2013 FORECAST: A LOOK AHEADPuget Sound Economic Forecast

Ken GoldsteinEconomist

The Conference Board

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Ken Goldstein

WWW.CONFERENCE-BOARD.ORG

Slow Lane Now, Gets Better Later

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Overview:

Domestic Economy Building Momentum Slowly

Global Economy Buffeted by Euro-zone Crises and Asia/Pacific Moderation

(3.2% in 2012, 3% in 2013)

Food + Energy + Commodity + CONFIDENCE

Housing Drag finally letting up – as rental market heats up

Currency & Commodity Speculation, Given Volatility & Uncertainty in Stock, Bond, and Real Estate Markets

Energy Going Through at least Two Potentially Long-Term Structural Changes

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Global Economy Is Coming Back

Source: IMF, The Conference Board

  2012 ‘13-16 ‘17-25        U.S. 2.1 2.4–1.9 2.1–1.7 Euro Area -0.3 2.4–1.3 1.9–0.9 Japan 2.0 2.1–1.4 1.6–0.9 Other Advanced Economies 2.4 3.7–2.4 2.7–1.4  Developing Asia (ex. China and India) 5.4 6.2–5.0 5.1–4.0 China 8.0 7.1–6.0 4.8–3.7 India 6.1 5.4–4.3 4.2–3.1

Latin America 3.4 4.3–2.8 3.8–2.3 Middle East 5.5 4.3–2.6 3.3–1.6 Africa 5.4 4.6–3.0 4.2–2.5  World Total 3.2 4.0–3.0 3.2–2.1

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-6,000-5,000-4,000-3,000-2,000-1,00001,0002,0003,0004,0005,000

-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%

Q1:04 Q1:05 Q1:06 Q1:07 Q1:08 Q1:09 Q1:10 Q1:11 Q1:12

Change(Thous, YoY)

Percent change(YoY)

Employment non-farm(right side)

GDP

Q3:12

US Growth Supported by Demographics and Productivity

Source: BLS, The Conference Board

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-6,000-5,000-4,000-3,000-2,000-1,00001,0002,0003,0004,0005,000

-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%

Q1:04 Q1:05 Q1:06 Q1:07 Q1:08 Q1:09 Q1:10 Q1:11 Q1:12

Change(Thous, YoY)

Percent change(YoY)

GDP

Employment(right side)

Q3:12

European Growth Limited by Slow Demographics and Low Productivity

Source: Euro stat, The Conference Board

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The Conference Board’s Leading Economic Indexes

Moderate Domestic Growth Ahead in a Slow Global Environment

Source: The Conference Board

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov2011 2012

U.S.A 0.3 0.6 0.0 0.7 0.2 -0.1 0.3 -0.5 0.4 -0.4 0.4 0.3 -0.2

MEXICO 1.2 -0.2 1.3 1.0 0.0 -0.7 -0.8 -0.6 1.4 -0.2 0.2 -0.3

U.K. -1.0 -0.7 0.6 0.8 1.0 0.1 -0.8 -0.4 0.0 0.1 0.1 -0.4

GERMANY -0.2 0.9 0.8 0.5 -0.1 -0.8 -0.7 -0.5 -0.3 -0.2 -0.6 0.0

FRANCE -0.2 0.3 -0.1 0.5 0.5 -0.1 -0.2 -0.3 0.4 0.5 0.7 -0.5

SPAIN -1.1 0.3 0.5 0.0 -0.9 -1.5 -0.6 0.3 -0.5 -0.1 0.3 1.0

JAPAN 0.2 0.1 0.2 1.5 1.1 -0.1 -1.1 -1.7 -0.9 -0.6 -0.5 -0.5

KOREA -0.7 0.3 0.3 1.8 0.1 -0.2 -1.1 -0.7 -0.4 -0.6 1.1 0.8

AUSTRALIA -1.1 -0.6 0.7 -0.3 -0.2 -1.2 0.9 0.6 -0.5 -1.0 -0.4 0.2

CHINA 0.6 0.6 2.0 1.0 0.7 0.9 1.2 0.2 0.8 1.8 0.2 1.6 1.1

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Developed World Struggling

Note: Shaded areas represent recessionsSource: The Conference Board

-25

-20

-15

-10

-5

0

5

10

15

20

25

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Jun.'12

6-month annualized percent change

US LEI

Asia LEIEuro Area LEI

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Consumer Expectations Remain Positive as Economy Grows Moderately

Note: Shaded areas represent recessions.Data as of November 2010 are based on surveys conducted by The Nielsen Company; data prior to that are based on surveys conducted by TNS.Source: The Nielsen Company, TNS, NBER, The Conference Board

0

40

80

120

160

200

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Index, 1985=100

Nov.'12

Expectation

Present Situation

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Slow 1st Half, Better 2nd Half

2012 2013 2014 2012 2013 2014 III Q* IV Q I Q II Q III Q IV Q I Q II Q ANNUAL ANNUAL ANNUAL

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Real GDP 3.1 0.9 1.4 1.5 2.4 2.7 2.3 2.3 2.2 1.8 2.4--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------CPI Inflation 2.3 3.9 1.9 2.1 2.2 2.2 2.1 2.2 2.2 2.4 2.2--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Real Consumer Spending 1.6 1.9 0.8 1.0 2.4 2.4 2.4 2.3 1.9 1.5 2.3--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Real Capital Spending -1.8 3.1 2.4 4.1 5.7 8.2 5.7 6.9 7.3 3.2 6.6--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Net Exports Bil. '00$ -395.2 -393.8 -385.8 -378.0 -376.9 -383.3 -388.8 -393.7 -403.0 -381.0 -397.0--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Industrial Production -0.4 1.0 1.4 1.0 2.4 2.4 2.6 2.4 3.7 1.3 2.4--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Unemployment Rate (%) 8.0 7.8 7.7 7.6 7.5 7.4 7.3 7.2 8.1 7.6 7.2--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------90 Day T-Bills (%) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.09 0.10 0.1010 Yr Treas Bonds (%) 1.61 1.71 1.80 1.85 1.90 2.10 2.35 2.75 1.80 1.91 2.72--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Exchange Rates$/EURO 1.26 1.30 1.32 1.31 1.30 1.28 1.26 1.24 1.29 1.30 1.23 Yen/$ 79 81 86 87 88 89 90 91 80 88 92 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------*Actual Data

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0

1

2

3

4

0

2

4

6

8

10

12

14

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

$ per thousand cubic feet $ per gallon

Gasoline (right scale)

Natural Gas (left scale)

4Q '12

Price Split

Source: Federal Reserve Bank of St. Louis, Department of Energy, The Conference Board

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More Volatility in Europe

Source: The Conference Board

-2

-1

0

1

2

3

4

5

6

7

Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12

Financial Instability Index for the Euro Area

10/26/12

ECB announces LTROs Bankia nationalized

June EU summit

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Euro Up Now, But that’s temporary

Note: Shaded areas represent recessionsSource: FRB, The Conference Board

1.0

1.1

1.2

1.3

1.4

1.5

1.62003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U Forecast

-Stdev

Trend Jan. '03 - Apr. '12

+Stdev

USD/EUR

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In A Panicky World – Flight To Safety

Note: Shaded areas represent recessionsSource: FRB, The Conference Board

75

80

85

90

95

100

105

110

115

120

125

130

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Y

+Stdev

-Stdev

Forecast

Trend Jan.'03 - Apr. '12

JPY/USD