CEO Roundtable 11-07-08

Tacoma-Pierce
County Chamber of
Commerce
Economic Issues for
2009
November 7, 2008
By: Dr. Lynn O. Michaelis
Forward-Looking Statement November 2008
Information in this presentation is derived principally from publicly available

information, forest products and building industry publications and websites,
data complied by market research firms, and similar sources. Although we
believe that this information is reliable, we have not independently verified
any of this information and we cannot assure you that it is accurate. This
presentation also contains forecasts regarding future economic conditions,
demand, commodity prices and similar matters. The accuracy of such
forecasts is subject to a number of risks, uncertainties and assumptions that
may cause actual results to differ materially from those projected, including,
but not limited to, the effect of general economic conditions, including the
level of interest rates, housing starts and exchange rates; the relative strength
of various U.S. and global business segments; energy prices; raw material
prices; transportation disruptions; the effect of governmental actions; natural
disasters; and the outbreak of terrorism, war and other hostilities.
2
t:\presentation\customers\2008\tacoma chamber 2008
Economic Outlook for 2009

Agenda for Today November 2008
● Brief Discussion on U.S. Economic

Outlook
● Implications for Puget Sound and
Washington state
● Question and Answers
3

Falling home prices are crucial to
overall economic outlook November 2008
Growth in Median Price for Existing

Single-family Homes
% Change Year Ago
16
12
-4
-8 Aug
-12
2001 2002 2003 2004 2005 2006 2007 2008 2009
Quarterly 4
QMDHO26I Source: Nat'l Assn of Realtors

Turmoil in credit markets has shut
down mortgage market November 2008
Net Flow of Home Mortgages

Billion Current $
1200
1000
800
600
400
200
2008 Q2
0
1998 2000 2002 2004 2006 2008
Annual 5
AMDIR52A Source: FRB

Employment already in a
recession November 2008
Level Change in U.S.

Non-Agricultural Employment
Thousands
400
(Level Change, One Month Ago)
300
200
100
-100
-200
2005 2006 2007 2008 2009
Monthly
MMDOT02E Source: BLS 6

Consumer cutting durables
spending November 2008
U.S. Retail Sales

% Change Year Ago
10
(X = Aug)
Total
8 Excl. Autos
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Quarterly
QMDOT26A Source: Census 7

Consumer spending already
falling November 2008
Growth in U.S.
Real Consumer Spending
Percent Change
6
Forecast*
-2
1998 2001 2004 2007 2010
Annual 8
AMDGA22C Source: BEA, *Weyerhaeuser

Two ways to correct imbalance:
price and income November 2008
U.S. Real Net Exports

Billion 2000$
0
-100
-200
-300
-400
-500
-600
Forecast*
-700
2002 2003 2004 2005 2006 2007 2008 2009 2010
Quarterly 9
QMDGA07D Source: BEA, *Weyerhaeuser

Another bubble induced recession
November 2008
Growth in U.S. Real GDP

Percent Change
5
Forecast*
4
-1
1998 2001 2004 2007 2010
Annual 10
AMDGA01B Source: BEA, *Weyerhaeuser

Now turning to housing—brief
history lesson November 2008
U.S. Single-family Housing Starts

Million Units
1.8
Demographic Trend
1.6
1.4
1.2
1.0
0.8 Dec
0.6
1970 1975 1980 1985 1990 1995 2000 2005 2010
Annual 11
AMDHO19Q Source: Census

Current foreclosure rate equals
35-50% of November 2008
single-family trend demand
Foreclosure Started During Quarter
All Loans
1.20
(Percent, Seasonally Adjusted)
1.00
0.80
0.60
0.40
0.20
2001 2002 2003 2004 2005 2006 2007 2008 2009
Quarterly Source: Mortgage Bankers
QMDIR25A Ass'n of America 12

Driving 20 BBF drop in lumber
production November 2008
U.S. Single-family Housing Starts

(Seasonally Adjusted Annual Rate)
Million Units
1.8
Forecast*
1.5
1.2
0.9
0.6
0.3
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Quarterly 13
QMDHO06F Source: Census, *Weyerhaeuser

Was there a housing price bubble?
November 2008
Median Price for Existing Single-family

Homes in California
% Change Year Ago
40
30
Expectation in 2004
20
10
-10
-20
-30
-40
-50
1998 2000 2002 2004 2006 2008
Quarterly 14
QMDHO103A Source: California Assn of Realtors

Boom turns to a serious BUST! November 2008
Single-family Building Permits for California

Thousands
180
160
140
120
100
80
60
40
20
1998 2000 2002 2004 2006 2008
Quarterly 15
QMDHO65G Source: Bureau of Census

Nominal dollar trade gap is still
very large, but… November 2008
U.S. Merchandise Trade Balance

Billion $
0
-300
-600
Aug
-900
2002 2003 2004 2005 2006 2007 2008 2009
Quarterly 16
QMDOT59B Source: Census
t:\presentation\pulp\2008\sales meeting 52008

Prices reflect strong global
growth and……. November 2008
Spot Price of Crude Oil for WTI

