D&B’s Economic Outlook—Mid Year Summer 2012

2

This mid-year economic update leverages D&B’s proprietary data and analytic insight to bring you our perspective on global business conditions.

Our commitment is to help you make the most informed business decisions.

While growth is top-of-mind at most businesses, D&B projects that the U.S. and global econo-mies will slog through the second half avoiding a replay of 2008–2009, but still short of the kind of growth surge we’re all looking forward to.

Growth is projected to remain subdued and uneven at less than 3%. The Euro Zone is expected to continue to slide into recession due to the ongo-ing crisis, but the contraction

may be offset by modest growth in the U.S. and an aggressive stimulus program in China.

We expect growth in the US of just over 2 percent and growth in China of just over 7 percent. The pace of growth is below trend, but D&B continues to believe that given structural imbalances in the two largest economies remain widespread, this pace of growth is what we should expect.

In the Euro Zone D&B continues to assume that the Euro Zone will stagger through the second half of the year as a mon-etary union. We continue to forecast that the Zone will eventually break apart through the exit of Greece (pos-sibly other southern economies) and this exit remains a significant risk to the global recovery. The likelihood of dissolution in 2012 remains modest due to the efforts of the ECB, IMF and EFSF, but given the fundamental flaws in the design dissolution is probable in 2013/2015.

In the United States On a positive note, D&B’s proprietary analysis on the health of U.S. and global businesses continues to provide

strong evidence that non-financial institutions are in better shape to weather any economic storm than they were in 2008. The last five years have been a period of re-structuring for many sectors and companies are leaner, meaner and more flexible.

Paul Ballew Dun & Bradstreet Chief Economist

BallewP@DNB.com

KEY OBSERVATIONS

• D&B’s revised economic outlook for 2012 and 2013 has been downgraded.

• The Global economy is still poised to avoid a secondary economic contraction, although fiscal issues could derail progress.

• The outlook for Europe remains troubling with the probability of a partial dissolution of the Euro in excess of 50%.

• Aggressive restructuring by the business sector is the rainbow emerging from the turbulence of the last five years.

Real GDP Growth (%): Advanced and Emerging Economies

2011 2012f 2013f

World 2.7 2.3 2.7

Advanced Economies 1.6 1.3 1.7

US 2.1 2.3 2.2

Euroland 1.5 -0.5 0.7

Japan -0.8 2.0 1.8

UK 0.7 0.4 1.0

Emerging Economies 5.4 5.0 5.5

Brazil 2.7 3.9 4.5

Russia 4.5 3.9 3.6

India 6.3 6.5 6.7

China 9.2 7.5 8.1

Note: Columns 2012 and 2013 (indicated with with a ‘f’ subscript) are forecasts.

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Our small business health index has improved by over 20 points since the trough. Key sectors like manufac-turing are at pre-recession lows for bankruptcies and delinquencies and even fragile sectors like housing are posting modest gains on key indicators.

These gains are especially notable in the world’s larg-est economy. U.S. failures and bankruptcies (Tables in Appendix 1) showed an alarming increase in both in 2010 compared to both 2006 and 2008. However, 2011 registers a decline in failures compared to 2008 and considerable declines in both failures and bankruptcies compared to 2010. The declining trend continues into the first quarter of 2012, where latest estimates by D&B shows a 17.49 percent decline in bankruptcies and a 29 percent decline in failures compared to March 2011. Further analysis shows that this decline in failures and bankruptcies between 2010 and 2011 holds in all major sectors of the U.S. economy. Firms of all size classes distributed by employee groups also show the decline between 2010 and 2011.

Real-time measures on the stress on businesses also indicate substantial improvement despite the tepid macro-economic backdrop. Based on D&B’s proprietary measure, the percent businesses 91 days delinquent (Tables in Appendix 1) also shows declines between April 2010–March 2011 and the same period of the fol-lowing year. As in the case of failures and bankruptcies, the drop in delinquent businesses is also perceived in firms of all size classes, as well as all major U.S. industry groups. Overall percent dollars 91 days past due have also dropped from 5.42 percent in March 2011 to 4.8 percent in March 2012—a decline of over 11 percent in the past year.

Housing

Even sectors at the epicentre of the economic contrac-tion are demonstrating improvement. The D&B Small Business Health Index for the two major components of the Housing industry, namely Construction and Real Estate, show a meandering upswing starting the first quarter of 2010, signifying revival of small businesses in both of the sub-sectors. The small businesses in the Real Estate sub-sector seem to have been hit harder com-pared to their counterparts in the Construction sub-sec-tor, but the former have also recovered at a faster pace.

