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					Election-Year Economics

  A Look at the Pocketbook
  Issues of 2004

  C. Tannenbaum
  Chief Economist


                             LaSalle Bank
                             ABN AMRO
“It’s the economy,
stupid!”
-- Bill Clinton, 1992




                        LaSalle Bank
                        ABN AMRO
Trends in U.S. GDP
              Quarterly Change, Annualized
8%

6%
             “Potential”
4%

2%

0%

-2%
      2000       2001        2002        2003


                                             LaSalle Bank
                                             ABN AMRO
Year over Year Change in Retail Sales
Excluding Food and Autos
8%

7%
6%

5%

4%

3%

2%

1%

0%
 Jan-02   Jul-02   Jan-03   Jul-03          Jan-04
                                     LaSalle Bank
                                     ABN AMRO
Index of Industrial
Production
118
116
114
112
110
108
106
104
102
  Jan-99   Jan-00   Jan-01   Jan-02   Jan-03    Jan-04

                                           LaSalle Bank
                                           ABN AMRO
Key Concerns

   The Employment
    Puzzle




                     LaSalle Bank
                     ABN AMRO
Non-Farm Payrolls
Year-Over-Year Change


            4000

            3000

            2000
thousands




            1000

               0

            -1000

            -2000
                    1991   1993   1995   1997   1999   2001       2003


Source: BLS                                            LaSalle Bank
                                                       ABN AMRO
Unemployment and Labor
Force Participation
          Percent Rate
67.5                            7.0
                                6.5
67.0                            6.0
                                5.5   Participation Rate
66.5                            5.0
                                      Unemployment
                                4.5   Rate
66.0                            4.0
                                3.5
65.5                            3.0
   1995    1998      2001   2004

                                           LaSalle Bank
                                           ABN AMRO
 Consumer Confidence

170

150

130

110

90

70

50
January-99   January-00   January-01   January-02   January-03   January-04


                                                            LaSalle Bank
                                                            ABN AMRO
The $100 Million Question:


Why hasn’t hiring
picked up?

                    LaSalle Bank
                    ABN AMRO
Cost of Health Care Benefits
As a Percent of Total Hourly Compensation


 7.5%


 7.0%


 6.5%


 6.0%


 5.5%
     1998     1999   2000   2001   2002   2003


Source: BLS                               LaSalle Bank
                                          ABN AMRO
Hourly Wages for Selected
Occupations, U.S. vs. India
     $35
                     U.S.     India
     $30

     $25

     $20

     $15

     $10

       $5

       $0
            Telephone         Payroll      Paralegal Accountant Financial
             Operator          Clerk                             Analyst

Source: Bardhan and Kroll, Fisher Center for Real Estate
and Urban Economics, UC Berkeley                                  LaSalle Bank
                                                                  ABN AMRO
 Productivity
                       Output per Hour, Q-o-Q

  10%



   5%



   0%



  -5%
        1998   1999   2000      2001       2002    2003


Source: BEA                                       LaSalle Bank
                                                  ABN AMRO
    Initial Jobless Claims
                          550
thousands of applicants




                          500

                          450

                          400

                          350

                          300

                          250
                            2000   2001   2002   2003          2004

Source: BLS                                             LaSalle Bank
                                                        ABN AMRO
Key Concerns

   The Employment
    Puzzle
   Deepening Deficits


                    LaSalle Bank
                    ABN AMRO
      Deficit and Surpluses
      as Percent of GDP
4%

2%

0%

-2%

-4%

-6%

-8%
  1980   1984   1988   1992   1996   2000     2004     2008
                                            estimate estimate

Source: OMB                                        LaSalle Bank
                                                   ABN AMRO
The Boom is Coming
                          The Future of Social Security
                             Contribution Rate   Cost Rate

                     35

                     30
   (% of Payrolls)




                     25

                     20

                     15

                     10
                       03

                       05

                       07

                       09

                       11

                       15

                       25

                       35

                       45

                       55

                       65

                       75
                     20

                     20

                     20

                     20

                     20

                     20

                     20

                     20

                     20

                     20

                     20

                     20
Source: Social Security Trustees Report                      LaSalle Bank
                                                             ABN AMRO
Federal Government:
Outlays
                 National defense

                 International
                 Affairs
                 Health

                 Medicare

                 Income Security

                 Social Security

                 Interest

                 Other
                     LaSalle Bank
                      ABN AMRO
Yield Curve
U.S. Treasury Securities

                    Jan-01       Feb-04
6%



4%



2%
                             • Rates are at risk if the
                             deficit persists

0%
     3 Months   Two Years            Ten Years


                                            LaSalle Bank
                                            ABN AMRO
Housing: Still A Bright Spot

—   Sales and                                   U.S. Home Sales
    starts are                           9.0
                                                     Existing     New
    holding up



                     Millions of Units
                                         8.0
—   Mortgage rates
                                         7.0
    are still
    reasonable                           6.0
—   Carry over
                                         5.0
    spending to
    come                                 4.0
                                           Jan-01   Jan-02      Jan-03   Jan-04
                                                             LaSalle Bank
                                                             ABN AMRO
 S&P 500
1400
1300
1200
1100
1000
900
800
700
600
  Jan-01   Jul-01   Jan-02   Jul-02   Jan-03   Jul-03   Jan-04

                                                 LaSalle Bank
                                                 ABN AMRO
Sustaining Investment

   Diversification is
    Essential
   Reinforcing the Public
    Trust
   Maintaining a Balanced
    Tax Posture
                        LaSalle Bank
                        ABN AMRO
Key Concerns

   The Employment
    Puzzle
   Deepening Deficits
   How Free is Free
    Trade?
                    LaSalle Bank
                    ABN AMRO
                Our Trade Balance

                   0
                 (50)
                (100)
($$ Billions)




                (150)
                (200)
                (250)
                (300)
                (350)
                (400)
                (450)
                (500)
                     1980   1985   1990   1995      2000

                                                 LaSalle Bank
                                                 ABN AMRO
      Brother, Can You Spare the
      Dollar?
                                A weaker
       Dollars per Euro
                                 currency makes
1.3                              it easier to
1.2                              export
1.1                             One notable
1.0                              exception: China
  Jun- Aug- Oct- Dec- Feb-
   03   03   03   03   04       How long can
                                 this last?
                                         LaSalle Bank
                                         ABN AMRO
Thoughts on Trade

   Weak foreign economies limit
    demand for U.S. products
   Protectionist measures will lead
    to retaliation
   Who’s responsible for the shift of
    production and jobs? We are!

                              LaSalle Bank
                              ABN AMRO
The Scorecard

                     2002   2003E 2004E
 Real GDP Growth     2.4%   3.1%          4.7%
 Inflation (CPI)     1.6%   2.3%          1.4%
 Unemployment        5.9%   5.7%          5.5%
 Year-End Fed Rate   1.3%   1.0%          1.5%

                               LaSalle Bank
                               ABN AMRO
Closing Thoughts

•   The remainder of the year should
    see good economic performance
•   The risk of underachievement is
    rising
•   The election looks like a real horse
    race!

                                LaSalle Bank
                                ABN AMRO
“If the economy
doesn’t improve,
you’re fired!”
-- Carl Tannenbaum’s boss, 2004

                              LaSalle Bank
                              ABN AMRO
Election-Year Economics

  A Look at the Pocketbook
  Issues of 2004

  C. Tannenbaum
  Chief Economist


                             LaSalle Bank
                             ABN AMRO