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November 7, 2008

By: Dr. Lynn O. Michaelis

Tacoma-PierceCounty Chamber of

Commerce

Economic Issues for

2009

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November 2008

Economic Outlook for 2009

Forward-Looking Statement

Information in this presentation is derived principally from publicly availableInformation in this presentation is derived principally from publicly available

information, forest products and building industry publications and websites,information, forest products and building industry publications and websites,data complied by market research firms, and similar sources. Although wedata complied by market research firms, and similar sources. Although we

believe that this information is reliable, we have not independently verifiedbelieve that this information is reliable, we have not independently verifiedany of this information and we cannot assure you that it is accurate. Thisany of this information and we cannot assure you that it is accurate. This

presentation also contains forecasts regarding future economic conditions,presentation also contains forecasts regarding future economic conditions,demand, commodity prices and similar matters. The accuracy of suchdemand, commodity prices and similar matters. The accuracy of such

forecasts is subject to a number of risks, uncertainties and assumptions thatforecasts is subject to a number of risks, uncertainties and assumptions thatmay cause actual results to differ materially from those projected, including,may cause actual results to differ materially from those projected, including,

but not limited to, the effect of general economic conditions, including thebut not limited to, the effect of general economic conditions, including thelevel of interest rates, housing starts and exchange rates; the relative strengthlevel of interest rates, housing starts and exchange rates; the relative strengthof various U.S. and global business segments; energy prices; raw materialof various U.S. and global business segments; energy prices; raw material

prices; transportation disruptions; the effect of governmental actions; naturalprices; transportation disruptions; the effect of governmental actions; natural

disasters; and the outbreak of terrorism, war and other hostilities.disasters; and the outbreak of terrorism, war and other hostilities.

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November 2008


Agenda for Today

q

Brief Discussion on U.S. EconomicBrief Discussion on U.S. EconomicOutlookOutlook

q Implications for Puget Sound andImplications for Puget Sound and

Washington stateWashington state

q

Question and AnswersQuestion and Answers

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November 2008


Falling home prices are crucial tooverall economic outlook

-12

-8

-4

0

4

8

12

16

2001 2002 2003 2004 2005 2006 2007 2008 2009

Growth in Median Price for Existing

Single-family Homes

% Change Year Ago

QuarterlyQMDHO26I Source: Nat'l Assn of Realtors

Aug

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November 2008


Turmoil in credit markets has shutdown mortgage market

0

200

400

600

800

1000

1200

1998 2000 2002 2004 2006 2008

Net Flow of Home Mortgages

Billion Current $

AnnualAMDIR52A

2008 Q2

Source: FRB

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November 2008


Employment already in arecession

-200

-100

0

100

200

300

400

2005 2006 2007 2008 2009

Level Change in U.S.

Non-Agricultural Employment

Thousands

MonthlyMMDOT02E Source: BLS

(Level Change, One Month Ago)

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November 2008


Consumer cutting durablesspending

0

2

4

6

8

10

2001 2002 2003 2004 2005 2006 2007 2008 2009

Total

Excl. Autos

U.S. Retail Sales

% Change Year Ago

QuarterlyQMDOT26A

(X = Aug)

Source: Census

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November 2008


Consumer spending alreadyfalling

-2

0

2

4

6

1998 2001 2004 2007 2010

Forecast*

Growth in U.S.

Real Consumer Spending

Percent Change

AnnualAMDGA22C Source: BEA, *Weyerhaeuser

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November 2008


Two ways to correct imbalance:price and income

-700

-600

-500

-400

-300

-200

-100

0

2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. Real Net Exports

Billion 2000$

QuarterlyQMDGA07D Source: BEA, *Weyerhaeuser

Forecast*

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November 2008


Another bubble induced recession

-1

0

1

2

3

4

5

1998 2001 2004 2007 2010

Source: BEA, *Weyerhaeuser

Forecast*

Growth in U.S. Real GDP

Percent Change

AnnualAMDGA01B

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November 2008


Now turning to housingbriefhistory lesson

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1970 1975 1980 1985 1990 1995 2000 2005 2010

Demographic Trend

Source: Census

U.S. Single-family Housing Starts

Million Units

AnnualAMDHO19Q

Dec

C t f l t l

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November 2008


Current foreclosure rate equals35-50% ofsingle-family trend demand

0.20

0.40

0.60

0.80

1.00

1.20

2001 2002 2003 2004 2005 2006 2007 2008 2009

Foreclosure Started During Quarter

All Loans

QuarterlyQMDIR25A

(Percent, Seasonally Adjusted)

Source: Mortgage Bankers

Ass'n of America

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Was there a housing price bubble?

