March 12, 2008 Economic Outlook CCIM. Wachovia Economics Group 2 Economic Growth We Are Now...

March 12, 2008

Economic OutlookCCIM

Wachovia Economics Group 2

Economic Growth

We Are Now Forecasting A Modest Decline In Real GDP

The first half of 2008 has

gotten off to a very slow start

Real GDP Bars = Compound Annual Growth Rate Line = Yr/Yr Percent Change

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1998 2000 2002 2004 2006 2008

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

GDPR - CAGR: Q4 @ 0.6%GDPR - Yr/Yr Percent Change: Q4 @ 2.5%

Forecast

Wachovia


Economic Growth

Final Domestic Demand Is Much Weaker Than The GDP Figures Imply. Much Of This Weakness, However, Is Falling On Foreign Producers

Domestic demand will fall in three of the next four quarters

Real Final Sales to Domestic PurchasersBars = Compound Annual Growth Rate Line = Yr/Yr Percent Change

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1998 2000 2002 2004 2006 2008

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Real Final Sales to Dom. Purchasers - CAGR: Q4 @ 1.2%Real Final Sales to Dom. Purchasers - Yr/Yr Percent Change: Q4 @ 1.9%

Forecast

Wachovia


Employment Growth

Nonfarm Employment Has Fallen For Two Months In A Row. Employment Conditions Are Likely Weaker Than The Headline Figures Suggest

Nonfarm payrolls will likely hold up better than they did in the last recession

Nonfarm Employment ChangeTotal Employed in Thousands

-400

-300

-200

-100

0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006 2007 2008

-400

-300

-200

-100

0

100

200

300

400

500

Nonfarm Employment Change: Feb @ -63,000

Wachovia


Labor Markets

The Unemployment Rate Has Risen But Remains Relatively Low As Job Seekers Have Exited the Labor Force

We do not expect to see

problematic stagflation as there is no evidence of a wage-price spiral

Unemployment and Wage RatesSeasonally Adjusted

3%

4%

5%

6%

7%

8%

86 88 90 92 94 96 98 00 02 04 06 08

1%

2%

3%

4%

5%

6%

Unemployment Rate: Feb @ 4.8% (Left Axis)Hourly Earnings: Feb @ 3.7% (Right Axis)

Wachovia


Consumer Spending

Consumer Spending Is Primarily Driven By Income Growth, Which Remains Solidly Positive. However, The Housing Slump Will Slow Retail Sales

“Tax Rebates” will likely give retail sales a boost late this

spring

Retail Sales Ex. Auto and Gas vs. Income Growth3 Month Moving Averages

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

96 97 98 99 00 01 02 03 04 05 06 07 08

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

Disposable Personal Income Yr/Yr % Change: Jan @ 5.3%3 Month Annual Rate: Jan @ 1.9%

Stock Market Bubble

Tax Cut 1

Tax Cut 2 Housing Refi Boom

Wachovia


ISM Manufacturing

Manufacturing activity is

consistent with a slowdown but not necessarily a recession

ISM Manufacturing Composite IndexDiffusion Index

35

40

45

50

55

60

65

87 89 91 93 95 97 99 01 03 05 07

35

40

45

50

55

60

65

ISM Composite Index: Feb @ 48.312 Month Moving Average: Feb @ 51.0

Wachovia


Housing

The Bulk Of The Declines In Homebuilding Are Behind Us, However They Will Continue Until Early 2009

Permits in many of the most challenged markets are rapidly

approaching zero

Real Residential InvestmentBars = Compound Annual Growth Rate Line = Yr/Yr Percent Change

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

1998 2000 2002 2004 2006 2008

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Res. Investment - CAGR: Q4 @ -25.2%Res. Construction - Yr/Yr Percent Change: Q4 @ -18.6%

Forecast

Wachovia


Housing

We Overbuilt Homes for Five Straight Years & We Will Need to Under-Build For A Few Years Before the Excess Inventory is Corrected

Housing starts will not

meaningfully rebound before the end of the

decade

Housing StartsMillions of Units

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1Dashed Line is Underlying Demographic Trend

Wachovia


OFHEO Home Price Index

Over Sixty Percent of the U.S. Population Live in Cities With Positive Home Price Growth

OFHEO

Source: OFHEO and Wachovia Corp.

