Economic Presentation

Economic Presentation

Presented by: Morris Segall, President SPG Trend Advisors

To: Vistage November 19th, 2008

THE ECONOMY

It’s a recession

Gross Domestic Product2005Q1 - 2008Q3

Source: Bureau of Economic Analysis

Contributions to GDP Growth by Component

2007Q3-2008 Q3

Source: Bureau of Economic Analysis

Corporate Profits* (SAAR)2001Q2 - 2008Q2

Source: BEA

Industrial Production January 2007-September 2008

Federal Reserve

Net Change in U.S. JobsJune 2005 - October 2008

Bureau of Labor and Statistics

Continued Unemployment Claims January 2006 - November 1st, 2008

Source: Department of Labor

National Nonfarm Employment by Industry Sector Groups

December 2007 – October 2008

Bureau of Labor Statistics

National Nonfarm Employment by Industry Sector Groups

January 2007 - December 2007

Bureau of Labor Statistics

Existing Home SalesSeptember 2001-September 2008

Source: National Association of Realtors, Census Bureau

New Home Sales Units Sold vs. Length on Market

December 2005-September 2008

S&P/Case-Shiller Home Price Index 2005 – August 2008

Source: Standard and Poors

Commercial Delinquency Rates among Major Investor Groups

Source: Mortgage Bankers Association

Changes in Consumer Price Index in Percentage Terms

2006 v. 2005

2007 v. 2006

6 moths ended in Sep. 2008

All items 2.5% 4.1% 5.2%Food at Home 1.4% 5.6% 8.6%Food Away Home 3.2% 4.0% 5.4%Rent of Primary Res 4.3% 4.0% 3.5%

Owners Equiv of Rent of Prim Res 4.3% 2.8% 2.0%Household Energy 2.4% 5.3% 12.7%Water/Sewer/Trash 4.8% 5.4% 7.1%Houshold Ops 4.4% 2.2% 7.2%Car Repair 3.8% 3.3% 6.8%Pub. Transp 0.1% 7.2% 13.8%Medical 3.6% 5.2% 2.3%Education 6.3% 5.6% 6.1%Energy 2.9% 17.4% 20.9%

Source: Bureau of Labor Statistics

Average Hourly Compensation2004 – October 2008

Source: Bureau of Labor Statistics

Value of the Dollar (Broad Dollar Index) January 2001 - October 2008

Broad Dollar Index: a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

Source: Federal Reserve Board

NYMEX Crude Oil Future Prices in U.S. DollarsFebruary 2001 - November 11th 2008

Source: Energy Information Administration

Consumer Confidence Survey and Consumer Sentiment Index

Year 2005-October 2008

Source: Reuters and Polling Report

Source: census.gov

Retail Sales Less Food and Fuel April 2007- September 2008

Consumer CreditQ4 2005 – September 2008

Nonfarm Employment by Industry Sector Groups in Tennessee

(December 07’-September 08’)

Bureau of Labor Statistics

County and stateUnemployment

rate 2007Unemployment

rate 2008

Chattanooga, TN-GA Metropolitan Statistical Area 4.1 6

Clarksville, TN-KY Metropolitan Statistical Area 5.2 7.4

 Cleveland, TN Metropolitan Statistical Area 4.7 6.9

Jackson, TN Metropolitan Statistical Area 4.9 7.1

Johnson City, TN Metropolitan Statistical Area 4.4 6.4Kingsport-Bristol-Bristol, TN-VA Metropolitan Statistical Area 4.2 5.9

Knoxville, TN Metropolitan Statistical Area 3.6 5.6

Memphis, TN-MS-AR Metropolitan Statistical Area 5.2 7.3

Morristown, TN Metropolitan Statistical Area 4.8 7.4

Nashville-Davidson--Murfreesboro--Franklin, TN Metropolitan Statistical Area 4 6.1

Tennessee 4.7 6.9

State and MSA-wide Change in Unemployment rate September 2007 – September 2008

Source: Maryland Association of Realtors

Change in Regional Housing Units Sold (TN, South Region, US) Q1 2004 - Q2 2008

Source: Federal Reserve Bank of Atlanta

Tennessee PMI Monthly Changes March 2007 - October 2008

Source: BEA

Tennessee & Regional Retail Sales Tax Revenue January 2005 - September 2008

Source: BEA

How do I get through it?Manage business on cash flow basisIncrease efficiency of asset turnover; increase liquidity Intensify customer service initiativesBecome innovative in controlling costs

Outsource where appropriate

Join Co-ops to spread costs over larger group

Look for new ways to leverage existing employees and infrastructure by investigating new sources of revenue from new products and marketsSecure access to bank credit; firm up bank lines

How do I get through it? (cont.)Spend to increase productivity and market share

Take advantage of accelerated equipment write offs as part of government’s economic stimulus packageTake advantage of soft demand in economy to build for future by aggressive bargain purchasingIf access to capital and liquidity are not detriments, look to acquire troubled companies and/or strategic assets of other companiesTrain employees to be more productive and increase their value by enabling them to do more tasks

Increase networking and take advantage of trade associations for additional contacts and leadsPartner with other firms

What’s on the other side? 2009 - Recession Bottoms with Housing and Unemployment

Housing bottomsBank loan losses abateUnemployment PeaksLower Energy Prices alleviate pressure on consumer spending – but only gradual recovery as unemployment peaksAs the economy firms, interest rates go up to finance increasing federal deficit

Election –Democratic victory Increased economic “bailout” and middle class spending programs along with higher taxes. Increased federal budget deficits.

What’s on the other side? (cont.)2009 – Business

Cost of goods declines from current levels as commodity prices decline – helps corporate profit margins; year over year profit comparisons become easier in second half that could lead to higher corporate profitsAs economy and consumer spending improve, bargains will disappear and prices will rise in the second halfInventories will rebuild as final sales increaseSubdued consumer spending but pent-up demand building

2010 – Economy Makes Cyclical RecoveryIncreased employment = increased consumer spendingIncreased Corporate Sales = increased corporate profits = increased capital spendingIncreased exports to recovered overseas marketsIncreased interest rates and rising prices from higher demand and continuing federal budget deficits

Where are the opportunities?

Healthcare – National ProgramEducationAgricultureEnergy ConservationEnvironmental Solutions Electric PowerTransportation – Increase Mass TransitExports

Water Conservation – New Supplies and RecyclingU.S. Government Procurement and Outsourcing – Base Realignment Program (BRAC)Real Estate – Recycle and Rehab Existing Commercial and Residential Property

ConclusionsBased on revised economic data, it appears we entered a recession in the fourth quarter of last year with economic weakness intensifying through 2008 into the first half of 2009. Increased near term economic and market pressures include:

stubbornly high inflation in food and basic servicesweakening corporate profitsincreased unemploymentdeclining corporate capital and consumer spending

Conclusions continued

Diminishing State and Local Government spendingReduced economic contribution from exports as overseas economic growth slowsContinued credit pressures in residential housing and consumer lending spreading to commercial real estate markets

Conclusions continued

However, a bottoming of the housing cycle and an abatement in bank credit losses in the second half of next year, could set the stage for cyclical capital markets and economic improvements in 2009 and 2010. After an expected cyclical recovery in 2010-2012, we believe the longer term socio-economic issues facing this country will result in slower future economic growth for the United States. The availability and cost of credit, particularly to consumers, will be more restricted and expensive in the future.

Thank You

You can always reach me at [email protected], if you need us in a hurry, we are at 410.522.7243 Please contact us when you require economic and capital markets research & policy analysis.Further information available at www.spgtrend.com