U.S. & CenterState NY Economic Outlook. Gary D. Keith Regional Economist January 9, 2019

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1 U.. & Centertate NY conomic Outlook Gary D. Keith Regional conomist January 9, 2019

2 The Big Question For 2019: Where Are We in the conomic Cycle? Current Business Cycle tate Business Investment Housing Labor Market Consumer pending Inflation Interest Rates Late-cycle Late-cycle Mid-cycle Mid-cycle Mid-cycle Mid-cycle Positives: GDP growth remains above trend Household income and spending continue to rise Corporate profits remain high Negatives: Labor market is tightening Wage growth gradually accelerating Inflation nearing the Fed s 2% target Protectionist trade policies are dampening export demand 2019 M&T Bank, Member FDIC ource: Moody s Analytics 2

3 Labor Market trength Underpins 2019 Outlook U.. Private ector mployment Dec R C I O N Job Creation Remains Remarkably Consistent 2 million new jobs have been created annually since 2010, pushing employment 1 above the pre-recession peak 7.5 Private ector Job Openings Dec 7.0 Millions Help Wanted igns Are till Abundant Hiring plans set the stage for further income and spending growth in Oct 2019 M&T Bank, Member FDIC ource: U.. Bureau of Labor tatistics

4 olid conomic Momentum Heading Into % 6% 5% 4% 3% 2% 1% U.. Real Personal Consumption Growth R C I O N 2.9% Consumer pending Remains Robust With personal consumption representing 7 of GDP, strong performance in this sector puts a floor under economic growth -1% -2% -3% 3.3% average Jan 1990 to Dec % average July 2009 to Nov s 2000s 2010s 18 Nov U.. Leading Indicators Point to Further xpansion The index still points to solid 75 economic growth in early M&T Bank, Member FDIC ources: U.. Bureau of Labor tatistics, The Conference Board R C I O N The Conference Board U.. Leading conomic Index R C I O N Index: 2010= Nov

5 1 9% U.. Real Gross Domestic Product Growth 8% Growth hould Remain levated But With Plenty of Wildcards! 7% 6% 5% The economy is expected to grow at a solid pace in 2019 with potential headwinds from trade policy uncertainty, tightening labor supply and monetary policy direction 4% 3% 2% 3.8% 3.5% 2.9% 1.9% 2.6% 2.2% 1.6% 1.8% 2.5% 2.9% 1.6% 2.2% 2.9% 2.6% 1% -1% -2% -3% -0.1% -2.5% 3. annual average from FORCAT -4% M&T Bank, Member FDIC ources: U.. Bureau of conomic Analysis, Blue Chip Consensus Forecast 5

6 Growth in World Merchandise Trade 2 15% 1 5% Perhaps the Biggest Wildcard: Will Trade Flip to Drag From Driver? World merchandise trade growth has started to ease will trade policy uncertainty hurt U.. export activity 8.1% 3.4% -5% -1 World Merchandise Trade U.. Merchandise xports -15% J F M A M J J A O N D J F M A M J J A O N D J F M A M J J A O N D J F M A M J J A O N D J F M A M J J A O N D J F M A M J J A M&T Bank, Member FDIC ource: CPB World Trade Monitor Data are three-month moving averages 6

7 U.. Unemployment Rate 1 8% Wildcard #2 Where Will That Next New Hire Come From? Two-thirds of the U.. population were not even born the last time unemployment was this low (1969) R C I O N Oct % 4% 5. average Jan 1994 to Dec 2007 R C I O N 3.9% 2% Dec 2019 M&T Bank, Member FDIC ources: U.. Bureau of Labor tatistics 7

8 Interest Rate Forecast 9% 8% 7% 6% 5% Wildcard #3 Will Monetary Policy Continue to Tighten? The Fed expects to hike short-term rates two more times over the coming year, while moderating inflation concerns keep downward pressure on medium- and long-term rates Forecast 4% 3% 2% 1% M&T Bank, Member FDIC 10 Year LIBOR swap ources: Federal Reserve, M&T Bank forecast Federal Funds 3.09% 2.66% 8

9 How s the Centertate NY region performing?

10 25% 2 15% 1 5% Relative Change in Inflation-Adjusted GDP ince 2007 Centertate NY Real GDP Growth The tory Remains the ame: Less Bust But Also Less Boom After outperforming the U.. from , regional GDP growth has again fallen behind the national norm Centertate Metros* 18.9% All U.. Metro Areas 7.2% -5% * yracuse, Utica-Rome, Ithaca and Watertown metro areas est 2019 M&T Bank, Member FDIC ources: U.. Bureau of conomic Analysis, Moody s Analytics estimates 10

