Purpose. Passion. Performance.Purpose. Passion. Performance.Purpose. Passion. Performance.Purpose. Passion. Performance.
Trusco Capital Management, Inc.
Economic Update and OutlookMay 23, 2007
Alan M. GayleSenior Investment StrategistDirector of Asset [email protected]
This perspective was prepared for clients and prospective clients of Trusco Capital Management, Inc. Neither Trusco Capital or any affiliates make any representation or warranties as to the accuracy or merit of this analysis for individual use. Past returns are not indicative of future results. Comments and general market related projections were based on information available at the time of writing, are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions.
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200722 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.22 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Outline
Economy losing momentum.
How fast can the consumer grow?
Housing market blues.
Businesses are profitable but slowing as well.
The importance of trade.
Federal deficit.
What’s up / down with inflation?
Fed policy perspectives.
Comments on the Florida economy.
The outlook.
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200733 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.33 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Composite Index of 10 Leading Indicators % Change - Year to Year 1996=100
Composite Index of 10 Leading Indicators1996=100
0706050403020100Source: The Conference Board /Haver Analytics
10.0
7.5
5.0
2.5
0.0
-2.5
-5.0
140
135
130
125
120
115
110
Economy losing momentum
Leading Indicators Index
Leading Indicators (YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200744 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.44 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Real GDP - 3.4% Trend Since 1961
Real Gross Domestic Product % Change - Year to Year SAAR, Bil.Chn.2000$
Real GDP - 3. 4% Trend Since 1961YOY% Change
05009590858075
Source: Bureau of Economic Analysis /Haver Analytics
10.0
7.5
5.0
2.5
0.0
-2.5
-5.0
10.0
7.5
5.0
2.5
0.0
-2.5
-5.0
Real GDP (YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200755 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.55 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Real Personal Consumption Expenditures % Change - Year to Year SAAR, Bil.Chn.2000$
Real PCE - 3. 6% Trend Since 1961Proportion of Real GDP (Line) & YOY% Rel. to 61-05 Trend (Bar)
05009590858075
8
6
4
2
0
-2
0.72
0.70
0.68
0.66
0.64
Real PCE - 3.6% Trend Since 1961
Real Personal Consumption
Expenditures as Proportion of GDP
Real Personal Consumption
Expenditures (YOY%)
Sources: BEA, Trusco Capital
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200766 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.66 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
All Employees: Total Nonfarm Difference - Period to Period SA, Thous
Average Hourly Earnings: Total Private Industries % Change - Year to Year SA, $/Hour
0706050403020100Source: Bureau of Labor Statistics /Haver Analytics
600
400
200
0
-200
-400
4.5
4.0
3.5
3.0
2.5
2.0
1.5
Job Creation Positive but Weaker
Average Hourly Earnings (YOY%)
All Employees: Total Nonfarm (Monthly Change
000s)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200777 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.77 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Retail Sales & Food Services % Change - Year to Year SA, Mil.$
University of Michigan: Consumer SentimentNSA, Q1-66=100
0706050403020100Sources: Census Bureau/Haver Analytics, University of Michigan
10
8
6
4
2
0
-2
112.5
105.0
97.5
90.0
82.5
75.0
67.5
Post-Easter Sales & Sentiment Weaker
Retail Sales & Food Services (YOY%)
University of Michigan: Consumer Sentiment
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200788 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.88 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Domestic Light Vehicle Sales 12-month MovingAverage SAAR, Mil.Units
Light Weight Vehicle Sales {Autos+Light Trucks} 12-month MovingAverage SAAR, Mil.Units
0500959085807570Source: Bureau of Economic Analysis/Haver Analytics
18
16
14
12
10
8
6
18
16
14
12
10
8
6
Auto Sales Softening
Domestic Light Vehicle Sales (SAAR, Mil.)
