November 2014 Solid October Jobs Report Boosts Workers Incomes real Baseline U.S. Economic Outlook, Summary Table*

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1 November 21 Executive Summary Solid October Jobs Report Boosts Workers Incomes October payroll jobs growth was a "soft" 21, jobs. Private-sector employment was up by 2, jobs, while state and local government jobs rose by 8, and Federal government jobs fell by,. September and August payroll job growth was revised by 1,. We expect this "soft" October payroll jobs gain will be revised up, as usual. The unemployment rate edged down to 5.8 percent in October. The number of people who reported having jobs in the household survey was up by a huge 8,, while the labor force rebounded by 1, as the labor force participation rate edged up to 2.8 percent in October from 2.7 percent in September. The U- unemployment rate (unemployed, under employed and too discouraged to even look for a job) fell sharply to 11.5 percent in October, its lowest since mid-28. Another positive from the household survey that the Fed Chair Yellen watches closely is that the number of people working part-time for economic reasons ("involuntary part timers") continued to decline by 7, in October and full time jobs rose by 551,. Thus, the majority of jobs added by private employers last month were full time, above average wage jobs which boosted workers' earned incomes. October payroll job gains were widespread across industries but average hourly earnings (AHE) were up by only.1 percent, and are up 2 percent from a year ago. But the Employment Cost Index (ECI) showed faster growth in workers compensation (wages and fringe benefits) in the second and third quarters, which we believe is a more accurate measure of worker compensation than the AHE. The average workweek rose to. hours in October. Combining more workers, higher average hourly wages and a longer average workweek (total hours worked rose by a strong.5 percent), workers' earned incomes rose by a solid. percent in October. The CPI was likely flat in October, including another drop in gasoline prices, so real incomes rose solidly last month, supporting solid growth in consumer spending this holiday season (see next page). Given PNC s baseline forecast of above-trend real GDP growth of close to percent in 2, payroll job gains will maintain their current pace of around 2, per month in the current quarter and in 2. The unemployment rate will continue its gradual decline, ending this year close to 5.7 percent and ending 2 at around 5. percent. Baseline U.S. Economic Outlook, Summary Table* 1Q'1a 2Q'1a Q'1p Q'1f 1Q'f 2Q'f Q'f Q'f 21a 21f 2f 21f Output & Prices Real GDP (Chained 2 Billions $ ) Percent Change Annualized CPI (182-8 = 1 ) Percent Change Annualized Labor Markets Payroll Jobs (Millions ) Percent Change Annualized Unemployment Rate (Percent ) Interest Rates (Percent) Federal Funds Treasury Note, 1-year a = actual f = forecast p = preliminary * Please see the Expanded Table for more forecast series.

2 Solid Payroll Job Growth in October; Upward Revision to August and September Monthly Change in Employment (-month MA, ths.) Establishment Survey Household Survey ' October Unemployment Rate Below %, But Fed Wants to See Stronger Wage Growth Unemployment rate, % (R) Insert chart here 1.5 Avg. hourly earnings, % change year ago (L) '5 ' '7 '8 ' ' Holiday Sales Poised to Be Strong but Not a Spending Spree This should be a very good holiday season (November and December combined) for consumer spending, with sales up.-.5 percent from the 21 holiday season. About -1.5 percentage points will come from higher prices and about percentage points from higher unit sales. This rise in holiday sales will be stronger than the.8 percent rise in 21 (from 2) but not revisit the spending spree holidays of 25 and 2. Buyers will get the best of sellers as price cuts and promotions will be the rule and not the exception. On-line holiday sales should be up by -1 percent from a year ago (compared to a 1 percent gain in on-line holiday sales in 21), bringing the total to near $52.5 billion. There are a number of positives for the upcoming holiday sales season. First, U.S. businesses have added almost 2, jobs per month thus far this year, adding up to nearly 2.7 million more Americans employed going into this holiday season. Consequently, the unemployment rate is down from 7. percent late last year to 5.8 percent in October, its lowest level in more than six years. Second, stock prices are up about 1 percent and house prices are up about 5 percent from this time last year, both of which are boosting household wealth. Third, the national average gasoline price in mid-november is $2.7 per gallon (and headed still lower) which is down by about 77 cents per gallon since peaking in early July, and down close to 5 cents per gallon from this time last year. Each one cent per gallon reduction in the national average price of gasoline (maintained for one year) reduces consumers' spending at the gas station by about $1.1 billion which can be both saved and spent on other items. This puts close to $ billion of extra bucks into holiday shoppers "pockets" this year compared to 21. And fourth, as a result of the improving job market, gains in asset prices, and lower gasoline prices, consumer confidence has been steadily improving, although it has still not recovered to pre-recession levels. In the interests of balance, there are also restraints that are preventing an even stronger jump in holiday sales this year. Most notably, workers' wage growth is still disappointing. Average hourly earnings are only up by 2. percent over the past year, just slightly ahead of inflation. The savings rate is increasing as consumers use some of the money they are saving from lower gasoline prices to rebuild their nest eggs. While house prices are increasing, they are still down by 11 percent from their peak in early 27, and stock gains have gone primarily to upperincome households. Credit remains tight, although it is loosening, and consumers continue to use their credit cards very carefully. In sum, the growth in holiday spending this year will be solid contributing to real GDP growth this quarter of close to. percent per annum. Looking ahead to 2, consumer spending should remain solid as the ongoing tightening in the labor market will finally start to put upward pressure on wages, boosting incomes and supporting additional consumer spending gains. Steady consumer spending along with stronger homebuilding and sales, stepped-up business investment, and faster state and local government spending will power real GDP growth near percent in 2, despite weakness in U.S. exports to our slow growing global trading partners. 2

