NATIONAL

ECONOMIC CONDITIONS

Matthew MartinMarch 17, 2008

2

-2

-1

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005 2006 2007 2008

-2

-1

0

1

2

3

4

5

6

7

8

9

REAL GROSS DOMESTIC PRODUCT

Percent change from previous quarter at annual rate

Average Forecast*4Q 2007 - 4Q 2008

4Q0.6%

*Source: Blue Chip Economic Indicators consensus forecast

3

REAL GROSS DOMESTIC PRODUCT

2006 2007 4Q 1Q 2Q 3Q 4Q

CHANGE FROM PREVIOUS QUARTER AT COMPOUND ANNUAL RATE [Percent]:

Gross Domestic Product 2.1 0.6 3.8 4.9 0.6

Personal Consumption Expenditures 3.9 3.7 1.4 2.8 1.9

Nonresidential Fixed Investment -1.4 2.1 11.0 9.3 6.9 Structures 7.4 6.4 26.2 16.4 14.7 Equipment and Software -4.9 0.3 4.7 6.2 3.3

Residential Fixed Investment -17.2 -16.3 -11.8 -20.5 -25.2 Exports of Goods and Services 14.3 1.1 7.5 19.1 4.8 Imports of Goods and Services 1.6 3.9 -2.7 4.4 -1.9 Government Consumption Expenditures and Gross Investment 3.5 -0.5 4.1 3.8 2.2 Final Sales to Domestic Purchasers 2.1 1.7 2.1 2.5 1.2

LEVEL IN QUARTER AT SEASONALLY ADJUSTED ANNUAL RATE [Billions of Chained (2000) Dollars]:

Change in Private Inventories 17.4 0.1 5.8 30.6 -10.1

Net Exports of Goods and Services -597.3 -612.1 -573.9 -533.1 -506.8

4

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2002 2003 2004 2005 2006 2007 2008 2009

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

TOTAL HOME SALES(New and Existing Homes)

Millions of Homes

Jan.4.9 mil.

Average Annual Home Sales: 1990 through 1999

5

0.9

1.2

1.5

1.8

2.1

2.4

2002 2003 2004 2005 2006 2007 2008 2009

0.9

1.2

1.5

1.8

2.1

2.4

PRIVATE HOUSING STARTS AND COMPLETIONS

Millions of Starts

Jan.1.35 mil.

Average Annual Housing Starts: 1990 through 1999

Starts

Completions

1.01 mil.

6

S&P/Case-Shiller Home Price Index: U.S. National

% Change - Year to Year NSA, Q1-00=100

0706050403020100999897

Source: S&P/Case Shiller /Haver Analytics 03/12/08

20

15

10

5

0

-5

-10

20

15

10

5

0

-5

-10

7

1000

1200

1400

1600

1800

2000

2200

2005 2006 2007 2008 2009

2000

2400

2800

3200

3600

4000

4400

INTERNATIONAL STOCK MARKET INDEXES

Stock Index

Mar. 7

US: S&P 500(Left Scale)

Germany: DAX 100(Right Scale)

Stock Index

Japan: TOPIX(Left Scale)

8

0

10

20

30

40

50

60

70

80

90

100

110

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

10

20

30

40

50

60

70

80

90

100

110

CRUDE OIL PRICESCurrent Dollars / Barrel

Futures Price

Spot Price

Mar. 7

9

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005 2006 2007 2008 2009

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

150

200

250

300

350

400

NONFARM PAYROLL EMPLOYMENT

Quarterly average of monthly changes, Thousands of persons

Jan. & Feb. Avg.

Monthly Change

Feb -63

Jan -22

Dec -41

Nov 60

Oct 140

10

4.0

4.5

5.0

5.5

6.0

6.5

2002 2003 2004 2005 2006 2007 2008 2009

4.0

4.5

5.0

5.5

6.0

6.5

CIVILIAN UNEMPLOYMENT RATE

Percent

Feb.4.8%

11

-1

0

1

2

3

4

5

6

2002 2003 2004 2005 2006 2007 2008 2009

-1

0

1

2

3

4

5

6

Month over Month % Change

Income

Expenditures

PERSONAL INCOME AND EXPENDITURESYear over Year % Change

Real PersonalIncome

Real Personal Consumption Expenditures

Jan.

Dec

0.1

0.0

Jan

-0.1

0.0

Nov

-0.4

0.2

* December 2004 real disposable income figure excludes the Microsoft dividend. Also, Aug. and Sep. 2005 figures are adjusted for effects of Hurricane Katrina.

12

180

200

220

240

260

280

2002 2003 2004 2005 2006 2007 2008 2009

180

200

220

240

260

280

REAL PRIVATE NONRESIDENTIAL CONSTRUCTION PUT IN PLACE

Billions of 2000$, deflated using the price index for private fixed investment structures

Twelve-Month Moving Average

Jan.

13

40

45

50

55

60

65

70

75

2002 2003 2004 2005 2006 2007 2008 2009

40

45

50

55

60

65

70

75

CORE CAPITAL GOODS SHIPMENTS AND NEW ORDERS(Nondefense Capital Goods Excluding Aircraft)

Current $, Billions

Shipments

Jan.

New Orders

14

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

2005 2006 2007 2008 2009

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

RISK PREMIUM, HIGH YIELD

Percent, Merrill Lynch Corporate CCC and lower bond yield - 10 Yr. Treasury Yield

Mar. 7

10 Year Average Risk Premium

15

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

2005 2006 2007 2008 2009

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

RISK PREMIUM

Percent, Merrill Lynch Corporate BBB - 10 Yr. Treasury Yield

Mar. 7

10 Year Average Risk Premium

16

-80

-70

-60

-50

-40

-30

-20

2002 2003 2004 2005 2006 2007 2008 2009

-80

-70

-60

-50

-40

-30

-20

BALANCE OF INTERNATIONAL TRADE

Current $, Billions

Jan.$-58.2 bil.

Twelve-Month Moving Average

17

0

10

20

30

40

50

60

70

80

90

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

0

10

20

30

40

50

60

70

80

90

REAL CRUDE OIL PRICES

Current $/Barrel Deflated by PCE Price Index

Jan.

18

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2002 2003 2004 2005 2006 2007 2008 2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

CONSUMER PRICE INDEXES

Year over Year % Change

All Items

Core CPI

Jan.4.3%

2.5%

19

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

TIPS Inflation CompensationPercent

Mar. 7

5-Year

5-Year5 Years Ahead

20

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

REAL FEDERAL FUNDS RATEPercent, effective Fed funds rate - lagged year over year change in core PCE price index

Jan.

21

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

EXPECTED FEDERAL FUNDS RATEAS IMPLIED BY FINANCIAL FUTURES CONTRACTS

Percent

Mar. 7, 2008

Feb. 13, 2008

Current Target Rate