Domestic Light Vehicle Sales (SAAR, Mil.)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 200799 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.99 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Real Private Nonresidential Investment: Structures % Change - Year to Year SAAR, Bil.Chn.2000$
Structures: 1. 6% Trend Since 1961Proportion of GPDI (Line) & YOY% Rel. to 61-05 Trend (Bar)
05009590858075
22.5
15.0
7.5
0.0
-7.5
-15.0
-22.5
0.5
0.4
0.3
0.2
0.1
Real Structures Investment – 1.6% Trend Since 1961
Real Structures Investment as a
Proportion of GDP
Real Structures Investment (YOY%)
Sources: BEA, Trusco Capital
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071010 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1010 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Real Private Residential Investment % Change - Year to Year SAAR, Bil.Chn.2000$
Residential - 3. 0% Trend Since 1961Proportion of GPDI (Line) & YOY% Rel. to 61-05 Trend (Bar)
05009590858075
60
40
20
0
-20
-40
0.50
0.45
0.40
0.35
0.30
0.25
Real Residential – 3.0% Trend Since 1961
Real Residential Investment as a
Proportion of GDP
Real Residential Investment (YOY%)
Sources: BEA, Trusco Capital
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071111 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1111 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Housing Starts: 1 UnitSAAR, Thous.Units
HX1US + HN1USthous
0706050403020100999897
2000
1800
1600
1400
1200
1000
8250
7500
6750
6000
5250
4500
Housing Market Soft
New + Existing Home Sales (000s)
Housing Starts (000s)
Sources: NAR, Census
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071212 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1212 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
NAR Median Sales Price: Existing 1-Family Homes, United States % Change - Year to Year $
New 1-Family Houses For Sale: Months SupplySA, Ratio
05009590858075Sources: National Association of Realtors, Census Bureau /Haver Analytics
20
15
10
5
0
-5
12
10
8
6
4
2
Excess Supply Caused Weak Pricing
New 1-Family Houses For Sale: Months Supply
Existing 1-Family Home Median Sales Price (YOY
%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071313 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1313 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
New 1-Family Houses For Sale: Months SupplySA, Ratio
Composite Housing Affordability IndexMedian Inc=Qualifying Inc=100
0706050403020100999897Sources: Census Bureau, National Association of Realtors /Haver Analytics
9
8
7
6
5
4
3
142.5
135.0
127.5
120.0
112.5
105.0
97.5
Excess Supply / Softer Prices / Greater Affordability
Housing Affordability Index
New 1-Family Houses for Sale (Months Supply)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071414 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1414 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Real Gross Private Domestic Investment % Change - Year to Year SAAR, Bil.Chn.2000$
Real GPDI - 4. 8% Trend Since 1961Proportion of Real GDP (Line) & YOY% Rel. to 61-05 Trend (Bar)
05009590858075
60
40
20
0
-20
-40
0.20
0.18
0.16
0.14
0.12
0.10
Real GPDI - 4.8% Trend Since 1961
Real Gross Private Domestic Investment as
a Proportion of GDP
Real Gross Private Domestic Investment
(YOY%)
Sources: BEA, Trusco Capital
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071515 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1515 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Corporate Profits with IVA and CCAdj % Change - Year to Year SAAR, Bil.$
Corporate Profits Growth and Willingness to HireISM Employ. Index (Line) & Corp. Profits w/ IVA & CCA (YOY%-Bar)
0500959085
Sources: BEA, ISM /Haver
40
30
20
10
0
-10
-20
67.5
60.0
52.5
45.0
37.5
30.0
22.5
Company Profits Growth Suggests Strength
ISM Employ. Index
Corporate Profits with IVA and CCAdj (YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071616 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1616 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
ISM Mfg: Production IndexSA, 50+ = Econ Expand
Production Firmed Post-Hurricanes but Off HighsInd. Prod. (YOY%-Line) ISM Production (Bar)
0500959085Sources: ISM, FRB /Haver
90
80
70
60
50
40
30
16
12
8
4
0
-4
-8
Production Growing More Slowly
Industrial Production (YOY%)
ISM Mfg: Production Index
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071717 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1717 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
ISM Mfg: New Orders IndexSA, 50+ = Econ Expand
Orders Firm but Off HighsN-D Capital Gds X-Aircraft (YOY%-Line) ISM Orders Survey (Bar)
0706050403020100999897969594Sources: Institute for Supply Management, Census Bureau /Haver Analytics
75.0
67.5
60.0
52.5
45.0
37.5
30
20
10
0
-10
-20
-30
New Orders Picking Up Slightly
N-D Capital Gds X-Aircraft (YOY%-Line)
ISM Mfg: New Orders Index
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071818 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1818 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Inventories: Total Business % Change - Year to Year EOP, SA, Mil.$
Inventory Growth Off Highs and I/S Ratio at LowsInventories (YOY%-Light) & Inventory/Sales Ratio (Dark)
0500959085Source: Census Bureau/Haver Analytics
16
12
8
4
0
-4
-8
1.8
1.7
1.6
1.5
1.4
1.3
1.2
Inventories Low, but Additional Trimming Likely
Inventory/Sales Ratio
Inventories: Total Business (YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20071919 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.1919 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Mfrs' New Orders: Nondefense Capital Goods ex Aircraft % Change - Year to Year SA, Mil.$
Mfrs' Inventory/Sales Ratio: All Manufacturing IndustriesSA
0706050403020100999897Sources: Census Bureau, Census Bureau/Haver Analytics
30
20
10
0
-10
-20
-30
1.45
1.40
1.35
1.30
1.25
1.20
1.15
New Orders Slowing / Inventories Higher
Inventory / Sales Ratio
Orders for Nondefense Capital Goods ex Aircraft
(YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072020 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2020 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
MH + XH1970=100
Real Gross Domestic Product1970=100
0500959085807570
1000
800
600
400
200
0
1000
800
600
400
200
0
Trade Expanded from 10% to 30% of GDP!