3 After % Real GDP Growth in Third Quarter, Fourth-Quarter Growth Should Be Close to % Real GDP, annualized % change ' Industrial Production Bounces Back in September Industrial production, % change (L) Capacity -. utilization, % (R) -.8 '11 A J O ' A J O '1 A J O '1 A J Job Growth Now Broad-Based, With Construction Leading Employment, % change year ago Construction House Price Growth Continues to Slow to More Sustainable Long-Run Pace % change year ago Case-Shiller (2-city) Services, ex-gov Manufacturing FHFA purchase-only ' '1-21 '7 '8 ' '1 5,1,8,5,2,,, Recovery in Home Sales Is Ongoing But Disappointing Existing single-family home sales, annual rate, ths. (L) New single-family home sales, annual rate, ths. (R), '7 '8 ' ' Homebuilding Rebounds in September and is Headed Sill Higher 1,2 Seasonally adjusted annualized rate, ths. 1, Permits Starts Completions 1,1 1,5 1,

4 Inflation Is Slowing as Oil Price Collapses 7.5 % change year ago CPI PPI Core CPI Big Drop in Gasoline Prices Will Support Solid Holiday Spending Brent Crude Oil, $/BBL (L) Unleaded Gasoline, $/gal (R) 2 ' ' '5 ' '7 '8 ' ' % change Consumers Remain Cautious With Wage Growth Still Modest Real after-tax income Real pers. consumption expenditure -. J'11 A J O J' A J O J'1 A J O '1 A J Retail Sales Fell in September, But Should Recover in October Retail sales, % change Total Ex-auto Core - Auto Sales Up in October and Will Remain Strong 18 Auto and light truck sales (domestic & foreign) 17 Auto and light truck assemblies (domestic only) 1 Mil., annualized rate Household Economic Stress Gradually Building as House Price Growth Slows Note: PNC calculates HESI with the Case-Shiller 2- City Composite HPI Household Economic Stress Index, - HESI = U. Rate + CPI %chya HPI %chya - '7 '8 ' '1 Disclaimer: The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs.

5 PNC Economics Group November, 21 Baseline U.S. Economic Outlook, Expanded Table 1Q'1a 2Q'1a Q'1p Q'1f 1Q'f 2Q'f Q'f Q'f 21a 21f 2f 21f Output Nominal GDP (Billions $ ) Percent Change Annualized Real GDP (Chained 2 Billions $ ) Percent Change Annualized Pers. Consumption Expenditures Percent Change Annualized Nonresidential Fixed Investment Percent Change Annualized Residential Investment Percent Change Annualized Change in Private Inventories Net Exports Government Expenditures Percent Change Annualized Industrial Prod. Index (27 = 1 ) Percent Change Annualized Capacity Utilization (Percent ) Prices CPI (182-8 = 1 ) Percent Change Annualized Core CPI Index (182-8 = 1) Percent Change Annualized PCE Price Index (2 = 1 ) Percent Change Annualized Core PCE Price Index (2 = 1 ) Percent Change Annualized GDP Price Index (2 = 1 ) Percent Change Annualized Crude Oil, WTI ($/Barrel ) Labor Markets Payroll Jobs (Millions ) Percent Change Annualized Unemployment Rate (Percent ) Average Weekly Hours, Prod. Works Personal Income Average Hourly Earnings ($ ) Percent Change Annualized Real Disp. Income (2 Billions $ ) Percent Change Annualized Housing Housing Starts (Ths., Ann. Rate ) Ext. Home Sales (Ths., Ann Rate ) New SF Home Sales (Ths., Ann Rate ) Case/Shiller HPI (Jan. 2 = 1 ) Percent Change Year Ago Consumer Household Economic Stress Index Auto Sales (Millions ) Consumer Credit (Billions $ ) Percent Change Annualized Interest Rates (Percent) Prime Rate Federal Funds Month Treasury Bill Year Treasury Note Year Fixed Mortgage a = actual f = forecast p = preliminary Disclaimer: The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. 21 The PNC Financial Services Group, Inc. All rights reserved.

Baseline U.S. Economic Outlook, Summary Table*

Baseline U.S. Economic Outlook, Summary Table* December 18 Gus Faucher Stuart Hoffman William Adams Kurt Rankin Abbey Omodunbi Chief Economist Senior Economic Advisor Senior Economist Economist Economist Executive Summary Continued Solid Job Growth;