Baseline U.S. Economic Outlook, Summary Table*

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January 19 Gus Faucher Stuart Hoffman William Adams Kurt Rankin Abbey Omodunbi Chief Economist Senior Economic Advisor Senior Economist Economist Economist Executive Summary Great December Jobs

1 January 19 Gus Faucher Stuart Hoffman William Adams Kurt Rankin Abbey Omodunbi Chief Economist Senior Economic Advisor Senior Economist Economist Economist Executive Summary Great December Jobs Report; Shutdown Will Delay Data Releases The U.S. economy added 1, jobs in December, the biggest gain since February. December job growth was well above the consensus expectation of 18,. The private sector added 1, jobs in December, with government employment up by 11,. There were combined upward revisions to job growth in November and December of 58,. Job growth averaged, per month in 18, up from 18, in 17. The unemployment rate rose. percentage point in December to.9 percent; even with the increase, the unemployment rate is still close to the lowest it has been in the past five decades. The increase in the unemployment rate came primarily from a larger workforce; the labor force increased by 19,. As a result the labor force participation rate rose to.1 percent from.9 percent in November; this is the highest the labor force participation rate has been in more than one year. Despite recession talk in the wake of lower stock prices, the industrial sector held up well at the end of 18. Industrial production rose. percent in December, the seventh consecutive monthly increase, and was up. percent from one year earlier. Manufacturing production rose 1.1 percent in December, the biggest monthly gain since February, led by a.7 percent increase for motor vehicles and parts. Manufacturing production was up. percent in December on a year-over-year basis. Mining production rose percent in December, as domestic energy production continues to recover after a decline in 15 and 1. The capacity utilization rate in manufacturing jumped.7 percentage point in December to 7.5 percent, but remains well below its long-run average. Tightening capacity in the industrial sector will support business investment in 19. The five-week government shutdown that ended on January 5 has delayed the release of some economic data. Some government offices remained open in particular, the Labor Department continued to report data on jobs, the unemployment rate, initial claims for unemployment insurance, and inflation. But the Commerce Department was closed, delaying releases on retail sales, exports and imports, housing, consumer income and spending, and GDP, and it will take Commerce time to catch up with its regularly scheduled data releases. This will make it more difficult to gauge what is going on in the U.S. economy in early 19. Baseline U.S. Economic Outlook, Summary Table* 1Q'18a Q'18a Q'18p Q'18f 1Q'19f Q'19f Q'19f Q'19f 17a 18f 19f f Output & Prices Real GDP (Chained 1 Billions $ ) Percent Change Annualized CPI (198-8 = 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 5 A Great Jobs Report to End 18 Establishment Survey Household Survey 5 Fourth Quarter GDP Report Will Be Delayed Because of the Shutdown Real GDP, annualized % change Monthly Change in Employment (-month MA, ths.) - '1 '1 '15 '1 '17 ' '1 '15 '1 '17 '18 With Solid Fundamentals, Continued Economic Growth in 19 Despite Extended Government Shutdown Although the U.S. economy got off to a bad start this year with much of the federal government closed for the first four weeks of January, the current expansion should last throughout 19. The economic fundamentals remain solid, especially for consumer spending and business investment. Growth will slow over the course of this year, however. And with the current economic expansion the second-longest in U.S. history, at more than nine years old, risks to the downside are increasing. According to the Congressional Budget Office, the partial government shutdown caused a small hit to economic growth in the fourth quarter of 18, when the government was shut down for one week, and a larger drag in the first quarter of 19, when the government was shut down for almost four weeks. Annualized economic growth was lower by about. percentage point in the fourth quarter, according to the CBO, and by about. percentage point in the first quarter. The losses came from reduced services provided by federal government workers, reduced federal purchases of goods and services, and temporarily lower demand from the private sector. Thus PNC s January forecast, which was prepared before the extent of the shutdown was known, is too optimistic for the first quarter. The CBO then projects that economic growth will rebound to be 1. percentage point faster in the second quarter than expected before the shutdown. Overall, the CBO estimates that the shutdown has resulted in an initial loss of output of $11 billion, but $8 billion of that will be made up in the near term. Thus the permanent loss to the economy will be $ billion in 19, or just. percent of gross domestic product for the year. Thus the impact of the shutdown on the economy will be limited, and the expansion will continue this year. With solid fundamentals consumers will lead economic growth. Job gains averaged better than, per month in 18, and with the tight labor market wage growth is accelerating. Consumer balance sheets are also in excellent shape. Business investment will be another positive for growth in 19. Corporations are flush with cash, especially after the corporate income tax cut passed at the end of 17. The tight labor market will spur businesses to invest to make their workers more productive. Although the economy took a temporary hit from the shutdown, overall federal fiscal policy will be a plus for growth this year. In addition to corporate and personal income tax cuts, Congress passed a big increase in federal spending that will boost growth through most of 19. However, the positive impact of federal fiscal policy will fade over the course of this year and into next. Trade will be a negative for U.S. growth in 19. Global economic growth is slowing, in part because of increased trade barriers both in the U.S. and abroad. In addition, the housing market has slowed over the past half-year, although it may get a temporary boost from recent lower mortgage rates. The big drop in the stock market since the fall may make households and firms more cautious with their spending. And tighter monetary policy will weigh on interest-rate sensitive industries, such as housing and autos. In addition, risks to the outlook are to the downside. There is potential for a global trade war that would be a significant drag on the world and U.S. economies. Also, the political outlook in the United States remains unsettled. And further stock market declines could spook consumers and businesses. After growth of.8 percent in 18, the U.S. economy should expand.7 percent this year. However, growth in the second half of this year will be noticeably slower as fiscal stimulus wears off. After averaging above, in 18, monthly job growth will slow to around 15, in 19 because of the tight labor market. The unemployment rate will rise in the wake of the shutdown but then resume its decline, to around. percent by the end of this year. With inflation slowing thanks to a big drop in energy prices, the Federal Open Market Committee will keep the federal funds rate unchanged in the first half of this year, giving the committee time to assess the fallout from the shutdown and stock market decline. The FOMC will then raise the fed funds rate once in the second half of 19. Inflation will gradually settle near the Federal Reserve s percent objective.