Wachovia

OFHEO Home Price IndexQ4-2007 vs. Q4-2006

Greater than 4.9%3.1% to 4.9%1.5% to 3.1%

-2.0% to 1.5%Less than -2.0%


Non-Owner Occupied Purchase Loans: 2006

Investors Were Responsible For More than Half of the Purchases in Some Markets in 2006

Investor & Second-Home Mortgages

Non-Owner Occupied Purchase LoansPercent of Total Value of Purchase Loans

Greater than 25%15.0% to 25.0%10.0% to 15.0%

7.5% to 10.0%Less than 7.5%

Source: HMDA and Wachovia Corp.

Wachovia


Office Vacancies

The national office market is essentially in equilibrium

Office Vacancy RatesPercent Vacant

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1990 1994 1998 2002 20060.0%

5.0%

10.0%

15.0%

20.0%

25.0%Metropolitan Office Vacancy Rate: Q4 @ 12.8%Suburban Office Vacancy Rate: Q4 @ 14.2%Downtown Office Vacancy Rate: Q4 @ 10.3%

Wachovia


Industrial Vacancies

Industrial markets are stronger than

the vacancy data suggest

Industrial Vacancy RatesPercent Vacant

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1980 1984 1988 1992 1996 2000 20040.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Industrial Vacancy Rate: Q4 @ 10.2%

Wachovia


Charlotte

The Charlotte area added close to 35,000 jobs

in 2007

Charlotte CMSA Job GrowthYear-over-year Change in Payrolls

-6%

-4%

-2%

0%

2%

4%

6%

8%

1991 1993 1995 1997 1999 2001 2003 2005 2007

-6%

-4%

-2%

0%

2%

4%

6%

8%

Wachovia


Charlotte

Unemployment remains near the national average

Charlotte MSA Unemployment RateSeasonally Adjusted

2%

3%

4%

5%

6%

7%

8%

90 92 94 96 98 00 02 04 06

2%

3%

4%

5%

6%

7%

8%Unemployment Rate: Dec @ 4.9%

12-Month Moving Average: Dec @ 4.7%

Wachovia


Charlotte

Home price growth has moderated

Charlotte MSA Home PricesOFHEO Home Price Index

-5%

0%

5%

10%

15%

90 92 94 96 98 00 02 04 06

-5%

0%

5%

10%

15%

Quarterly Change, Annual Rate: Q4 @ 0.2%Year-Over-Year Percent Change: Q4 @ 6.1%

Wachovia


Charlotte

Population growth has

surged during the past few

years, reflecting Charlotte’s positive buzz and troubles elsewhere

Charlotte CMSA Population GrowthThousands of Persons

0

10

20

30

40

50

60

70

80

80 82 84 86 88 90 92 94 96 98 00 02 04 06

0

10

20

30

40

50

60

70

80Greater Charlotte: 2006 @ 10.4Charlotte MSA: 2006 @ 61.5Charlotte CMSA: 2006 @ 72.0

Wachovia


Office Vacancies

Charlotte has one of the

lowest downtown vacancy rates of any metro area

Charlotte MSA Office VacanciesPercent Vacant

0%

5%

10%

15%

20%

25%

30%

84 86 88 90 92 94 96 98 00 02 04 06

0%

5%

10%

15%

20%

25%

30%Metropolitan Office Vacancy Rate: Q4 @ 11.1%Downtown Office Vacancy Rate: Q4 @ 2.3%Suburban Office Vacancy Rate: Q4 @ 16.5%

Wachovia


Industrial Vacancies

Industrial vacancy rates are trending

lower

Charlotte MSA Industrial VacanciesPercent Vacant

0%

4%

8%

12%

16%

20%

84 86 88 90 92 94 96 98 00 02 04 06

0%

4%

8%

12%

16%

20%Industrial Vacancy Rate: Q4 @ 10.2%

Wachovia


Appendix


Monthly Outlook

Weekly Economic & Financial Commentary

Special Reports

Economic Indicators

Global Commentary

Regional Commentary

Chief Economist List

To join any of our research distribution lists please email us: wachovia.economics@wachovi

a.com

Date Title Authors

March-06 Liquidity, Bank Credit, and Monetary Policy Silvia

February-22 Will U.S. Export Growth Buckle? BrysonFebruary-14 The Outlook for Bank of England Monetary Policy BrysonFebruary-11 (When) Will the ECB Cut Rates? BrysonFebruary-11 Global Chartbook - February 2008 Bryson

