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TRALA 2009 Annual Meeting Economic and Markets Overview March 11, 2009

Key Points on Global Economy. Worldwide synchronized recession, likely to last into late 2009Vulnerability turned into a rout with Sept 7-13 Fannie-Lehman-ML-AIG2008q4 likely saw the biggest rate of decline, but 2009H1 will be difficult:U.S. consumer

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TRALA 2009 Annual Meeting Economic and Markets Overview March 11, 2009

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    1. TRALA 2009 Annual Meeting Economic and Markets Overview March 11, 2009 James P. Meil Vice President and Chief Economist

    2. Key Points on Global Economy Worldwide synchronized recession, likely to last into late 2009 Vulnerability turned into a rout with Sept 7-13 Fannie-Lehman-ML-AIG 2008q4 likely saw the biggest rate of decline, but 2009H1 will be difficult: U.S. consumer & business spending dropping; confidence, credit Europe falling domestic demand, exports; currency; slow-moving ECB Japan economy in distress – exports, currency, falling domestic demand World trade in steep decline – hurting every export-dependent economy Commodity bubble burst (Mideast, Canada, Russia, Australia) Flight to quality; risk aversion and de-leveraging Thinking the unthinkable – China’s economy flat in 2008q4 & 2009q1 Policy responses huge, but necessarily experimental (no rulebook) Key risks: Credit markets in distress (banking losses, opaqueness) No clear signs that the decline is coming to an end

    3. Stock Market – S & P 500

    5. U.S. GDP & Manufacturing IP Growth Rates

    6. U.S. Small Business Optimism Index

    7. U.S. Housing Starts Strongest starts since 1986, strongest SFM since 78 Strength reflects Low mortgage rates Income gains Household asset diversification Few signs of bubble outside of a few selected markets Inventories in tight supply 3.8 mos of unsold homes (avg of last decade, 4.8 mos) Forecast for year ahead – 1.63 million Strongest starts since 1986, strongest SFM since 78 Strength reflects Low mortgage rates Income gains Household asset diversification Few signs of bubble outside of a few selected markets Inventories in tight supply 3.8 mos of unsold homes (avg of last decade, 4.8 mos) Forecast for year ahead – 1.63 million

    8. 19m in August19m in August

    9. Manufacturing Industrial Production Indexes Non-durables and Durables Industries

    10. Global Macroeconomic Outlook GDP and Manufacturing Industrial Production

    11. U.S. Macroeconomic Outlook

    15. Fleet Utilization Utilization Rate = ______ Motor Freight_(work)_____ Class 8 Truck Population (capacity) or, as we measure it... ATA Truck Tonnage_(work)_____ Eaton Class 8 Estimated Pop (capacity)

    18.

    22. NAFTA Class 8 Trucks One year ago orders started escalating rapidly driven by pre buy to beat October 2002 EPA compliance Orders stayed at or above 20K thru May, once the production slots for pre-compliant engines were booked. 4 month lull – very early signs of pickup in the October, November, December readings One year ago orders started escalating rapidly driven by pre buy to beat October 2002 EPA compliance Orders stayed at or above 20K thru May, once the production slots for pre-compliant engines were booked. 4 month lull – very early signs of pickup in the October, November, December readings

    23. Down ~20% y/y, but still nothing like 2001Down ~20% y/y, but still nothing like 2001

    24. All over the world: Russia: 6,500, Nigeria: 6,400, Canada: 1,500, Viet Nam: 1,200, Panama: 1,000, South Africa: 900 All over the world: Russia: 6,500, Nigeria: 6,400, Canada: 1,500, Viet Nam: 1,200, Panama: 1,000, South Africa: 900

    28. Challenges on the Road Ahead

    29. The Nation’s Freight & Freight Bill

    31. Class 8 Trucks NAFTA Build Time Trend

    33. Powerful Policy Steps to Contain Financial Risk and Invigorate Markets OCTOBER 2008 TO FEBRUARY 2009 STEPS: 04-Mar ECB cuts rates to 1.5%, Bank of England to 0.5% both lowest in history 17-Feb U.S. $787B stimulus package signed by President Obama 05-Feb Bank of England lowers its rate another 50 bps to 1.00% 21-Jan Brazilian central bank cuts selic by 100 bps 15-Jan European Central Bank cuts its policy rate by 50 bps, to 2.00% 12-Jan Germany announces a €50B stimulus package 08-Jan Bank of England lowers its rate to 1.50%, the lowest in history 30-Dec Government offers bailout package to GM and Chrysler 16-Dec Federal Reserve cuts rates to between 0 and 0.25% 05-Dec Bank of England cuts rate by 100 bps to 2.0%, ECB cuts by 75 bps to 2.5% 26-Nov Bank of China cuts rates 1.08%, lowers reserve requirements 25-Nov U.S. FRB announces $800B in MBS buys & asset-backed loans aimed at consumers 09-Nov China authorities announce 4Tril Yuan stimulus package 06-Nov Bank of England drops rates 150 bps, ECB drops rates 50bp 29-Oct U.S. Fed reduces Fed Funds rate 50 basis points 14-Oct U.S. to buy preferred equity stakes ($125B) in 9 large banks 08-Oct U.K. Treasury supports 8 banks with Ł400bn lifeline 07-Oct Fed Commercial Paper Funding Facility (buy CP from eligible issuers), pays interest on reserves 06-Oct Ger, Ire, Swe, Den insure all bank deposits 03-Oct U.S. Congress passes EESA $700B (TARP, FDIC $250K limit) CENTRAL BANK MOVES SINCE SUMMER 2007: Cumulative easing (basis pts): 500 - 525 Fed, 250 ECB, 525 Bank of England, 350 Bank of China EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 What is a Term Auction Facility (TAF) http://www.federalreserve.gov/monetarypolicy/taffaq.htm#q1 EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 What is a Term Auction Facility (TAF) http://www.federalreserve.gov/monetarypolicy/taffaq.htm#q1

    34. The “Bell Curve” – Implications for Global GDP

    35. What signals the decline is easing? U.S. housing measures flatten New home sales, starts, and prices Global equity markets turn Financial risk metrics begin to normalize Bond spreads, TED spread, ABX index, VIX, non-zero 90 day T-bill yields Commodity prices stabilize or rise Global Purchasing Managers Indexes climb

    36. Key Take-Aways SHORT TERM ECONOMY NAFTA economy in the worst post-1945 recession Lots of actions in the pipeline, not a lot of results - yet Recovery in freight depends on financial sector – economy - manufacturing (and construction); energy is a wild card Rest of world worse off than USA/NAFTA, no help from overseas ____________________________________________________________ LONG TERM INDUSTRY Tailwinds of 1985-2000 are turning into headwinds (energy, equipment, labor demographics, government regulation) Trucking continues to be cost-effective for high-service, high product value transport needs . . .but some competitive advantage compared to alternatives has erode Obama plans – help or hurt?

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