with Big Week Ahead
Modestly disappointing data on durable goods and home sales have evened out the risks to our thirdquarter real GDP forecast of 3% growth (annualized). Next week markets will focus on signs that the industrial recovery is continuing—with the ISM manufacturing index as the bellweather indicator here—and the state of the labor market. As for the latter, jobless claims have shown a meaningful decline in recent weeks, though they remain at high levels and the improvement probably occurred too late to have a meaningful impact on September payrolls. Fed officials reiterated this week that rates should remain “exceptionally low…for an extended period” and also implied that this is consistent with a period of modestly above-trend growth, even as they began to wind down some of their alphabet soup of liquidity facilities.

Issue No: 09/38

September 25, 2009

GS Global ECS US Research

US Economics Analyst

THE US ECONOMIC AND FINANCIAL OUTLOOK
(% change on previous period, annualized, except where noted)

2008 (f) OUTPUT AND SPENDING
Real GDP Year-to-year change Consumer Expenditure Residential Fixed Investment Business Fixed Investment Industrial Production, Mfg 0.4 -0.2 -22.9 1.6 -3.2

2009 (f)

2010 (f)

Q1
-6.4 -3.3 0.6 -38.2 -39.2 -21.9 -2.4 -0.2 1.7 1.7 -0.1 8.1 0.18 1.27 0.93 1.82 2.82 -19.7
_

2009 Q2 Q3
-1.0 -3.9 -1.0 -22.8 -10.9 -9.1 1.3 -0.9 1.8 1.6 -1.2 9.2 0.21 0.62 1.18 2.71 3.72 -13.5
_

Q4
3.0 -0.4 1.0 15.0 -7.5 6.0 1.5 1.0 1.6 1.3 -3.8 9.8 0.15 0.40 1.00 2.20 3.10 15.0
_

Q1
2.0 1.7 1.0 15.0 -7.5 6.0 1.1 1.8 1.4 1.1 -2.2 9.9 0.15 0.40 1.00 2.20 3.00 15.0
_

2010 Q2 Q3
2.0 2.5 1.0 15.0 -5.0 5.0 0.6 1.7 0.8 0.6 -0.6 10.0 0.15 0.40 1.00 2.20 3.00 12.5
_

Q4
1.5 1.7 0.5 10.0 0.0 4.0 -0.3 0.4 0.0 -0.3 0.4 10.2 0.15 0.40 1.25 2.30 3.00 0.0
_

-2.6 -0.8 -20.7 -18.3 -11.9

2.0 0.9 10.6 -5.6 4.1

3.0 -2.5 2.0 10.0 -2.5 3.0 3.5 -1.6 1.5 1.3 -3.1 9.6 0.15 0.40 1.00 2.50 3.40 -12.5
_

1.5 2.1 0.5 10.0 -2.5 4.0 0.1 0.8 0.4 0.1 0.3 10.1 0.15 0.40 1.10 2.25 3.00 5.0
_

INFLATION
Consumer Price Index Year-to-year change Core Indexes (% chg, yr/yr) CPI PCE* Unit Labor Costs (% chg, yr/yr) 3.8 2.3 2.4 1.0 5.8 0.16 1.83 -0.4 1.7 1.5 -2.0 9.2 0.15 0.40 1.2 0.6 0.4 -0.5 10.1 0.15 0.40

LABOR MARKET
Unemployment Rate (%)

FINANCIAL SECTOR
Federal Funds** (%) 3-Month LIBOR (%) Treasury Yield Curve** (%) 2-Year Note 5-Year Note 10-Year Note Profits*** (% chg, yr/yr) Federal Budget (FY, $ bn)

1.00 1.25 0.82 1.52 2.20 2.30 3.10 3.00 2.42 -2.0 -8.9 7.8 -455 -1,725 -1,400 -4.9 1.35 91 -2.8 1.45 98 -2.5 1.35 105

