Bernard L. Weinstein, Ph.D.

Presentation to ISM-Dallas

January 10, 2008

A Falling Dollar, $100 Oil, and the Sub-Prime Mess: Is

a Recession Inevitable?

Gross domestic product

Source: Commerce Department

Real Economic Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2003 2004 2005 2006 2007

3Q 2007:4.9%

Monthly change, in thousands

-100

0

100

200

300

400

D J F M A M J J A S O N D J F M A M J J A S O N D

Source: Labor Department

Dec. ’07:18,000

’05 2006 2007

Nonfarm Payrolls

In percent, seasonally adjusted:

4.2%

4.4%

4.6%

4.8%

5.0%

5.2%

D J F M A M J J A S O N D

Source: U.S. Department of Labor

’06 2007

U. S. Jobless Rate

Total personal income in trillions of dollars, before taxes, at seasonally adjusted annual rates

$10.9

$11.1

$11.3

$11.5

$11.7

$11.9

N D J F M A M J J A S O N

Source: U.S. Department of Commerce; Bureau of Economic Analysis

Nov. 2007:$11.87 trillion

2006 2007

Personal Income

Total retail sales in billions of dollars, seasonally adjusted.

$300

$320

$340

$360

$380

$400

N D J F M A M J J A S O N

Source: U.S. Commerce Department

Nov. 2007:$385.8 billion

’06 2007

Retail Sales

In billions of dollars, seasonally adjusted

Source: Commerce Department

Construction Spending

$1,000

$1,050

$1,100

$1,150

$1,200

$1,250

$1,300

N D J F M A M J J A S O N 2006 2007

Nov. 2007:$1.17 trillion

Nonfarm business productivity, percent change from previous quarter at annual rate, seasonally adjusted

Source: U.S. Department of Labor

’03 2004 2005 2006 2007

Productivity

-2%

0%

2%

4%

6%

8%

10%

12%

3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

Oiloholics

Twin Concerns

History Lesson

Source: U.S. Department of Commerce

Deficit in International Goods & Services TradeBillions of dollars, seasonally adjusted. Import figures exclude shipping and insurance.

$0

$10

$20

$30

$40

$50

$60

$70

O N D J F M A M J J A S O 2006 2007

Oct. 2007:$57.8 billion

100

105

110

115

2005 2006 2007

Index, 2002=100, seasonally adjusted

Source: Federal Reserve Board

Industrial Production

Nov. 2007:113.9

Bigger Role in Economy

Falling Dollar, Smaller Deficits

Source: U.S. Census Bureau, JPMorgan Chase

New private housing starts during the month, in millions, at seasonally adjusted annual rates.

Source: Dept. of Commerce; Dept. of H.U.D.; Census Bureau

Housing Starts

1.0

1.2

1.4

1.6

1.8

2.0

N D J F M A M J J A S O N 2006 2007

Nov. Starts:1.19

Single-family homes (in thousands)

600

700

800

900

1,000

1,100

1,200

1,300

2005 2006 2007

Source: Commerce Department

New-Home Sales

Nov. 2007:647,000

Annual rate, in millions of dwelling units.

Source: The National Association of Realtors

Existing-Home Sales

4.5

5.0

5.5

6.0

6.5

7.0

7.5

2005 2006 2007

Nov. 2007:5.0 million

Source: Wall Street Journal, Oct. 11, 2007

Source: Wall Street Journal, Oct. 11, 2007

Highest Subprime Exposure

Source: Wall Street Journal, Oct. 11, 2007

Subprime Loans in 2006

Source: Wall Street Journal, Oct. 11, 2007

Number of Loans

% of Total Loans

High Rate Loan Volume

High Rate Loans as % of

Total Loans

Dallas-Plano-Irving

47,207 (15) 29.0% (130) $5.162 b (27) 22.4% (176)

Fort Worth-Arlington

24,638 (37) 29.7 % (109) $2.330 b (57) 24.0% (135)

U.S. 3,995,903 28.8% $632.5 b 24.3%

Dip in Household Ownership

Home Value Decline

Construction Lending And Sub Prime Loans

Percentage change from previous month, seasonally adjusted.

Source: Labor Department

Producer Prices

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

N D J F M A M J J A S O N D J F M A M J J A S O N

’05 2006 2007

Percentage change, month to month (seasonally adjusted)

Source: Bureau of Labor Statistics

Consumer Prices

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

N D J F M A M J J A S O N

2006 2007

0

From a monthly survey of 5,000 U. S. households, 1987 = 100

Source: The Conference Board

Consumer Confidence Index

2006 2007

50

60

70

80

90

100

110

120

Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov

Nov. 2007:87.3

Index of 10 indicators designed to “lead,” or predict overall economic activity; 1996 = 100.

Source: The Conference Board

Leading Indicators

132

134

136

138

140

142

N D J F M A M J J A S O N D J F M A M J J A S O N

Nov. 2007:136.3

’05 2006 2007

Source: Texas Workforce Commission

Unemployment Rate, U. S., Texas, & D/FW

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

Jun2004

Jun2005

Jun2006

Jun2007

Texas U.S. D/FW*

U. S. Dec. 2007 = 5.0%Texas Nov. 2007 = 4.1%D/FW Nov. 2007 = 4.0%

U. S. & Texas Seasonally Adjusted *D/FW not Seasonally Adjusted

Payroll Employment in Dallas-Plano-Irving Metropolitan Division1999-2006 (annual averages)

*Through October 2007Source: Texas Workforce Commission

Number of Jobs Gain/Loss 1999 1,893,900 ----- 2000 1,966,900 73,000 2001 1,976,500 9,600 2002 1,916,000 -60,500 2003 1,883,000 -33,000 2004 1,903,300 20,000 2005 1,950,900 47,600 2006 2,023,700 72,800 2007 2,103,900* 80,200