A Case for Optimism, The Economic Outlook

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A Case for Optimism,The Economic Outlook

• Wednesday, March 7, 2007
• Richard Yamarone,
• SVP Director of Economic Research
• Argus Research Corp.

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60 and Counting Thats Resilience
Source Bureau of Economic Analysis
3
Consumers Are Quite Confident
Source The Conference Board
4
Jobless Claims Still Quite Low
Source U.S. Department of Labor U.S. Bureau of
Economic Analysis, Argus Research
5
Jobs Still Easy to Get
Source The Conference Board Bureau of Labor
Statistics
6
Discretionary Spending Still Strong
Source Bureau of Economic Analysis, Argus
Research Corp.
7
Low Interest Rate Environment
Source Board of Governors of the Federal Reserve
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Incomes, Wages Salaries are on the Rise
Source Bureau of Economic Analysis, Argus
Research Corp.
9
Inflation Well-Behaved
Source Bureau of Labor Statistics, Argus
Research Corp.
10
This Isnt the 1950s
Source Lewis Wickes Hine, Power House Mechanic
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The Labor Market Has Changed Dramatically Over
the Last 55 Years
  1950 2007
Manufacturing 30.2 10.3
Education Health 4.8 13.2
Retail 10.3 11.1
Professional 6.5 13.0
Construction 5.0 5.6
Information 3.6 2.2
Financial 4.1 6.1
Leisure Hospitality 6.2 9.7
Government 13.6 16.1
Other Services 1.8 4.0
Wholesale 5.0 4.3

Source Bureau of Labor Statistics, Argus
Research Corp.
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We Dont Do Unions
Source Bureau of Labor Statistics
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We Dont Do Pensions Old Time Labor
PracticesPension Suspension
14
Employers Dont Even Pay Benefits
Source Bureau of Labor Statistics
15
Different Type of Job Creation After 9/11
Source Bureau of Labor Statistics, Argus
Research Corp.
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You Can Observe A Lot by Watching
Source Bureau of Labor Statistics, Board of
Governors Federal Reserve, Argus Research Corp.
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Household-type Jobs
Source Bureau of Labor Statistics, Bureau of
Economic Analysis, Argus Research Corp.
18
Ethanol Boom is Much Bigger than Corn
Source U.S. Department of Agriculture, Argus
Research Corp.
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Ag Prices on the Rise
Source U.S. Department of Agriculture, Argus
Research Corp.
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Initial Stages of Higher Food Prices?
January YOY PPI Prepared animal
feeds 1.2 12.3 Eggs
3.2 20.0 Soft drink beverage bases
2.0 3.3 Processed young chickens
4.6 11.8 Milled rice 3.1 17.2 Confecti
onary materials 12.5 17.2 CPI Nonalcohol
ic beverages 0.8 2.7 Alcoholic
beverage 0.9 2.5 Frankfurters
6.3 8.5 Flour prepared flour mixes
0.9 4.5 Full service meals snacks
0.5 3.7 Other food away from home
1.3 5.1 Crackers, bread, and cracker products
3.2 3.6
Source Bureau of Labor Statistics, Argus
Research Corp.
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Reasons for the Federal Reserve to Pause

• Unknown Magnitude of Housing Downturn
• (macroeconomic consequences)

• Cumulative Effect of Previous Actions
• (17, 25 basis point rate hikes)

Argus Research Corp.
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Reasons for the Federal Reserve to Hike

• All Inflation Measures Exceeding Purported
  Comfort Zone

• Commodity (Food) Inflation
• (price pass alongs announced during the quarterly
  earning season)

• Unemployment Rate at Cyclical Low

• Wages, Incomes, Salaries Rising

• Import Inflation from Weaker U.S. Dollar

Argus Research Corp.
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Reasons for the Federal Reserve to Cut

• Stimulate Economy?

• Send Unemployment Rate Lower?

• Lower Mortgage Rates from 5.8?

• Boost Consumer Spending from 4.2?

• No Legitimate Reason to Reduce Overnight Target
  Rate

Argus Research Corp.
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Core Inflation Above Comfort Zone
Source Bureau of Economic Analysis, Argus
Research Corp.
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Respected Inflation Barometer Still Elevated
Source Federal Reserve Bank of Dallas, Argus
Research Corp.
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Pricing Power Index
Source Federal Reserve Bank of Philadelphia,
Institute for Supply Management, Argus Research
Corp.