U.S. Economic OutlookA Relatively Fast Manufacturing Growth Pace Amid Modest Gains In The Overall Economy

Presented by: Daniel J. Meckstroth, Ph.D.Vice President and Chief Economistdmeckstroth@mapi.net

U.S. Economic Surprise IndexJu

l-08

Sep

-08

No

v-08

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-09

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-10

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-11

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-12

-120

-100

-80

-60

-40

-20

0

20

40

60

80

Ind

ex O

ne

Sta

nd

ard

Dev

iati

on

=10

0

Source(s): Citigroup and Bloomberg

Surprisingly Strong Late 2011 and Early 2012

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

(F)

2012

Q3

(F)

2012

Q4

(F)

2013

Q1

(F)

2013

Q2

(F)

2013

Q3

(F)

2013

Q4

(F)

-30

-25

-20

-15

-10

-5

0

5

10

15

GDP Manufacturing Production

The Growth in Manufacturing Production Greatly Exceeded the Growth in GDP in the First Quarter

GDP and Manufacturing Growth

F=ForecastSource(s): U.S. Bureau of Economic Analysis and Federal Reserve Board

Per

cen

t C

han

ge

at A

nn

ual

Rat

e

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

-25

-20

-15

-10

-5

0

5

10

15

20

25

Goods Services Structures

Per

cen

t C

han

ge

at A

nn

ual

Rat

eSpending on Goods Is Driving Manufacturing Production

GDP by Major Type of Product

Source(s): U.S. Bureau of Economic Analysis

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

-20

-15

-10

-5

0

5

Manufacturing Construction Services

Per

cen

t C

han

ge

(Yea

r/Y

ear)

There Is Now Relatively Balanced Job Growth

Job Growth By Industry

Source(s): Bureau of Labor Statistics

Employment Growth

Consumers Are Income Constrained Which Limits the Pace of the Economic Expansion

Consumer After-Tax Income, Inflation-Adjusted

Source(s): U.S. Bureau of Economic Analysis and U.S. Bureau of Labor Statistics and MAPI

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

-5

-4

-3

-2

-1

0

1

2

Per

cen

t C

han

ge

(Yea

r-to

-Yea

r)

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

-4

-3

-2

-1

0

1

2

3

4

5

Per

cen

t C

han

ge

(Yea

r-to

-Yea

r)

GDP Expenditure Categories

Inflation-Adjusted Percent Change

2011 2012(F) 2013(F)Gross Domestic Product 1.7 2.2 2.2Total Consumption 2.2 2.3 2.2 Durables 8.2 8.7 4.1 Nondurables 1.7 1.4 1.9 Services 1.4 1.5 1.9Nonresidential Fixed Investment 8.8 5.8 7.0 Equipment & Software 10.4 7.9 7.9 Information Processing Equipment 6.2 7.5 8.7 Industrial Equipment 12.7 7.7 9.3 Transportation Equipment 26.0 15.7 9.4 Structures 4.6 0.3 4.4Residential Fixed Investment -1.3 10.1 16.1Exports 6.7 4.2 5.0Imports 4.9 4.1 4.2Federal Government -1.9 -2.4 -3.0State & Local Government -2.2 -1.6 -0.7

MAPI Economic Forecast

F=ForecastSource(s): MAPI, May 2012

Pent Up Demand For Consumer Durables, Strong Equipment Investment, Construction Recovery, Tempered By Gov’t Austerity and Net Exports

Economic Indicators

Percent Change or Level as Specified

2011 2012(F) 2013(F)Prices (% change)Consumer Prices 3.1 2.1 1.6 Excl. Food & Energy 1.7 2.2 1.8Producer Prices, Finished Goods 6.0 1.4 0.7Energy ($)Imported Crude Oil ($ per barrel) $102.6 $107.6 $107.3Natural Gas Wellhead Price ($mmbtu) $3.8 $2.3 $2.9Other Key MeasuresNonfarm Inventory Change (Billion 2005$) $44 $73 $58Light Vehicle Sales (Million units) 12.7 14.3 14.9Housing Starts (Million units) 0.610 0.746 1.010Federal Surplus (NIPA, Billion $) -$1,183 -$956 -$714Current Account Balance (Billion $) -$473 -$513 -$522LaborUnemployment Rate (%) 9.0 8.1 7.8Payroll Employment (% change) 1.2 1.5 1.5Production (% change) Manufacturing (SIC Basis) 4.3 5.2 3.3 Computers & Electronic Products 7.9 5.3 7.7 Non-High Tech Manufacturing 4.2 5.2 3.1

MAPI Economic Forecast

F=ForecastSource(s): MAPI, May 2012

Low Inflation; Limited Progress on High Unemployment; Cheap Natural Gas, High but Stable Oil Prices; Massive but Shrinking, Federal Debt; and An Above Average Manufacturing Rebound

• Oil Price Surgeo Iran disrupts the Strait of Hormuzo Major supply disruption

• Financial Contagion From the Eurozone Sovereign Debt Crisiso Pressure building within Greece to leave the Euroo Interest rates rising in Spain and Italy

• Federal Fiscal Cliff and Debt Ceiling Showdowno January 1, 2013

• Spending sequester kick in• Bush tax cuts expire• Temporary payroll tax cuts expire• Emergency unemployment benefits expire

o March, 2013• Debt ceiling must be raised

Major Risks That Could Derail The Modest Growth in the U.S.