THE BUSINESS CYCLE IS DIFFERENT THAN THE ECONOMIC CYCLE

Nominal GDP (economic growth): 1950-2009

18%
16%
14%
12%
Annual Growth Rate

avg. 6.9%
10%
8%
6%
4%
2%
0%
-2%1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
-4%

S&P 500 EPS (earnings growth): 1950-2009

50%
40%
avg. 5.2%
30%
Annual Growth Rate

20%
10%
0%
-10%
-20%
-30%
-40%
-50%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

EARNINGS DECLINES DURING YEARS WITH ECONOMIC GROWTH: 1950-2009

20%

15%

10%
Annual Growth Rate

5%

0%

-5%

-10%

-15%

-20%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

LAST 19 YEARS WHEN EPS DECLINED, DESPITE GROWTH IN THE ECONOMY

1956 1957 1958 1960 1961 1967 1970 1975 1980 1982 1985 1986 1989 1990 1991 1998 2001 2007 2008
GDP-N 5.5% 5.4% 1.4% 3.9% 3.5% 5.7% 5.5% 8.9% 8.9% 4.1% 7.1% 5.7% 7.5% 5.8% 3.3% 5.5% 3.4% 5.1% 2.6%
EPS -5.8% -1.2% -14.2% -3.5% -2.4% -4.0% -11.2% -10.5% -0.3% -17.7% -12.2% -0.9% -3.6% -6.8% -25.2% -5.1% -50.6% -18.8% -77.5%

 Of the 60 years since 1950, every year except 2009 experienced positive nominal growth in the economy (including inflation)
 Since 1950, eight years (13%) had declines in real economic growth (excluding inflation); essentially recession years
 21 of the years (35%!) experienced declines in earnings from the S&P 500 companies

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