Cover, Applied Analysis National Industry Rankings

January 2012

The nation continues to slowly recover from the latest economic downturn. While many economic indicators continue to report mixed trends, employment made some encouraging progress in 2011. In December alone, national employment increased by 200,000 jobs month-over-month, while employment for the year increased by 1.6 million jobs. The transportation and warehousing industry reported the largest gain in employment during the month, with an increase of 50,000 jobs, though many of these were seasonal in nature (e.g., couriers and messengers). Gains were also reported in retail trade (+28,000), leisure and hospitality (+24,000), manufacturing (+23,000), health care (+23,000) and mining (+7,000). Meanwhile, average weekly hours for all employees increased 0.1 hour to 34.4 hours, while average hourly earnings increased 0.2 percent to $23.24.

During the fourth quarter of 2011, mining and logging maintained its position as the best performing industry in terms of both year-over-year average weekly earnings growth (+10.6 percent) and year-over-year weekly hours growth (+6.9 percent). Although construction was still the second-best performing industry in terms of year-over-year weekly hours growth (+1.3 percent), annual earnings growth reported by the industry was not enough to make it one of the five best performing sectors for the fourth quarter. Instead, financial activities took the second place spot with earnings growth of 3.9 percent. Other top performers in terms of earnings growth included education and health services (+3.4 percent) and nondurable goods (+2.9 percent), while leisure and hospitality (+2.0 percent), information (+2.0 percent) and professional and business services (+0.9 percent) were among the lower performing industries of the quarter. Meanwhile, durable goods (+1.2 percent) and financial activities (+0.8 percent) were among the other top performers for year-over-year weekly hours growth, while information (-0.8 percent), professional and business services (-0.3 percent) and private service producing (+0.3 percent) were among the under performers. As was noted in the third quarter of 2011, no industry reported declines in average weekly earnings compared to the prior year, and no industry reported a decline of more than 1.0 percent in terms of hours worked.

In the equities' markets, glimmers of hope surrounding a rebound in the new housing market fueled increases in the home construction index. It was the best performing sector in the fourth quarter of 2011, increasing 33.0 percent during the three-month period. Tires and pipelines were close behind with increases of 29.9 percent and 29.7 percent, respectively. The aluminum index was the biggest under-performer of the quarter, with a reported decline of 7.5 percent. Toys and coal were second and third with declines of 5.8 percent and 5.3 percent, respectively. The top three performing sectors in terms of year-over-year growth included pipelines (+51.0 percent), industrial suppliers (+38.3 percent) and tobacco (+30.5 percent).

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December 2011

Wage and hour improvements in mining, logging and construction sectors continue to outpace the broader market

Measures of labor force strength varied among the major national industry sectors by the close of the third quarter of 2011. With the unemployment rate unchanged at 9.1 percent, little job growth occurred during the three month period. In September, employment increased by a modest 103,000 jobs, with the largest increases sourced to growth in the professional and business services sector, which added 48,000 jobs; and education and health services, up 45,000 jobs month-over-month. In contrast, the manufacturing, financial activities and leisure and hospitality sectors reported a combined loss of 25,000 jobs during the month. More than two years into the economic "recovery," ups and downs in employment levels continue to seem reciprocal in nature. On a macroeconomic level, expectations for noticeable improvement in the unemployment rate have seemed to shift in recent months from unrealistic hopes for some sort of game-changing catalyst to more realistic visions of sustainable, long-term organic growth.

Although the mining and construction sectors did not report significant job growth in September, they maintained their positions as the first and second strongest-performing industries by measures of average weekly earnings and hours worked during the third quarter of 2011. According to the Bureau of Labor Statistics (BLS), these industries reported the largest growth year-over-year in average weekly earnings (+7.1 percent and +6.0 percent, respectively) and average weekly hours worked (+4.7 percent and +3.6 percent, respectively). The goods-producing and trade, transport and utilities industries were also included among the top five year-over-year performers in terms of both average weekly earnings growth (+3.9 percent and +2.9 percent, respectively) and average weekly hours worked (+2.0 percent and +0.9 percent, respectively). Notably, no industry sector reported declines in year-over-year average weekly earnings. Although declines were reported in terms of year-over-year average weekly hours, they were all less than 1.0 percent.

In the equities markets, only gold mining (+12.5 percent) reported positive gains during the quarter, while multi-utilities reported no change and computer services declined 1.4 percent. Real estate services and coal were the top two under-performing indices during the third quarter, down 43.4 percent and 42.2 percent, respectively. The pipelines index reported the largest gain since last year, up 33.1 percent, while clothing and accessories was not far behind with a 30.2-percent increase. Meanwhile, airlines declined 31.8 percent when compared to last year, while mortgage finance fell 31.1 percent.