Overall Failures and Bankruptcies: 2011 vs. 2012

Bankruptcies D&B Estimate of business failures

March 2011 53,651 89,968

March 2012 44,267 63,875

%YOY Change -17.49% -29.0%

40

60

80

100

120

Feb12

Apr12

Q311

Q410

Q110

Q209

Q308

Q407

Q107

Q206

Q305

Dec04

40

60

80

100

120

Feb12

Apr12

Q311

Q410

Q110

Q209

Q308

Q407

Q107

Q206

Q305

Dec04

Small Business Health Index: Construction (Dec 2004=100)

Small Business Health Index: Real Estate (Dec 2004=100)

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Manufacturing

A spotlight on the Manufacturing sector presents a more optimistic picture. The D&B Small Business Health Index for the Manufacturing industry has been on an upswing since January 2012, and stood at a high 90.61 in April 2012. Failures and bankruptcies show the post-2009 decline and have almost dropped to their 2006 levels. A comparison of the manufacturing sector with the rest of the economy in the light of year-on-year changes in failures and bankruptcies reveals that manufacturing was hit harder ,but has bounced back valiantly.

The D&B Small Business Health Index for the Manufacturing industry has been on an upswing since January 2012

Final Conclusions

With the business sector doing its part, the challenges for the U.S. and global recovery resides elsewhere. For 2012 and 2013 the primary threats to the global recovery continue to be on two fronts—a) in developed markets fiscal policy issues in the short and long term remain challenges that potential will not only derail the recovery but inhibit growth throughout the decade and b) in developing markets sectoral imbalances are near term challenges that complicate any efforts to imple-ment a stimulus package.

It’s a challenging back-end to the year. D&B expects a pattern very similar to what we experienced in 2010 and 2011. Lots of concern over a double-dip recession may persist, but at the end of the day the recovery is likely to continue to crawl, stagger, crawl.

40

60

80

100

120

Feb12

Apr12

Q311

Q410

Q110

Q209

Q308

Q407

Q107

Q206

Q305

Dec04

Small Business Health Index: Manufacturing (Dec 2004=100)

Source: D&B Proprietary Data

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Appendix 1: Overall U.S.

Overall Failures and Bankruptcies: 2006–2010

2006 2008 2010 2011

Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies

34190 21821 70663 42085 88122 54859 68932 46025

% YOY Change

2006 va. 2010 2008 vs. 2010 2008 vs. 2011 2010 vs. 2011

Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies Failures Bankruptcies

157.74% 151.40% 24.71% 30.35% -2.45% 9.36% 21.78% -16.10%

Failures by Major Industry: 2010–11

Industry Failures 2010 Failures 2011 Percent YOY Change: 2010 vs. 2011

Construction 11899 9565 -19.62%

Finance 3060 2147 -29.84%

Insurance 921 681 -26.06%

Manufacturing 3898 2811 -27.89%

Natural Resources 2811 2274 -19.10%

Business Services 20891 16437 -21.32%

Personal Services 15114 11981 -20.73%

Real Estate 4223 3166 -25.03%

Telecommunications 590 402 -31.86%

Transportation 3776 2755 -27.04%

Utilities 222 170 -23.42%

Wholesale Trade 3628 2967 -18.22%

Retail Trade 13349 9652 -27.69%

Overall 84382 65008 -22.96%

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Bankruptcies by Major Industry: 2010–11

Industry Failures 2010 Failures 2011 Percent YOY Change: 2010 vs. 2011

Construction 8350 6651 -20.35%

Finance 1308 1209 -7.57%

Insurance 395 358 -9.37%

Manufacturing 2205 1636 -25.80%

Natural Resources 2252 1844 -18.12%

Business Services 14508 12136 -16.35%

Personal Services 9751 8302 -14.86%

Real Estate 2815 2189 -22.24%

Telecommunications 222 170 -23.42%

Transportation 2619 1930 -26.31%

Utilities 131 111 -15.27%

Wholesale Trade 1602 1569 -2.06%

Retail Trade 7360 6020 -18.21%

Overall 53518 44125 -17.55%

Failures and Bankruptcies by Employee Groups: 2010–11

Employee Group

Failures 2010 Failures 2011 Percent YOY Change:2010 vs. 2011

Bankruptcies2010

Bankruptcies2011

Percent YOY Change:2010 vs. 2011

<10 80185 63231 -21.14% 50844 42827 -15.77%

10-49 6966 5158 -25.95% 3516 2985 -15.10%

50-99 1109 829 -25.25% 580 464 -20.00%

100-499 452 400 -11.50% 452 400 -11.50%

500-999 87 55 -36.78% 87 55 -36.78%

1000+ 112 84 -25.00% 112 84 -25.00%

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Delinquent Businesses by Major Industry: April 2010–March 2012