Real GDP (1970=100)
Real Imports + Real Exports (1970=100)
Source: BEA
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072121 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2121 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Exports: Goods and Services, BOP Basis % Change - Year to Year SA, Mil.$
Trade Deficit Wider but Export Growth HealthyDeficit (Mo. $Bil. -Dark) and Export Growth (YOY%-Light)
070605040302010099989796Source: Census Bureau /Haver Analytics
20
10
0
-10
-20
0
-20000
-40000
-60000
-80000
Trade Deficit Wider but Export Growth Healthy
Deficit (Mo. $Bil.)
Exports: Goods and Services, BOP Basis
(YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072222 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2222 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Imports: Goods and Services, BOP Basis % Change - Year to Year SA, Mil.$
Exports Growing Faster in Percentage TermsYOY%: Exports (Dark) Imports (Light)
070605040302010099989796Source: Census Bureau /Haver Analytics
30
20
10
0
-10
-20
30
20
10
0
-10
-20
Exports Growing Faster in Percentage Terms
Exports (YOY%)
Imports (YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072323 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2323 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Foreign Exchange Rate: People's Republic of ChinaEOP, Yuan/US$
Nominal Trade-Weighted Exch Value of US$ vs Major CurrenciesMar-73=100
05009590858075Source: Federal Reserve Board /Haver Analytics
10
8
6
4
2
0
160
140
120
100
80
60
Dollar Weaker but Not Against Yuan
Nominal Trade-Weighted Exchange Value of US$
vs. Major Currencies
People's Republic of China Yuan/US$
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072424 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2424 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
TMMCCMA / TMMCN 12-month MovingAverage
China Imports Now Nearly 15% of TotalChina Imports % Total Imports (12-month Moving Avg. )
0500959085
0.20
0.16
0.12
0.08
0.04
0.00
0.20
0.16
0.12
0.08
0.04
0.00
China Imports Now 16% of Total
China Imports / Total Imports (12-month
Moving Avg.)
