NMTA Economic Forecast November 9, 2011 Jim Hebert Hebert Research, Inc. 1.

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NMTAEconomic Forecast

November 9, 2011

Jim Hebert

Hebert Research, Inc.

2011 Nobel Prize WinnersThomas Sargent and Christopher Sims

1. Structural Macroeconomic Model(X,Y) = (Y,X)

2. Mathematical Model - Rate of Change3. Statistical Model - Historical Variables that

do not change:

X= el+allX-1 + a21X-2 +BllYl + b21Y-2 + cllZ-1 + CZ ~ Z+ -elY= c2 + aEX-1 + a22X-2 + buy1 + b22Y-2 + CEZ-+ ~c22Z-2 + e2Z= c3 + a13X-1 + ~ 2 ~X+- 2b i3Y-I + b23x2 + c ~ ~ + Z c2-3Z~-2 + e3

Market Demand Based on Conditional Probabilities

• Where P(Xi Y│ j) = Pij / (∑ Pij)

• X1 = Ability to purchase

X2 = Willingness

X2 = Delayed Decision

Demand Equation For Marine Products and Service

• d = f {Hp + Eu}

• Where beta home price – 0.297• Employment – 0.685• R2 = 0.878

This is WA’s Worst Downturn in Non-Residential Construction in 30 years

Single-Family Home Prices Continue to Decline

More Foreclosures Can Be Expected

Housing Indicators

2006 2007 2008 2009 2010 2011 2012 2013

Income and Employment

Nonfarm Payroll Employment

2006 2007 2008 2009 2010 2011 2012 2013

WA Employment is Still in the Hole

WA State Businesses Full Time Employees

Mean 42.49Std. Deviation 137.473Kurtosis 46.975

Number PercentageLess than 10 65.0%

11 to 20 10.8%21 to 40 10.2%

41 to 100 7.0%More than 101 7.0%

Number of Full-Time Employees

Unemployment Rate (% of Labor Force)

Unemployment Rate (Percent of Labor Force) 2009 2010 2011 2012 2013

November Forecast, Preliminary 9.30% 9.60% 9.20% 9.10% 8.60%

2009 2010 2011 2012 20138.00%

Education and Unemployment

Education Unemployment Rate

Less than a high school education 13.8%

High School graduate, no college 9.6%

Some college or associate degree 8.3%

Bachelor's degree or higher 4.4%

Software Publishing Employment is Growing

Boeing Has Over 7 Years of Commercial Orders on its Books

Manufacturing Employment

Manufacturing Employment (Thousands) 2009 2010 2011 2012 2013

November Forecast, Preliminary 265.5 257.9 268.1 277.1 282.8

Percent Change -8.80% -2.80% 3.90% 3.30% 2.10%

2009 2010 2011 2012 2013245

WA State BusinessesAnnual Gross Revenue

Stock Market Volatility has Spiked

M2 Money Stock

Current Market Conditions

Current Last Week Week change Last Year Year Change

Fed Funds 0.25% 0.25% 0 0.25% 0

Prime Rate 3.25% 3.25% 0 3.25% 0

Crude Oil $94.16 $93.96 $0.20 $84.69 $9.47

Unleaded Gasoline $2.65 $2.71 ($0.06) $2.21 $0.44

Confidence in Overall Economy

0 1 2 3 4 5 6 7 8 9 10

Jan-11

0.0372670807453

0.0496894409937

0.0434782608695

0.0745341614906

0.2049689440993

0.1304347826086

0.1739130434782

0.1677018633540

0.0993788819875

0.0062111801242

0.0124223602484

Apr-11

0.0310559006211

0.0496894409937

0.0248447204968

0.0869565217391

0.1552795031055

0.1614906832298

0.1987577639751

0.1428571428571

0.1118012422360

0.0310559006211

0.0062111801242

Aug-11

0.0419161676646

0.0778443113772

0.1497005988023

0.1976047904191

0.2095808383233

0.1497005988023

0.0838323353293

0.0299401197604

0 0.0179640718562

Overall Confidence in the Economy P

11-Jan 11-Apr 11-Aug 11-Nov

Mean 5 5.2 4.4 5.17Std. Deviation 2.2 2.2 2 1.669Kurtosis 0.4 0.4 0.2 -0.828

Future Health of the Economy

How do you foresee the health of the local economy twelve months from now?

(0-10 Scale)

Rating 2.4% 1.8% 6.0% 7.8% 10.2% 29.3% 20.4% 12.0% 7.2% 1.2% 1.8%

0 1 2 3 4 5 6 7 8 9 10

11-Aug 11-Nov

Mean 5.2 5.52

Std. Deviation 2 0.994

Kurtosis 0.5 1.99

Total Revenue

Change PercentageDecrease of 25% or more 5.9%

Decrease 1% to 24% 15.0%No Change 31.5%

Increase 1% to 10% 25.2%Increase 11% to 25% 11.8%

Increase more than 26% 10.7%

Forecasted Change in Total Revenue for Next 12 Months Compared to the Last 12 Months

11-Aug 11-Nov

Median 0 2

Mean 6.3 7.9

Std. Deviation 23.8 22.6

Kurtosis 6.5 15.2

Total Revenue

Percent of Firms Expecting an Increase In Revenues

2007 2008 2009 2010 2011

Expenses and Costs

Number PercentageDecrease 5.7%

No Change 31.8%Increase 1% to 5% 29.5%

Increase 6% to 10% 11.9%Increase 11% to 20% 13.1%

Increase more than 20% 8.0%

Percentage Change in Expenses and Costs

11-Aug 11-Nov

Median 3.5 5

Mean 7.2 6.1

Std. Deviation 16 6.8

Kurtosis 21.6 2.2

Overall Business Climate

How would you rate the overall quality of the business climate in Washington, and whether the

state government is doing everything it can to retain and promote business? (0-10 Scale)

Q1 8.9% 4.5% 14.0% 10.2% 17.8% 21.0% 12.1% 5.7% 4.5% 0.0% 1.3%

Q2 10.6% 3.2% 10.1% 15.4% 13.3% 20.2% 11.7% 9.0% 4.8% 1.6% 0.0%

0 1 2 3 4 5 6 7 8 9 10

Q1 Q2 Q3

Mean 4 4.1 4.45

Std. Deviation 2.2 2.3 1.7

Kurtosis -0.3 -0.6 1.34

Federal Debt and Recovery

Currently, the US Treasury represents $9.7 trillion of securities outstanding and comprises 95% of the total issuance of fixed income securities with a AAA rating. Which of the following

economic scenarios do you most agree with?

Don't Know/ Refused, 8.6%

If the debt ceil ing were raised, federal spending reduced and taxes were

increased, this would result in an economic recovery.,

The lack of an economic solution to the problems of

unemployment, major public debt and lack of

competitiveness will continue to prolong the

economic recovery., 74.2%

Consumer Price Index

US LMV Sales are Recovering Slowly

Consumer Confidence is Very Weak

Marine Industry Economic Impact for 2012

Economic value Employment

Direct Impact $2.2 b 10,948

Indirect Impact $826.4 M 11,129

Induced Impact $971.9 M 6,481

Total Output $3.998 b 28,558

2011 Crisis of Confidence – C5

• Consumer Confidence

• Business Confidence

• Investors Confidence

• Government Confidence

• International Confidence

NMTA Economic Forecast November 9, 2011 Jim Hebert Hebert Research, Inc. 1.

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