Apr10 to Mar11 Apr11 to Mar12

Industry Average % Businesses 91+ Days Delinquent

Average % Businesses 91+ Days Delinquent

Percent Change

Automotive 18.8% 17.5% -7.0%

Construction 18.7% 18.3% -2.1%

Financial Services 15.1% 13.0% -13.6%

Insurance 12.3% 10.9% -11.2%

Manufacturing 20.0% 18.1% -9.7%

Natural Resources 11.1% 11.1% -0.1%

Real Estate 11.1% 10.1% -8.3%

Retail 16.6% 14.8% -10.8%

Business Services 13.6% 12.2% -10.7%

Other Services 13.6% 12.2% -10.6%

Telecommunications 19.1% 15.9% -16.4%

Transportation 18.3% 16.9% -7.9%

Utilities 14.6% 13.5% -7.2%

Wholesale 18.0% 16.0% -11.1%

Overall 15.1% 13.6% -10.0%

Delinquent Businesses by Employee Groups: April 2010–March 2012

Apr10 to Mar11 Apr11 to Mar12

Industry Average % Businesses 91+ Days Delinquent

Average % Businesses 91+ Days Delinquent

Percent Change

1-49 14.3% 13.2% -7.9%

50-99 22.6% 20.8% -7.9%

100-249 29.3% 27.5% -6.3%

250-499 37.2% 35.3% -5.1%

500-999 44.8% 42.6% -5.0%

1000+ 53.9% 52.2% -3.2%

Overall 15.1% 13.6% -10.0%

1.0%

3.0%

5.0%

7.0%

Mar2012

Dec2011

Sep2011

Jun2011

Mar2011

Dec2010

Sep2010

Jun2010

Mar2010

Dec2009

Sep2009

Jun2009

Mar2009

Dec2008

Sep2008

Jun2008

Mar2008

Dec2007

Sep2007

Jun2007

Percent Dollars 91 Days Past Due

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Appendix 2: U.S. Sectors—Housing

0

10

20

30

40

Housing Starts (Thousand Units

2011201020092008200720060.1%

0.3%

0.5%

0.7%

0.9%

Total Housing: Failures

Total Housing: Bankruptcies

100

150

200

250

300

350

Average House Price Index:All States Excluding AZ, CA, FL, NV

Housing Price Index: Nevada

Housing Price Index: FloridaHousing Price Index: CaliforniaHousing Price Index: Arizona

2011201020092008200720064%

8%

12%

16%

20%

24%

Percent Dollars 91 Days Past Due: All States excluding AZ, CA, FL, NV

Percent Dollars 91 Days Past Due: NV

Percent Dollars 91 Days Past Due: FL

Percent Dollars 91 Days Past Due: CA

Percent Dollars 91 Days Past Due: AZ

Oct11

Jul11

Apr11

Jan11

Oct10

Jul10

Apr10

Jan10

7.0%

8.0%

9.0%

10.0%

11.0%

Establisment Closings: Contruction

Q3 11Q2 11Q1 11Q4 10Q3 10Q2 10Q1 106.0%

6.5%

7.0%

7.5%

8.0%

8.5%

Percent Dollars 91 Days Past Due: Construction

Source for Housing Starts: Haver Analytics, Regional Database D&B Proprietary Data on Failures and Bankruptcies

Source for State House Price Indices: FHFA (Federal Housing Finance Agency)D&B Proprietary Delinquency Data

Source for State House Price Indices: FHFA (Federal Housing Finance Agency)D&B Proprietary Delinquency Data

Source for Percent Establishment Closings: Bureau of Labor Statistics, Business Employment Dynamics DatabaseD&B Proprietary Delinquency Data

Percent Failures and Bankruptcies and Housing Starts

Annual House Price Indices (1991=100): The Troubled States

Delinquency in the Troubled States

Delinquency and Establishment Closings: Construction

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Appendix 3: U.S. Sectors—Manufacturing

-40%

0%

40%

80%

Failures (Non-Manufacturing): %YOY change

Failures (Manufacturing): %YOY change

20112010200920082007-40%

0%

40%

80%

Bankruptcies (Non-Manufacturing): %YOY change

Bankruptcies (Manufacturing): %YOY change

20112010200920082007

1.50%

2.50%

3.50%

4.50%

5.50%

Percent of Dollars 91 DPD: Manufacturing

Percent of Dollars 91 DPD: All industries excluding Manufacturing

Oct11

Jul11

Apr11

Jan11

Oct10

Jul10

Apr10

Jan10

Source for Manufacturing Value of Shipments and New Orders: U.S. Census Bureau Economic Indicators, Manufacturing and Trade Inventories and Sales database D&B Proprietary Data on Failures and Bankruptcies

Source: D&B Proprietary Business Failure and Bankruptcy Data

Source: D&B Proprietary Delinquency Data

Source: D&B Proprietary Business Failure and Bankruptcy Data

Percent Failures and Bankruptcies: Manufacturing

Business Failures: Manufacturing vs. Non-ManufacturingBusiness Bankruptcies: Manufacturing vs. Non-Manufacturing

Delinquency: Manufacturing vs. Non-Manufacturing

$250,000

$350,000

$450,000

$550,000

Manufacturing New Orders ($M)

Manufacturing Value of Shipments ($M)

Q4 2011Q4 2010Q4 2009Q4 2008Q4 20070.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Percent Failures (Manufacturing)

0.1

0.3

0.5

0.7

0.9

Percent Bankruptcies (Manufacturing)

Q4 2011Q4 2010Q4 2009Q4 2008Q4 2007

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Appendix 2: U.S. Sectors—Manufacturing

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Non-Financial CorporationsNon-farm Business

BusinessManufacturing

20112010200920082007

Source for Labor Productivity (Output per Hour) Index (2005=100) Manufacturing vs. Other Sectors: U.S. Bureau of Labor Statistics, Labor Productivity and Costs Database

Change in Labor Productivity: Manufacturing vs. Non-Manufacturing