January-30 Fed Lowers Target Funds Rate by 50 Basis Points SilviaJanuary-28 It Would Be So Much Easier To Be a Pessimist VitnerJanuary-28 U.S. Recession? Who Would be Next? BrysonJanuary-22 Fed Slashes the Funds Rate 75 Basis Points VitnerJanuary-22 Recession: The Measure of Economic Weakness Silvia & IqbalJanuary-16 2007 Holiday Sales Wrapped-Up KhanJanuary-16 Housing Outlook 2008 Vitner & YorkJanuary-09 Credit & The Real Economy: Part II SilviaJanuary-09 Global Chartbook - January 2008 BrysonJanuary-03 Credit & The Real Economy: Part I Silvia

December-19 State Personal Income - Third Quarter 2007 Vitner & YorkDecember-17 2008 Annual Outlook - What's to Come in the Year Ahead?December-12 Central Banks Take Step to Combat Credit Crunch BrysonDecember-11 FOMC Meeting - December 11, 2007 SilviaDecember-11 Housing Chartbook - December 2007 Vitner & YorkDecember-07 Holiday Sales Forecast Update Vitner & KhanDecember-04 Texas Feels Heat from the Housing Slump Vitner & YorkDecember-04 OFHEO House Price Index Vitner & YorkDecember-03 Recession Forecasting: A Statistical Approach Silvia & Lai

November-30 Is a Lasting Improvement in the Trade Deficit in the Cards? BrysonNovember-29 Impact of the Credit Crisis on Banks Silvia

Distribution Lists Recent Special Commentary

A Sampling of Our Recent Special, Regional & Industry Commentary

Economics Group Publications Appendix

mailto:[email protected]



U.S. Macro Economy

Comprehensive Coverage of the U.S. Economy Monthly Economic Forecast Weekly Analysis & Outlook Timely Commentary on Daily Economic Data

Releases

Global Economies

Macro Level Coverage of Major Foreign Economies Macro Forecasts of 11 Economies Monthly Forecasts of 19 Dollar Exchange Rates Weekly Analysis & Outlook

U.S. RegionalEconomics

Regional and MSA Level Expertise Extensive Coverage Across the Wachovia

Footprint Ground level Analysis & Commentary of Local

Markets

Industry

Coverage Across CIB Industry Groups Regular Commentary on Economic

Developments by Industries

Econ

om

ics G

rou

p C

overa

ge

Real Estate

IndustrialGrowth

Consumer

&Retail

Energy& Power

Financial

Services

MediaHealthcare

Tech

Economics Group Appendix


John E. Silvia, Ph.D.Chief Economist

704.374. 7034 [email protected]

U.S. Macro EconomyInterest Rates Monetary Policy

704.383.5635 [email protected]

U.S. Macro EconomyReal EstateRegional Economics: State & MSA Level


Global EconomiesForeign Exchange

Mark VitnerSenior Economist

Jay H. Bryson, Ph.D. Global Economist

Sam BullardEconomist


Desk OperationsFinancial Services


Quantitative Macro-Economic Modeling

Anika KhanEconomist

Azhar IqbalEconometrician

Adam G. YorkEconomic Analyst


U.S. Macro EconomyReal EstateIndustrial Growth & Services


U.S. Macro Economy

Tim QuinlanEconomic Analyst

Wachovia Corporation Economics Group publications are distributed by Wachovia Corporation directly and through subsidiaries including, but not limited to, Wachovia Capital Markets, LLC, Wachovia Securities, LLC and Wachovia Securities International Limited.

The information and opinions herein are for general information use only. Wachovia does not guarantee their accuracy or completeness, nor does Wachovia assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. © 2008 Wachovia Corp.

Economics Group Appendix


U.S. Macro EconomyConsumer & RetailNon-residential Real Estate








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March 12, 2008 Economic Outlook CCIM. Wachovia Economics Group 2 Economic Growth We Are Now...

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