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August 2011

Mining, Construction Sectors Continue to Report Growth

The end of the second quarter of 2011 marked the second year since the recession officially ended. However, economic recovery continues to move at an extremely slow pace, with many of the major economic indicators showing mixed trends. Consumer confidence started a downward trend in the second quarter, falling from 66.0 in April to 58.5 in June. A number of reasons exist that may explain why consumers' faith declined in the latest month. Prices are continuing to rise, with the Consumer Price Index reporting an increase from 218 in June 2010 to 226 in June 2011 (+3.6 percent). The year-over-year CPI increase was mainly attributable to the 20.1-percent increase in the energy index, including a 35.6-percent increase in gasoline and a 37.3-percent increase in fuel oil. In addition, the seasonally adjusted unemployment rate rose steadily throughout the second quarter, rising from 8.8 percent in March to 9.2 percent in June. However, in seven of the last ten years, unemployment rates have increased slightly over the same three month period. In addition, in five of the seven years, there was an increase in the number of people in the labor force from March to June, including the current year. The increase in the labor force contributed to the rise in the unemployment rate, as people graduating from college and students out of school for the summer began looking for jobs.

Lagging indicators, such as average weekly hours worked and weekly earnings, improved slightly in the second quarter of 2011. According to the Bureau of Labor Statistics (BLS), mining and logging and construction came in first and second as the strongest-performing sectors, with year-over-year increases in both average weekly earnings (+8.2 percent and +4.4 percent, respectively) and average weekly hours (+5.8 percent and +2.3 percent, respectively). Other top performers in terms of year-over-year earnings growth included the goods producing; trade, transportation, and utilities; and manufacturing sectors; with each reporting increases of over 2.5 percent. Meanwhile, in terms of weekly hours, reported year-over-year growth for the other top performers was insignificant, reaching only 1.8 percent for the third-best performing sector, trade, transportation and utilities. In the equities' market, clothing and accessories (+15 percent), footwear (+14 percent) and restaurants and bars (+12 percent) were the top three performers during the quarter. As with the first quarter of the year, travel and tourism reported the greatest growth when compared to last year, with a remarkable 142-percent increase. Growth in the real estate services, clothing and accessories, pipelines and auto parts indices was dramatic as well, with increases of 70 percent or better. Platinum and precious metals remained the top under-performer for the quarter, falling 18 percent over the three month span.

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March 2011

Economic recovery slowed considerably in the first quarter of 2011. Although gross domestic product (GDP) continued to show a rise in annual growth rate, quarterly improvement was substantially less than in the previous period. For the first quarter of 2011, GDP increased at an annual rate of 1.8 percent. This is a significant slowdown when compared with the 3.1 percent rate posted in the fourth quarter of 2010. Slowing growth was not unexpected as increased oil prices, inflation worries, and continued weakness in the housing market combined to moderate performance expectations for the latest quarter. Also contributing to the deceleration was an upturn in imports and a decline in federal government spending. In spite of these pressures, positive contributions from personal consumption expenditures, private inventory investment, exports and nonresidential fixed investment resulted in an increase in real GDP during the quarter.

In the meantime, lagging indicators such as average weekly hours worked and weekly earnings continued to improve in the first quarter of 2011. As reported by the Bureau of Labor Statistics (BLS), mining and logging was the strongest-performing sector with year-over-year increases in both average weekly wages (+7.3 percent) and average hours worked (+5.0 percent). In terms of year-over-year earnings growth, durable goods came in second with an increase of 4.1 percent, while other top performers; including the manufacturing, goods producing and trade sectors; showed increases between 3.0 and 4.0 percent. Meanwhile, none of the top performers showed as significant an increase in year-over-year average hourly growth as mining and logging, with the next-highest sector, construction, only showing 1.9-percent growth. Among the underperforming sectors, no industry reported a decline in average wages, but reported growth fell short of keeping up with inflation (which stood at 2.7 percent as of March). Of the two lowest performers, leisure and hospitality reported the lowest year-over-year wage growth at 0.3 percent, while the information sector rose 1.8 percent. In terms of year-over-year change in average hours worked, leisure and hospitality reported a decline of 0.4 percent, while the information sector fell 0.6 percent.

Top performers in the equities' market during the first quarter of the year included real estate services (up 31 percent over the three month period), pipelines (up 25 percent) and tires (up 22 percent). Over the past year, travel and tourism was the top performer, showing a dramatic increase of 65 percent. Indices for commercial vehicles and trucks, platinum and precious metals, and real estate services also showed year-over-year increases of over 50 percent. However, even though it reported strong growth over the past year, the platinum and precious metals sector was the top under-performer for the quarter, falling over 20 percent during the three month span.