3 . Unemployment Rate Will Rise in January From Shutdown, Then Resume Its Decline 1.8 Rising Capacity Utilization Rate Will Drive Business Investment in Unemployment rate, % (R) Capacity utilization, % (R) Industrial production, % change (L) Avg. hourly earnings, % change year ago (L) 1. '8 '9 '1 '11 '1 '1 '1 '15 '1 '17 ' '1 A J O '15 A J O '1 A J O '17 A J O '18 A J O Broad-Based Job Growth Bodes Well for Labor Market This Year Employment, % change year ago Construction Manufacturing Services, ex-government '1 '1 '1 '15 '1 '17 ' Slowing House Price Growth Will Prevent a Bubble From Developing % change year ago Case-Shiller (-city) - FHFA purchase-only -8 '1 '11 '1 '1 '1 '15 '1 '17 '18 5, 5,,8,,,,,8, Definite Slowdown in Home Sales at the End of 18, Existing single-family home sales, annual rate, ths. (L), New single-family home sales,, annual rate, ths. (R) '1 '11 '1 '1 '1 '15 '1 '17 ' Shutdown Will Delay Homebuilding Data 1,5 Seasonally adjusted annualized rate, ths. 1, Permits Starts Completions 1,5 1, 1,5 1, 1,15 1,1 1,5 1, '1 '15 '1 '17 '18

4 With Slowing Inflation, Fed Will Not Need to Raise Rates in the First Half of 19 Finished goods PPI CPI Core CPI % change year ago '1 '15 '1 '17 '18 Lower Energy Prices a Plus for Consumers in Early Brent Crude Oil, $/BBL (L) Unleaded Gasoline, $/gal (R) ' '7 '8 '9 '1 '11 '1 '1 '1 '15 '1 '17 ' Personal Income and Consumer Spending Data Are Also Casualties of Shutdown % change With Shutdown, No Data Yet on Holiday Sales.1 Retail sales, % change Real after-tax income -. Real pers. consumption expenditure -. '15 A J O '1 A J O '17 A J O '18 A J O -. Total -.9 Ex-auto -1. Ex-auto, gasoline - '15 '1 '17 ' Auto Sales Up Slightly in 18; Above 17 Million for Fourth Straight Year Auto and light truck sales (domestic & foreign) Auto and light truck assemblies (domestic only) Mil., annualized rate Minimal Household Stress Is Great News for Expansion Household Economic Stress Index HESI = Unemployment rate + CPI inflation house price growth '15 '1 '17 '18 - '1 '11 '1 '1 '1 '15 '1 '17 '18 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. 19 The PNC Financial Services Group, Inc. All rights reserved. - Note: PNC calculates HESI with the Case-Shiller - City Composite HPI

5 Baseline U.S. Economic Outlook, Expanded Table 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. 18 The PNC Financial Services Group, Inc. All rights reserved. PNC Economics Group January, 19 1Q'18a Q'18a Q'18p Q'18f 1Q'19f Q'19f Q'19f Q'19f 17a 18f 19f f Output Nominal GDP (Billions $ ) Percent Change Annualized Real GDP (Chained 1 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 (1 = 1 ) Percent Change Annualized Capacity Utilization (Percent ) Prices CPI (198-8 = 1 ) Percent Change Annualized Core CPI Index (198-8 = 1) Percent Change Annualized PCE Price Index (1 = 1 ) Percent Change Annualized Core PCE Price Index (1 = 1 ) Percent Change Annualized GDP Price Index (1 = 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 (1 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. = 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

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;