FOREIGN SECTOR
Current Account (% of GDP) Exchange Rates Euro ($/€)** Yen (¥/$)** -2.9 1.31 98 -2.8 1.40 97 -2.7 1.44 96 -2.9 1.45 98 -2.8 1.45 98 -2.7 1.40 102 -2.5 1.35 105 -2.2 1.35 105

* PCE = Personal consumption expenditures. ** Denotes end of period. *** Profits are after taxes as reported in the national income and product accounts (NIPA), adjusted to remove inventory profits and depreciation distortions. NOTE: Published figures are in bold

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September 25, 2009

US Calendar
Focus for the Week Ahead
We expect the September payroll employment report to look fairly similar to August’s, with a decline of 200,000 jobs. Although hiring appears to be improving gradually, layoffs still remain quite high, with the recent declines in jobless claims coming after the employment surveys were completed for the month. On the household side of the survey, we expect the unemployment rate to tick up to 9.8% (October 2). The ISM manufacturing index should post another solid increase in September, as vehicle manufacturing activity continued to ramp up and the industrial sector data more broadly have improved on balance (October 1). September vehicle sales, which should show a large decline from August levels, will provide the first read on the post-“cash for clunkers” baseline (October 1).

Economic Releases and Other Events
Time Date Mon Sep 28 Tue Sep 29 (EST) Indicator 10:30 9:00 9:50 10:00 17:00 19:00 8:15 8:30 8:30 8:30 9:45 10:30 12:35 8:30 8:30 8:30 8:30 8:30 9:00 10:00 10:00 10:00 Dallas Fed Survey (Sep) S&P/Case Shiller Home Price Index (Jul) Dallas Fed Pres Fisher spks on US economy; Dallas Consumer Confidence (Sep) GS Analyst Index (Sep) Philly Fed Pres Plosser spks at Lafayette College; PA ADP Employment Change (Sep) Real GDP—Q2 Annualized (Third) Chain-Weight Price Index—Q2 Annualized (Third) Core PCE Price Index—Q2 Annualized (Third) Chicago Purchasing Managers’ Index (Sep) Atlanta Fed Pres Lockhart spks on US economy; AL Vice Chairman Kohn spks on panel on exit policies; DC Personal Income (Aug) Personal Spending (Aug) Core PCE Price Index (Aug) Initial Jobless Claims Continuing Claims Bernanke testifies at House Finl Services Committee ISM Manufacturing Index (Sep) Construction Spending (Aug) Pending Home Sales (Aug) Lightweight Motor Vehicles (Sep) Domestic Motor Vehicles (Sep) Atl Fed Pres Lockhart spks on US economy; Macon, GA Cleveland Fed Pres Pianalto spks on US economy; NYC Unemployment Rate (Sep) Nonfarm Payrolls (Sep) Average Hourly Earnings (Sep) Factory Orders (Aug) Treasury Secy Geithner spks at G-7 meeting; Istanbul GS n.a. n.a. 59.0 n.a. n.a. -1.0% Flat +2.0% 54.0 Estimate Consensus Last Report -4.0% -14.20% 57.0 n.a. -200,000 -1.2% Flat +2.0% 52.0 -9.1% -15.44% 54.1 48.8 -298,000 -1.0% Flat +2.0% 50.0

Wed Sep 30

Thu

Oct 1

Flat +1.1% +0.10% n.a. n.a. 55.0 +0.5% n.a. 9.5M 7.2M

+0.1% +1.1% +0.1% 535,000 6,180,000 54.0 -0.2% +1.0% 9.8M 7.4M

Flat +0.2% +0.1% 530,000 6,138,000 52.9 -0.2% +3.2% 14.1M 10.2M

Fri

Oct 2

17:30 17:30 8:30 8:30 8:30 10:00

9.8% -200,000 +0.1% -1.0%

9.8% -180,000 +0.2% +1.0%

9.7% -216,000 +0.3% +1.3%

Sat

Oct 3

Issue No: 09/38

8

September 25, 2009