11 Relative Change in Inflation-Adjusted GDP ince 2007 Centertate NY Real GDP Growth Why the Difference? Limited Contribution From ervice ector Industries The region continues to lag in generating New conomy output sources 5% -5% Goods Producing GDP Centertate Metros 5.8% All U.. Metros 25% 2 15% 1 Private ervice Providing GDP Buffalo-Rochester-Albany All U.. Metros 21.6% 18.1% -1-15% -2 Buffalo-Rochester-Albany -11.5% -15.3% 5% Centertate 6.6% -25% -5% est est 2019 M&T Bank, Member FDIC ources: U.. Bureau of conomic Analysis, M&T Bank estimates 11

12 ds & Meds Provide olid conomic upport hare of Total Private Payroll arnings % Centertate Region 16. United tates ducation & Health Care Are Key Pillars of the Centertate conomy Regional employment and payroll income gains are well above the U.. average hare of Net Growth in Overall Private Payroll arnings ince % Centertate Region 16.4% United tates 2019 M&T Bank, Member FDIC ources: New York tate Department of Labor, U.. Bureau of Labor tatistics 12

13 But More Growth is Needed in Other ervice ectors hare of Total Private Payroll arnings % 63.9% Broadening the Base of High Value Added ervice ectors is ssential Regional employment and payroll income gains continue to trail the U.. average hare of Net Growth in Overall Private Payroll arnings ince % 66.9% Centertate Region United tates Private service providing industries excluding ducation & Health Care Centertate Region United tates 2019 M&T Bank, Member FDIC ources: New York tate Department of Labor, U.. Bureau of Labor tatistics 13

14 easonally Adjusted Centertate NY Unemployment Rate 1 9% 8% 7% United tates June But Labor tress is Declining. That s a Good Thing, Right? The regional jobless rate is down over five points since mid-2012 and November s 3.8% reading was the lowest on record 6% 5% 4% 3% 2% Centertate NY Cayuga, Cortland, Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, eneca, t. Lawrence & Tompkins counties Note: Centertate data seasonally adjusted by M&T Nov. 3.8% 3.7% 2019 M&T Bank, Member FDIC ources: U.. Bureau of Labor tatistics, NY Department of Labor 14

15 Relative Change ince January 2007 Centertate NY Labor Force 6% 4% 2% Cayuga, Cortland, Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, eneca, t. Lawrence & Tompkins counties 6.3% United tates -2% -4% -6% -8% -1 An Ominous Long-Term Trend hrinking Labor Pool Masks Jobless Rate Improvement The regional workforce is down 43,800 since the start of 2007 Centertate NY -6.1% -12% Nov M&T Bank, Member FDIC ources: U.. Bureau of Labor tatistics, NY Department of Labor 15

16 Year-Over-Year Percentage Change Centertate NY Resident mployment & Labor Force 4% 3% 2% 1% Recent igns Are ncouraging mployment Upswing is Drawing More People Into the Workforce The average number of Centertate residents in the regional workforce has grown by 2,800 over past year Resident mployment +3.2% +1.5% Labor Force -1% -2% -3% Cayuga, Cortland, Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, eneca, t. Lawrence & Tompkins counties J F M A M J J A O N D J F M A M J J A O N M&T Bank, Member FDIC ources: U.. Bureau of Labor tatistics, NY Department of Labor 16

17 Relative Change ince 2007 For Persons 25 to 64 Years Old Centertate Population by ducational Attainment The Workforce is Undergoing a ignificant Transformation The number of prime working age residents in the Centertate region with an Associate s degree or higher is up 10.8% since 2007, or roughly half the U.. average versus a 8.6% decline among individuals with less educational attainment 25% 2 15% 1 5% Associate s Degree or Higher Without College Degree +20. United tates +10.8% Centertate +29,441 persons M&T Bank, Member FDIC ource: U.. Census Bureau American Community urvey (Note: data not available for Cortland, Lewis and eneca counties) 17 4% 2% -2% -4% -6% -8% -1 United tates Centertate -36,265 persons -1.7% -8.6%

18 U.. & Centertate NY conomic Outlook Gary D. Keith Regional conomist January 9, 2019