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December 2010

During the first full quarter since the National Bureau of Economic Research (NBER) made the announcement that the recession had ended, and, in fact, had been over since June 2009, the national economy continued to grow. Advance estimates released by the Bureau of Economic Analysis (BEA) indicated that real gross domestic product (GDP) increased at an annual rate of 3.2 percent in the fourth quarter of 2010 (compared to the previous quarter), following an increase of 2.6 percent in the third quarter. According to the BEA, the latest quarterly acceleration is attributed to improvements in personal consumption expenditures, exports and nonresidential fixed investments; additionally, imports, which are a subtraction to GDP, decreased. The decline in imports is likely due to the decline in the pace of inventory building, which also affected private inventory investment during the quarter. Sentiments in the corporate world also improved in the fourth quarter, as the measure of chief executive officer (CEO) confidence reported by the Conference Board (the same firm that publishes the Consumer Confidence Index) bounced back in the final quarter of 2010 to 62 after declining in the third quarter to 50. The Board notes that any reading of more than 50 points reflects more positive than negative responses.

Lagging indicators such as average weekly hours worked and weekly earnings continue to reflect the modest growth witnessed in the national economy. Of the 14 major industries tracked by the Bureau of Labor Statistics (BLS), the construction sector reported the largest year-over-year increase in both hours (4.3 percent) and wage growth (7.1 percent) for the final month of the quarter as compared to the same month in the prior year, followed closely by the mining and logging sector, which reported a 3.2-percent increase in hours worked and a 5.1-percent increase in average weekly wages paid. Under-performing categories included the information sector and leisure and hospitality, both of which reported a year-over-year decline in average hours worked, or changes of -0.8 percent and -0.4 percent, respectively. In terms of average wages, information workers reported an increase of 1.5 percent, while leisure and hospitality workers experienced no changes in wages. Across all sectors, year-over-year wage growth for the month of December averaged 3.1 percent; hours worked increased by 1.3 percent.

In the equities markets, sectors that have been slower to rebound since the dramatic decline in late 2008 have emerged as the best-performing sectors in recent months, partly by default as they were among those that fell the farthest and therefore had considerable upside remaining if returning even to a fraction of where they previously traded. Such sectors include gambling, which is up 65.6 percent compared to one year ago, the related travel and tourism sector (up 60.5 percent) and automobiles (up 56.7 percent). Over the fourth quarter, the platinum and precious metals, coal, automobiles and business training and employment agencies indices all increased more than 30 percent.

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September 2010

In the last weeks of the third quarter of 2010, the National Bureau of Economic Research (NBER) made the long-awaited announcement that a trough in business activity occurred in the U.S. economy in June 2009. The NBER reminded everyone in its September 20, 2010 release that in determining the timing of the trough, the committee "did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity." The declaration simply means that the recession ended due to the length and strength of recovery conditions since that date. Importantly, any future downturn of the economy will be a new recession and not a continuation of the Great Recession that officially began in December 2007. Still, the latest 18-month recession is the longest of any recession since World War II.

Thus, this quarter is the first since publication of this briefing series began in which year-over-year comparisons are outside of recessionary periods. With that in mind, it seems significant that workers in almost every major sector of the economy experienced an increase in earnings in September 2010 compared to the same month in the prior year. The only sector that did not report earnings growth was leisure and hospitality, which reported a decline of 0.4 percent. The construction sector reported the largest increase (8.1-percent), followed by mining and logging (6.3-percent), goods-producing (5.8-percent), manufacturing (4.7-percent) and durable goods (4.6-percent). Expansion in the global economy and recovery in world trade are contributing to rising levels of U.S. exports, thus boosting manufacturing and production sectors of the economy. Likewise, stock indices relating to platinum and precious metals, nonferrous metals and aluminum have all performed well in recent months. Domestically, long-term damage to household wealth caused by weakened equity and housing markets, along with elevated unemployment and the loss of nearly 8.5-million jobs nationwide since 2008 have caused consumer confidence to remain relatively low. Increased consumer spending, along with gains in income and improving credit conditions are expected to result in economic growth over the next several quarters. Although travel and tourism as well as gambling equity indices have recently performed well, some of this is sourced to strong performances in companies' overseas holdings. The leisure and hospitality sector is significantly underperforming relative to other sectors of the economy in terms of earnings.

The construction sector reported the largest year-over-year increase in hours growth (5.5-percent), followed by goods-producing (3.8-percent), nondurable goods (3.2-percent), durable goods (3.2-percent) and manufacturing (3.2-percent). Service-providing industries such as financial activities, education and health services, and private service-providing sectors remain negative to stable in terms of hours worked compared to the same month in the prior year. Continued improvement in consumer discretionary spending on both goods and services will be key to perpetuating an economic recovery.