Source: BEA
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072525 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2525 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Real Government Consumption Expenditures & Gross Investment % Change - Year to Year SAAR, Bil.Chn.2000$
Real Gov't. Spending - 2. 3% Trend Since 1961Proportion of Real GDP (Line) & YOY% Rel. to 61-05 Trend (Bar)
05009590858075
10
8
6
4
2
0
-2
0.250
0.225
0.200
0.175
0.150
Real Gov't. Spending - 2.3% Trend Since 1961
Real Government Consumption
Expenditures & Gross Investment as Proportion
of GDP
Real Government Consumption
Expenditures & Gross Investment (YOY%)
Sources: BEA, Trusco Capital
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072626 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2626 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Federal Surplus {+} or Deficit {-} 12-month MovingTotal-ann Mil.$
Increased Reciepts Helping to Trim a Large Federal Deficit12-mo. Mov. Total: Receipts (Line) and Deficit (Bar)
070605040302010099989796959493Source: U.S. Treasury /Haver Analytics
400000
200000
0
-200000
-400000
-600000
2800000
2400000
2000000
1600000
1200000
800000
Increased Receipts Trimming a Large Federal Deficit
Receipts: 12-mo. Mov. Total
Federal Surplus {+} or Deficit {-}
(12-month Moving Total Mil.$)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072727 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2727 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
PCE less Food & Energy: Chain Price Index % Change - Year to Year SA, 2000=100
CPI-U: All Items % Change - Year to Year NSA, 1982-84=100
0706050403020100999897Sources: BEA, BLS /Haver
5.25
4.50
3.75
3.00
2.25
1.50
0.75
5.25
4.50
3.75
3.00
2.25
1.50
0.75
Inflation Too High but Moderating
CPI (YOY%)
Core PCE (YOY%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072828 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2828 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
U. S. Retail Gasoline Price: All FormulationsEOP, Cents/Gallon
Spot Oil Price: West Texas Intermediate [Prior'82=Posted Price]$/Barrel
0706050403020100999897Sources: Department of Energy, Wall Street Journal /Haver Analytics
320
280
240
200
160
120
80
80
60
40
20
0
Energy Prices: Inflationary or Restraining Force?
WTI Oil ($/Barrel)
Retail Gasoline Price (Cents/Gallon)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20072929 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.2929 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Composite Index of 4 Coincident Indicators % Change - Year to Year 1996=100
FCM10 - FFED
05009590858075
7.5
5.0
2.5
0.0
-2.5
-5.0
-7.5
7.5
5.0
2.5
0.0
-2.5
-5.0
-7.5
Behind the Math: A Closer Look at the Yield Curve
10-Yr. Treasury Yield – Federal Funds Rate (%)
Composite Index of 4 Coincident Indicators
(YOY%)
Sources: Conference Board, FRB
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073030 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3030 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Composite Index of 4 Coincident Indicators % Change - Year to Year 1996=100
FBAA - FAAA
05009590858075
7.5
5.0
2.5
0.0
-2.5
-5.0 2.8
2.4
2.0
1.6
1.2
0.8
0.4
Credit Still Ample: Private Equity “Put”
Corporate BAA Yield – Corporate AAA Yield
(Inverted Scale)
Composite Index of 4 Coincident Indicators
(YOY%)
Sources: Conference Board, FRB
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073131 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3131 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Federal Funds [effective] Rate
% p.a.
05009590858075Source: Federal Reserve Board /Haver Analytics
20
16
12
8
4
0
20
16
12
8
4
0
Absolute Rate Levels Remain Historically Low
Federal Fund Rate (%)
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073232 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3232 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Total Employment Growth
-0.50.00.51.01.52.02.53.03.54.0
National Average1.4
