Welcome to the CEO's monthly economic newsletter. The newsletter provides a basic narrative overview of recently published economic indicators for your reading pleasure. You should not rely on this information when making investment decisions, but rather seek professional advice from qualified investment brokers.

Last month was one of the more interesting months for those of you who like to follow what the Federal Reserve is up to. For those economists that had been critical of Fed Chairman Bernanke, they all seem to be seeing him a little differently after arranging the rescue of Bear Stearns. As you know, the Fed orchestrated the sale of Bear Stearns to JP Morgan. What has been perhaps most fascinating about the situation is how congressional leaders are trying to find fault with what he did, since Congress did not get to receive any of the credit. Somebody needs to tell them that, had they been involved, it never would have happened.

The US economy appears to be in a recession, although no one (including Bernanke) wants to say for sure. Hard to imagine not being in one, given the recent employment data. Jobless Claims have risen again, taking the four week average to 375,000 from 360,000 claims four weeks ago. Unemployment also jumped to 5.1% from 4.8%. Perhaps most important was the fact that non-farm payrolls went negative again to the tune of 80,000 jobs, following a month with a negative 76,000 non-farm payroll. These are not good numbers at all and will cause the Federal Open Market Committee to make additional rate cuts at April's FOMC meeting. While it may be a 50 point cut in the rate, we are probably going to see quarter percent rate cuts from this point forward.

Housing is still very soft and is expected to remain that way. Foreclosures are increasing around the nation, while Washington DC is trying to find a way to rescue the home owner. It is a noble gesture, but most of the sub-prime homeowners do not have the capacity to make payments even at their present low interest rates. Housing Starts, New Home Sales, and the Sales of Existing Homes did not change much over the prior month's data. Permits did decline by nearly 10%, which should be good for present and future inventory. Here in the Northwest the word is that Oregon has seen both a sales slowdown and price declines. In Washington State sales activity has slowed, but prices have not come down much.

The US manufacturing segment is clearly beginning to slow down. The Institute for Supply Management (ISM) reported their manufacturing index at 48.6, representing the 3rd time in 4 months the index has been below 50. The ISM for Services was also below 50 at 49.6 following 48.5 the prior month. Any number below 50 signals economic contraction, hence the recession is plausible. To further support this notion, Factory Orders were down again 1.3% in February, as were Durable Goods Sales (-1.7%).

The bright spot has been on the inflation front. Both Producer and Consumer Core Indexes were manageable on a combined basis. CPI was actually '0' in February. Not much risk of consumer prices going up if jobs are declining...coupled with fuel prices sucking up wage increases.

I wish we had a bit more good news to include in this month's Newsletter, but that's hard to do given all the negative numbers. Bernanke testified before the Congressional Banking Committee recently and indicated there are signs that we might see an improvement during the second half of the year. Two reasons for the optimism are, (1) the tax rebate and (2) the positive effects of the FOMC rate cuts that have occurred over the past two quarters. If the consumers do not spend, these two stimuli will not matter. Let's hope they do.

Dennis A. Long
Chief Executive Officer

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