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June 2010

Over the past several quarters, it seems nearly every sector has taken its turn as the star-performer over the past month, the past quarter, or the past year. During the most recent period, the "unpopular kids," so to speak, took their turn. The tobacco sector rose to the top of the best-performing stocks list over the last month of the quarter, rising 8.0-percent with several large players posting better than expected profits. Faced with declining cigarette consumption, tobacco companies are raising prices as well as investing in cigarette alternatives, a strategy that appears to be working for the time being. Mortgage real estate investment trusts (REITs), complicated investment vehicles that tend to do well in periods of falling interest rates and poorly during periods of rising interest rates, experienced a recent run-up as well, at least compared to the rest of the market. Mortgage REITs may be unpopular as far as sentiment goes with the general public, as those that held higher-risk residential mortgage-backed securities effectively started the financial collapse, but many investors likely see promise in the newer REITs that bought up bonds for half their face value when the majority of investors couldn't get rid of them fast enough. However, excess housing inventory nationwide, fear of a double dip in the residential market as well as continued interest rate-related uncertainty suggest the sector will likely be subject to continued volatility. The Dow Jones mortgage REIT industry index rose 2.6 percent over the latest quarter amidst strong annual dividend rates (upwards of 15 percent), one of only four sectors to gain rather than lose ground, with one of those other sectors being residential REITs.

Standing at the mid-point of 2010, every single major sector of the U.S. economy is trading higher than it was one-year prior. Few points in history exist when this condition holds true. However, dizzying quarter-over-quarter growth has abated, and the stock market seems to have climbed aboard a moderately hilly roller-coaster.

During the second quarter, year-over-year wage growth was reported for all sectors of the economy, with increases in the mining and logging, durable goods and manufacturing sectors exceeding five percent. Growth in hours worked compared to the same period in the prior year was also reported by the majority of sectors, with the exception of the information, financial activities and education and health services sectors, which reported no growth. Hours growth is perhaps more significant to an economy searching for signs of improvement, as it is not impacted by cost-of-living or contractual increases; rather, it typically signifies increased demand for products and services. As individual workers move closer to full-capacity schedules, the hiring of additional workers begins; these trends combine to reduce both the under-employment and unemployment rates. With the official end of the current recession yet to be declared, it will be interesting to watch whether these data continue to trend upwards.

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March 2010

The basic stages of an economic recovery can be fairly predictable in terms of how the major sectors are impacted. During the downturn, the nondurable goods sector performs steadily as consumers cut most expenditures from their budgets barring food and rent or the mortgage. As the downturn progresses, activity in the fi nancial services sector increases as foreclosures, short sales, debt-collection, and related bank activity rises (some of this being positive, including lending or other work-outs), as witnessed during the latter half of 2009. After hitting bottom, consumer confi dence begins to rebound and businesses begin hiring temporary help, thereby allowing business training fi rms and employment agencies an opportunity to out-perform, a trend that began to emerge during the last few months of 2009. As consumer and business purchases slowly increase as longheld inventory fi nally begins to deplete, manufacturing orders begin to rise, and the durable goods sector of the economy begins to see some activity, also witnessed during Q1 2010. As predicted by many in Q4 2009, a resurgence in the manufacturing sector, partly evidenced by increases in aluminum-specifi c stocks, has come to pass. Currently, the best-performing sectors in terms of rising employee wages and hours worked are the durable goods, manufacturing and goods-producing sectors.

After consumers replace the big ticket items that they have been holding onto until more stable economic times, such as consumer electronics (currently the top performing sector in the stock market) and automobiles (also in the top fi ve performing sectors in the stock market) they begin to look forward to even more discretionary spending, such as vacations. This brings us to the most recent sectors to surge into the list of high-performing stocks: hotels and gambling. It appears those investing in the equities market, at least, are predicting some level of growth in the leisure and hospitality sector this spring and summer, as consumers relax the hold they've had on their wallets over the past two years. Part of the surge may be due to the fact that the sector simply had nowhere to go but up, and a rise from $5 per share to $10 per share is an increase of 100 percent, but it is a positive sign all the same.

Moving forward, if recovery continues to progress, luxury or other discretionary-spend dependent stocks may begin to perform relatively stronger (e.g. yachts, jewelry, high-end furniture, gifts or recreational products) along with manufacturing indexes that go along with increased demand in these areas. The airline sector, which has been doing relatively well lately, should benefi t from upticks in travel by both consumers planning long-overdue vacations and businesses that begin to relax travel policies as conditions improve. Those in the convention business have been optimistic in recent months that forward-bookings for conventions are indeed on the rise. In the long-term, the housing sector will be a key sector to watch as much of the nation's economic troubles are linked to this sector and its rebound will be critical to a broad and sustainable recovery.

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