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073333 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3333 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Total Unemployment Rate
0
1
2
3
4
5
US
Flor
ida
Seb
astia
nP
ort S
t. Lu
cie
Pun
ta G
orda
Lake
land
Oca
laP
alm
Bay
Wes
t Pal
m B
each
Pan
ama
City
Cap
e C
oral
Tam
paM
iam
iJa
ckso
nvill
eP
ensa
cola
Nap
les
Sar
asot
aO
rland
oFt
. Lau
derd
ale
Talla
hass
eeG
aine
svill
eFt
. Wal
ton
National Average4.4
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073434 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3434 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Total Building Permits
-100
-80
-60
-40
-20
0
US
Florida
Wes
t Palm
Bea
ch
Lake
land
Saras
ota
Punta
Gor
da
Cape
Coral
Port S
t. Lu
cie
Palm B
ay
Sebas
tian
Naple
s
Mia
mi
Tampa
Panam
a City
Ocala
Jack
sonv
ille
Orland
o
Gaine
sville
Tallah
asse
e
Pensa
cola
Ft. W
alto
n
Ft. La
uder
dale
National Average-25.2
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073535 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3535 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Florida Economic Update - 1
U. S. Florida Cape Coral Ft. Lauderdale Ft. Walton Gainesville
Establishment Employment (Ths, SA)Total Employment 1.4 1.7 3.4 2.2 2.7 1.8Natural Resources & Mining 6.9 -1.5 na 2.2 -4.5 naConstruction 0.0 0.5 na -0.1 na naManufacturing -0.8 -1.6 -3.1 2.2 na 4.7Trade, Transportation, & Utilities 0.8 1.0 3.9 1.3 2.4 1.6
Retail Trade 0.1 0.8 3.5 1.3 0.4 1.2Wholesale Trade 1.6 2.3 6.8 1.7 -0.6 0.1Transportation & Utilities 1.9 -0.3 2.6 3.4 0.1 7.6
Information Services 0.8 -0.5 -0.3 -4.3 11.4 -4.9Financial Services 1.6 1.3 0.3 -0.5 0.2 4.2Professional & Business Services 2.4 2.8 6.6 1.3 1.0 5.9Education & Health Services 2.7 3.0 2.5 0.1 4.5 0.9Leisure & Hospitality Services 3.3 1.9 7.5 1.6 2.1 2.6Other Services 0.8 4.4 5.3 2.1 4.2 3.5Government 1.3 1.8 3.7 3.7 1.6 0.4
Unemployment Rate (%, SA) 4.4 3.3 3.3 3.0 2.4 2.6Total Residential Permits (# of units YTD, NSA) -25.2 -52.7 -65.0 2.5 3.0 -30.9
Single-family, (# of units YTD, NSA) -27.1 -57.0 -66.6 -48.6 -52.2 -46.3Multifamily, (# of units YTD, NSA) -13.3 -40.2 -61.1 -43.5 -54.3 56.15 +, (# of units YTD, NSA) -21 -41.4 -60.5 -52.7 -45.9 56.1
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073636 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3636 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Florida Economic Update - 2
U. S. Florida Jacksonville Lakeland Miami Naples
Establishment Employment (Ths, SA)Total Employment 1.4 1.7 2.4 2.1 1.2 2.7Natural Resources & Mining 6.9 -1.5 -25.1 na 9.2 naConstruction 0.0 0.5 3.2 na 6.1 naManufacturing -0.8 -1.6 -2.9 -4.2 -3.5 1.0Trade, Transportation, & Utilities 0.8 1.0 1.8 0.9 1.1 0.4
Retail Trade 0.1 0.8 1.5 1.5 1.4 1.5Wholesale Trade 1.6 2.3 0.0 1.0 1.9 0.0Transportation & Utilities 1.9 -0.3 4.4 -0.5 -0.3 -11.0
Information Services 0.8 -0.5 -1.1 0.4 -3.0 1.6Financial Services 1.6 1.3 0.5 1.1 3.2 1.6Professional & Business Services 2.4 2.8 4.2 4.4 2.2 0.3Education & Health Services 2.7 3.0 4.8 4.0 0.8 1.1Leisure & Hospitality Services 3.3 1.9 4.6 3.2 1.0 4.5Other Services 0.8 4.4 2.7 2.0 2.0 -0.5Government 1.3 1.8 1.3 4.3 0.4 6.5
Unemployment Rate (%, SA) 4.4 3.3 3.3 3.7 3.3 3.1Total Residential Permits (# of units YTD, NSA) -25.2 -52.7 -37.1 -77.2 -54.7 -58.1
Single-family, (# of units YTD, NSA) -27.1 -57.0 -51.8 -70.4 -61.3 -66.6Multifamily, (# of units YTD, NSA) -13.3 -40.2 12.0 -97.6 -48.5 -42.25 +, (# of units YTD, NSA) -21 -41.4 6.2 -98.7 -49.1 -27.7
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073737 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3737 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Florida Economic Update - 3
U. S. Florida Ocala Orlando Palm Bay Panama City
Establishment Employment (Ths, SA)Total Employment 1.4 1.7 2.4 3.1 0.1 1.9Natural Resources & Mining 6.9 -1.5 na 0.0 na naConstruction 0.0 0.5 na 2.6 na naManufacturing -0.8 -1.6 -1.6 3.3 -1.8 7.4Trade, Transportation, & Utilities 0.8 1.0 1.0 1.6 0.2 2.9
