Economic Demand Side Analysis

Consumer less vulnerable -show hints of ciscipline -FR's household financial obligation ratio (FOR) mover lower in 1Q 2007 -Ratio of total household debt to personal disposable income (PDI) lower in 1Q 2007 -strong real income gains related to the job market are buoying consumer spending growth -however, consumers remain over levered Corporations more vulnerable - move in opposite direction -Debt-to-EBITDA and EBITDA-to-interest weakened -combined with sharply slower profit growth, increasing LBO and shareholder friendly management initiatives, rich valuations, and weakening credit metrics, the recent sharp rise in corporate debt growth argue that risks to credit fundamentals and market returns are skewed to the downside going forward.