$/BBL
100
(1/23)
75
50
25
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Quarterly 17
QMDOT24D Source: EIA

C$ collapse important to the state
November 2008
U.S.$/C$ Canadian Exchange Rate

(inverse)
Forecast*
0.60
PPP Estimate*
0.70
(10/27)
0.80
0.90
1.00
1.10
1994 1996 1998 2000 2002 2004 2006 2008
Annual Source: WSJ, *Weyerhaeuser
18
AMICA05A

Agenda for Today November 2008
● Brief Discussion on U.S. Economic

Outlook
● Outlook for Puget Sound
19

Overall, state employment growth
is strong November 2008
WashingtonStateEmployment*
(000 J obs)
2000 2004 2007 2009
Total WageandSalary 2,680 2,701 2,938 2,995

Manufacturing 336 264 293 293
Non-Manufacturing 2,344 2,428 2,646 2,702
Construction 150 164 207 197
* Non-agricultural
20

Housing market has cooled off November 2008
Existing Home Sales for King County, WA

Thousands
50
45
40
35
30
25
20
15
1994 1996 1998 2000 2002 2004 2006 2008
Quarterly
QMDHO73A
Source: WSU Center for Real Estate Research 21

Air starting to come out of our
little bubble!!! November 2008
Median Home Price for King County, WA

% Change Year Ago
24
20
16
12
-4
-8
August
-12
1996 1998 2000 2002 2004 2006 2008
QMDHO73J
Quarterly
Source: WSU Center for Real Estate Research, NWMLS 22

Number of units for sale rising
rapidly November 2008
Number of Homes and Condos for Sale

in King County, Washington
Thousand
18
(Seasonally Adjusted)
16 Estimate
14
12
10
0
2002.1 2003.1 2004.1 2005.1 2006.1 2007.1 2008.1
Quarterly 23
QMDHO114A Source: NW Multiple Listing Service

Construction of new housing down
30% or more November 2008
Puget Sound Region

Single-family Permits
Thousands Forecast
30
25
20
15
10
1998 2000 2002 2004 2006 2008
Annual 24
AMDOT164A Source: Economic Forecaster-Conway/Pedersen

Employment growth slows this
year November 2008
Puget Sound Employment

Percent Change
6
Forecast
-3
1995 1997 1999 2001 2003 2005 2007 2009
Annual 25

Retail sales: Probably optimistic if
affected by housing November 2008
Puget Sound Retail Sales

Percent
10
Forecast
8
0
1998 2000 2002 2004 2006 2008
Annual
26

Summary of Key Messages for
2009 November 2008
● U.S. Economy headed already in front of

serious recession
● Extremely uncertain period given
financial markets
● Housing starts remain weak at both
national and local level
● Most regional forecasts are probably
too high
27

Boom / Bust Cycle in Puget Sound
November 2008
● Bust in first half of decade — followed

by boom in second half
● The last 20-year pattern in employment
growth:
• 1991-95 — 1%
• 1996-2000 — 3.5%
• 2001-05 — 0%
• 2006-08– 3%
• 2009-10– 1%
● Why? Market forces!!!
28

November 2008
What questions OR
COMMENTS do you
have?
29

CEO Roundtable 11-07-08

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Tacoma-Pierce

Information in this presentation is derived principally from publicly available

Economic Outlook for 2009

● Brief Discussion on U.S. Economic

Economic Outlook for 2009

Growth in Median Price for Existing

Economic Outlook for 2009

Net Flow of Home Mortgages

Economic Outlook for 2009

Level Change in U.S.

Economic Outlook for 2009

U.S. Retail Sales

Economic Outlook for 2009

Economic Outlook for 2009

U.S. Real Net Exports

Economic Outlook for 2009

Growth in U.S. Real GDP

Economic Outlook for 2009

U.S. Single-family Housing Starts

Economic Outlook for 2009

Economic Outlook for 2009

U.S. Single-family Housing Starts

Economic Outlook for 2009

Median Price for Existing Single-family

Economic Outlook for 2009

Single-family Building Permits for California

Economic Outlook for 2009

U.S. Merchandise Trade Balance

Economic Outlook for 2009

Spot Price of Crude Oil for WTI

Economic Outlook for 2009

U.S.$/C$ Canadian Exchange Rate

Economic Outlook for 2009

● Brief Discussion on U.S. Economic

Economic Outlook for 2009

2000 2004 2007 2009

Total WageandSalary 2,680 2,701 2,938 2,995

Economic Outlook for 2009

Existing Home Sales for King County, WA

Economic Outlook for 2009

Median Home Price for King County, WA

Economic Outlook for 2009

Number of Homes and Condos for Sale

Economic Outlook for 2009

Puget Sound Region

Economic Outlook for 2009

Puget Sound Employment

Economic Outlook for 2009

Puget Sound Retail Sales

Economic Outlook for 2009

● U.S. Economy headed already in front of

Economic Outlook for 2009

● Bust in first half of decade — followed

Economic Outlook for 2009

Economic Outlook for 2009

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