Retail Trade 0.1 0.8 0.6 1.6 0.0 1.6Wholesale Trade 1.6 2.3 4.1 1.0 3.2 5.4Transportation & Utilities 1.9 -0.3 -1.3 2.6 -2.6 8.0
Information Services 0.8 -0.5 3.0 2.6 -0.8 0.5Financial Services 1.6 1.3 -0.7 1.0 -0.2 1.2Professional & Business Services 2.4 2.8 6.5 5.3 -2.1 -3.5Education & Health Services 2.7 3.0 4.3 4.0 3.9 3.0Leisure & Hospitality Services 3.3 1.9 -0.3 3.1 3.0 7.9Other Services 0.8 4.4 5.0 3.8 1.0 1.9Government 1.3 1.8 3.3 3.5 2.5 1.7
Unemployment Rate (%, SA) 4.4 3.3 3.6 3.1 3.6 3.4Total Residential Permits (# of units YTD, NSA) -25.2 -52.7 -38.3 -33.9 -61.3 -46.2
Single-family, (# of units YTD, NSA) -27.1 -57.0 -54.0 -48.9 -54.8 -41.2Multifamily, (# of units YTD, NSA) -13.3 -40.2 127.1 51.3 -78.2 -48.25 +, (# of units YTD, NSA) -21 -41.4 103.6 78.6 -80.2 -44.9
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073838 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3838 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Florida Economic Update - 4
U. S. Florida Pensacola Port St. Lucie Punta Gorda Sarasota
Establishment Employment (Ths, SA)Total Employment 1.4 1.7 -0.1 0.4 1.2 2.0Natural Resources & Mining 6.9 -1.5 na na na naConstruction 0.0 0.5 na na na naManufacturing -0.8 -1.6 -1.5 0.0 0.2 -1.1Trade, Transportation, & Utilities 0.8 1.0 -1.0 -1.4 4.0 0.0
Retail Trade 0.1 0.8 -2.5 -2.2 4.5 0.2Wholesale Trade 1.6 2.3 3.9 -1.0 0.0 2.2Transportation & Utilities 1.9 -0.3 0.0 1.8 0.7 -6.2
Information Services 0.8 -0.5 -5.2 -3.7 -0.2 6.2Financial Services 1.6 1.3 4.2 1.2 0.1 1.7Professional & Business Services 2.4 2.8 -3.0 -2.9 -2.0 3.6Education & Health Services 2.7 3.0 3.7 3.2 2.2 3.2Leisure & Hospitality Services 3.3 1.9 -0.5 -3.4 -1.3 0.2Other Services 0.8 4.4 2.5 0.1 3.5 6.6Government 1.3 1.8 0.5 4.4 2.5 3.3
Unemployment Rate (%, SA) 4.4 3.3 3.3 4.4 3.9 3.1Total Residential Permits (# of units YTD, NSA) -25.2 -52.7 13.2 -64.7 -65.5 -72.5
Single-family, (# of units YTD, NSA) -27.1 -57.0 -20.5 -70.9 -62.3 -73.8Multifamily, (# of units YTD, NSA) -13.3 -40.2 387.7 14.6 -74.8 -68.95 +, (# of units YTD, NSA) -21 -41.4 631.4 71.3 -81.4 -73.7
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20073939 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.3939 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Florida Economic Update - 5
U. S. Florida Sebastian Tallahassee Tampa West Palm Beach
Establishment Employment (Ths, SA)Total Employment 1.4 1.7 1.1 1.3 1.5 1.8Natural Resources & Mining 6.9 -1.5 na na -33.5 1.3Construction 0.0 0.5 na na 0.3 3.3Manufacturing -0.8 -1.6 2.9 -0.1 -2.1 -0.9Trade, Transportation, & Utilities 0.8 1.0 3.1 4.0 0.2 1.8
Retail Trade 0.1 0.8 3.6 4.7 0.6 1.7Wholesale Trade 1.6 2.3 -0.1 0.9 1.1 3.8Transportation & Utilities 1.9 -0.3 0.5 2.9 -3.0 -1.5
Information Services 0.8 -0.5 -14.5 -7.6 1.1 2.2Financial Services 1.6 1.3 4.9 1.6 1.2 1.5Professional & Business Services 2.4 2.8 -1.9 -4.1 2.7 1.4Education & Health Services 2.7 3.0 2.6 1.6 2.0 1.4Leisure & Hospitality Services 3.3 1.9 2.3 1.6 2.4 2.8Other Services 0.8 4.4 0.2 8.7 7.1 3.5Government 1.3 1.8 4.6 1.4 1.2 0.9
Unemployment Rate (%, SA) 4.4 3.3 4.9 2.8 3.3 3.6Total Residential Permits (# of units YTD, NSA) -25.2 -52.7 -60.0 -29.1 -51.0 -81.4
Single-family, (# of units YTD, NSA) -27.1 -57.0 -58.1 -29.6 -63.7 -72.6Multifamily, (# of units YTD, NSA) -13.3 -40.2 -76.1 -27.9 1.7 -90.65 +, (# of units YTD, NSA) -21 -41.4 -91.9 -37.2 0.2 -92.4
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20074040 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.4040 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
2007: Slower Growth with Moderating Inflation
Economic momentum slowing
due to weak housing and
slowing profits growth. Moderate job gains are the
key driver at present. Fed policy
currently steady due to
uncomfortable inflation levels, but
ease is possible if slower growth
persists. The dollar is expected to remain under
downward pressure over the near-term.
