June Update: U.S. Economic Indicators & Projections

1. July 15, 2011 Robert L. Balicki, Research Associaterbalicki@staffingindustry.com June Update: U.S. Economic Indicators & Projections • Key Findings: • Over the past month, we have become considerably more pessimistic about the state of the economy. In particular, two months of anemic job creation (+18,000 in June and a revised +25,000 in May) have us concerned that the “temporary” soft patch in Q1 will drag on. • We are concerned because leading indicators have softened since the beginning of the year, in spite of only 1.9% growth in 2011Q1. • In addition, a large question mark hanging over the recovery is whether Washington will raise the debt limit in time to avert financial havoc. The largest risk comes from the $500 billion of debt that is set to roll over in August. Because so much debt is tied to the rates that the Treasury pays (such as mortgages and corporate borrowing), if the debt ceiling question is not resolved and investors demand a larger risk premium, borrowing costs will increase throughout the economy. • Internationally, the ongoing debt crisis in Greece, Spain, Portugal and Ireland, and the risk that it will spread to Italy, the world’s 8th largest economy, is also concerning.

2. ECRI’s Weekly Leading Index • The Economic Cycle Research Institute (ECRI) tracks a basket of leading economic indicators through its Weekly Leading Index (WLI). The index upticked slightly to 127.6 for the week ending June 1st. • Nonetheless, the last three values of the index are the lowest it has been since December of 2010, indicating that the recovery has cooled. ECRI Weekly Leading Index Jun-11 Source: Economic Cycle Research Institute (ECRI)

3. PM Manufacturing Index – Manufacturing recovered slightly from slow May • As reported by the Institute for Supply Management (ISM), the Purchasing Manager’s Manufacturing Index rose slightly to 55.3% in June, indicating net acceleration in the manufacturing sector. Employment in manufacturing, as measured by the ISM Manufacturing Index, also rose slightly to 59.9%. • However, despite the upticks, the indexes remains low relative to the beginning of the year. • For both indexes, readings above 50% indicate growth in the manufacturing sector. So while this months results were a positive sign for manufacturing and the economy as a whole, manufacturing is still not the engine of recovery that it appeared to be at the beginning of the year. Purchasing Manager’s Manufacturing Index Source: Institute for Supply Management (ISM)

4. PM Non-Manufacturing Index declined slightly • The Purchasing Manager’s Non-Manufacturing Index (NMI) declined slightly to 53.3% in June, indicating slow net expansion in the services sector. However, despite this uptick, the index remains low relatively to the beginning of the year. • The past three monthly results in the non-manufacturing index have been the lowest since October. • The ISM’s non-manufacturing Employment Index (EI) ticked upward to 54.1% in June. Nonetheless, employment growth has been slow. Purchasing Manager’s Non-Manufacturing Index Source: Institute for Supply Management (ISM)

5. Initial unemployment claims slowly trending down • For the week ending June 11, initial unemployment claims declined to 420,000 and have been on a slow downward trend since peaking in 2009. • The four week moving average of initial unemployment claims rose slightly to 425,000. • Due to the poor June employment report and initial unemployment claims being above numbers consistent with a recovery, we expect unemployment to remain elevated for the foreseeable future. Initial Unemployment Claims (2001-2011) Source: U.S. Department of Labor

6. State Coincident Index: Recovery is slow, but well dispersed • The Federal Reserve Bank of Philadelphia releases a monthly index of economic activity for each of the 50 states, which is based on non-farm payroll employment, average hours worked in manufacturing, the unemployment rate and wage and salary disbursements deflated by the consumer price index. The index is designed to be comparable across states. • The trend for each state’s coincident index is set to the match the trend of its gross domestic product, so long-term growth in each state’s index matches long-term growth in its GDP. • In the last three months, the recovery has been slow but broadly shared. All but five states have seen increases in economic activity. The recovery has been strongest in the Midwest, and weakest in the Southeast.

7. State Leading Index: Where is growth projected to occur? • The Federal Reserve Bank of Philadelphia also produces an index which projects changes in the State Coincident Index. • In addition to past values of each state’s Coincident Index value, the index is based on four other variables which lead the state economy: state-level housing permits, state initial unemployment claims, delivery times from suppliers to manufacturers and the interest rate spread between 10-year Treasury bonds and 3-month treasury notes. It is designed to be comparable among states. • Ongoing growth is projected to be broadly shared, but comparatively more concentrated in the Midwest, and slower in the Southeast. • New Mexico is notable for being the state with the largest projected growth over the next six months.