-50

-40

-30

-20

-10

0

10

20

30

40

1998 2000 2002 2004 2006 2008

Median Price for Existing Single-family

Homes in California

% Change Year Ago

QuarterlyQMDHO103A Source: California Assn of Realtors

Expectation in 2004

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Boom turns to a serious BUST!

20

40

60

80

100

120

140

160

180

1998 2000 2002 2004 2006 2008

Single-family Building Permits for California

(Seasonally Adjusted Annual Rate)

Thousands

QuarterlyQMDHO65G Source: Bureau of Census

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Nominal dollar trade gap is stillvery large, but

-900

-600

-300

0

2002 2003 2004 2005 2006 2007 2008 2009

U.S. Merchandise Trade Balance

(Seasonally Adjusted Annual Rate)

Billion $

QuarterlyQMDOT59B Source: Census

Aug

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Prices reflect strong globalgrowth and.

0

25

50

75

100

2000 2001 2002 2003 2004 2005 2006 2007 2008

Spot Price of Crude Oil for WTI$/BBL

QuarterlyQMDOT24D Source: EIA

(1/23)

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November 2008


C$ collapse important to the state

0.60

0.70

0.80

0.90

1.00

1.10

1994 1996 1998 2000 2002 2004 2006 2008

Forecast*

Source: WSJ, *Weyerhaeuser

Canadian Exchange RateU.S.$/C$(inverse)

AnnualAMICA05A

PPP Estimate*

(10/27)

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November 2008


Agenda for Today

q

Brief Discussion on U.S. EconomicBrief Discussion on U.S. EconomicOutlookOutlook

q Outlook for Puget SoundOutlook for Puget Sound

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November 2008


Washington State Employment*(000 Jobs)

2000 2004 2007 2009

Total Wage and Salary 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

Overall, state employment growthis strong

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Housing market has cooled off

15

20

25

30

35

40

45

50

1994 1996 1998 2000 2002 2004 2006 2008

Existing Home Sales for King County, WA

(Seasonally Adjusted Annual Rate)Thousands

QuarterlyQMDHO73A

Source: WSU Center for Real Estate Research

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Air starting to come out of ourlittle bubble!!!

-12

-8

-4

0

4

8

12

16

20

24

1996 1998 2000 2002 2004 2006 2008

Median Home Price for King County, WA% Change Year Ago

QuarterlyQMDHO73J Source: WSU Center for Real Estate Research, NWMLS

August

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November 2008


Number of units for sale risingrapidly

0

2

4

6

8

10

12

14

16

18

2002.1 2003.1 2004.1 2005.1 2006.1 2007.1 2008.1

Number of Homes and Condos for Sale

in King County, WashingtonThousand

QuarterlyQMDHO114A Source: NW Multiple Listing Service

(Seasonally Adjusted)Estimate

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Construction of new housing down30% or more

10

15

20

25

30

1998 2000 2002 2004 2006 2008

Source: Economic Forecaster-Conway/Pedersen

Puget Sound Region

Thousands

AnnualAMDOT164A

Forecast

Single-family Permits

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R il l P b bl i i i if

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November 2008


Retail sales: Probably optimistic ifaffected by housing

0

2

4

6

8

10

1998 2000 2002 2004 2006 2008

Source: Economic Forecaster-Conway/Pedersen

Puget Sound Retail SalesPercent

AnnualAMDOT165A

Forecast

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November 2008


Summary of Key Messages for2009

q

U.S. Economy headed already in front ofU.S. Economy headed already in front ofserious recessionserious recession

q Extremely uncertain period givenExtremely uncertain period given

financial marketsfinancial markets

q Housing starts remain weak at bothHousing starts remain weak at bothnational and local levelnational and local level

q Most regional forecasts are probablyMost regional forecasts are probably

too hightoo high

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November 2008

E i O tl k f 2009

What questions ORWhat questions ORCOMMENTS do youCOMMENTS do youhave?have?

ceo roundtable 11-07-08

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