5/18/07
Cycle
Position
Short Trend
Intermediate
Trend
Comments
Consumer
Fading Fading At Risk Weak housing and recent energy price rise dampening spending and consumer sentiment. Job growth is key driver of consumer strength.
Capital Spending
High
Fading Neutral Slower profits growth after extended period of above-average gains likely to curb pace of future investment despite high cash positions.
Dollar Low Weaker Weaker / Neutral
Weaker domestic growth and the possibility of Fed ease contrasts with firm growth and more restrictive monetary policies overseas.
Inflation
Stable / Slightly Lower
Core Peaking
Core Moderately
Lower
Core inflation above 2% remains a policy concern, driven by tighter capacity and higher unit labor costs. Slower growth expected to curb core inflation later this year.
Monetary Policy
Moderately Restrictive
Moderately Restrictive
Restrictive / Neutral
Fed on hold at 5 ¼% following 17 rate hikes since 6/30/04. Anti-inflation rhetoric continuing and “data-dependent” policy approach likely to keep markets volatile near term. Fed focus may have to shift to sustaining growth if recent softness persists. Ease possible later in 2007.
Fiscal Policy
Neutral
Neutral
Neutral / Stimulative
Tax revenues enjoying strong cyclical growth, offset in part by addition to war costs. 2008 presidential race likely to generate new spending proposals.
This perspective was prepared for clients and prospective clients of Trusco Capital Management, Inc. Neither Trusco or any affiliations make any representation or warranties as to the accuracy or merit of this analysis for individual use. Past returns are not indicative of future results. Comments and projections were based on information available at the time of writing, are for informational purposes only, are not intended as individual or specific advice, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions.
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20074141 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.4141 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
-30%
-20%
-10%
0%
10%
20%
30%
40%
90 92 94 96 98 00 02 04 06
0
5
10
15
20
25
30
35
Actual Forecast
0
2
4
6
8
10
90 92 94 96 98 00 02 04 06 08
Actual Forecast
-2%-1%0%1%2%3%4%5%6%7%
90 92 94 96 98 00 02 04 06 08
Actual Forecast
Perspectives on Growth, Inflation, Profits, & Rates
Real GDP (YOY%)
S&P 500 Op. EPS (YOY%)
Fed Funds (%)
CPI (YOY%)
Trailing P/E Ratio
10-Yr. Treas. (%)
Sources: Trusco, BEA, FRB, S&P, Blue Chip Financial Forecasts
FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 2007FGFOA May 23, 20074242 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.4242 | | Trusco Capital Management, Inc.Trusco Capital Management, Inc.
Outlook Economic growth expected to continue at a sub-average pace.
Recession probability higher but less than 50/50. Job growth is the key economic driver currently.
We expect housing will remain soft into 2008 and we are monitoring the potential for contagion into other areas of the economy. Overall, we believe the pace of consumer spending will soften a bit further.
CAPEX growth is likely to slow as well due to slower profits growth. Lower, more realistic corporate earnings forecasts have reduced some valuation risks. Fed policy is on hold, but could shift toward ease if economic momentum continues to slide.
Core inflation remains a focus for policymakers, but is likely to trend somewhat lower this year.
“Data-dependent” / “Forecast-dependent” - Economic volatility around slower growth rates will help generate market volatility.
Florida has enjoyed above average growth, but the current housing stress is likely to negatively impact revenue growth.
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