Economic Analysis

September 29th, 2009

• Stay the Course• Rally has been strong but corrections will occur

– Relatively Minor– October

• Key Point- Business cycle is driven by interest rates – FED Raising rates will signal change

• Consumers are paying off debt- therefore not spending• Weakness in durables- autos

– Personal consumption expenditures will be weak but not harmful. • 2.5-3% growth • Enough to sustain U.S. Economy

Q-Insight

• Capital Goods may lead recovery. – No evidence yet

• Exports are picking up sharply– Should boom unless U.S. starts a protectionist trade war

• Personal Consumption expenditures will not drag the economy

• Capital Goods and Exports need to lead economy• Expects Average Hours worked to improve.

– Friday- Employment Situation

Q-Insight

• Conference Board Leading Economic Index rose 0.6% in August– 0.8% in June, 0.9% in July

• University of Michigan/Reuters consumer confidence index rose to 73.5% in September, up from 65.7%

• Consumer expectations sub-index rose to 73.5% from 65% – Highest in 2 years

Economic Indicators

• Existing home sales fell 2.7% in August– Had risen for 4 straight months

• New home sales up 0.7%– Estimated to be +1.6%

• Orders for durable goods fell 2.4%• Core capital good fell 0.4%• FOMC met this past week and decided to keep the Fed

Fund target at 0-.25%• Initial unemployment claims down 21,000 to 530,000

from prior week (3.8%)

More Indicators

Flow of Funds• 2nd Qtr 2009 Total Net Lending - 241 Billion

• Household - 647.6 Billion

• State Govt - 83.3 Billion

• Fed Govt 305.6 Billion

• Monetary Authority 1,196.1 Billion

• Commercial Banks 256.1 Billion