Economic Conditions and Outlook Directors College Monroeville October 4, 18 Alexander Gilchrist Regional Economist Division of insurance and Research Disclaimer The views expressed in this presentation are those of the presenter and do not necessarily reflect official positions of the FDIC. Some of the information used in the preparation of this presentation was obtained from publicly available sources that are considered reliable. However, the use of this information does not constitute an endorsement of its accuracy by the FDIC. This presentation and comments made are not for attribution, quotation, or distribution. 1
Discussion Points National Trends: Strong economic growth Tight labor market Inflation at target Asset market imbalances Local conditions are steady. There are pockets of concern in CRE. Going forward: slowing, with both upside and downside risk. Fiscal stimulus contributes to near term growth. GDP Growth (Year/Year) 1% Forecast 8% 6% 4% % % -% -4% Recessions -6% Jun-84 Mar-93 Dec-1 Sep-1 Jun-19 Source: BEA, NBER (Haver Analytics). Forecast from Macroeconomic Advisers, August 18.
Is the unemployment rate too low? Unemployment Rate, SA 1 9 8 7 6 5 4 4.4 3.8 3.7 3 Full Employment 1 Sep-91 Mar-96 Sep- Mar-5 Sep-9 Mar-14 Sep-18 Source: Bureau of Labor Statistics (Haver Analytics). Inflation has moved higher, and is at target. Chain Price Index (9 = 1) Year over year Percent Change 5 4 3 PCE Core PCE (less Food & Energy) 1 1 Aug 6 Aug 9 Aug 1 Aug 15 Aug 18 Sources: Bureau of Economic Analysis (Haver Analytics). 3
7 6 5 4 3 1 The Fed s hiking cycle continues at a gradual pace. Percent 1 9 Effective Fed Funds Rate 8 Dec-93 Dec- Dec-7 Dec-14 Dec-1 Source: Federal Reserve. Medians of September 18 FOMC Projections.5 3.5 3.5 Yield Spread, Percent 3. The yield curve is flattening. Flattening Steepening.5. 1.5 1..5. 1-Year minus -Year -.5 Sep-5 Nov-7 Jan-1 Mar-1 May-14 Jul-16 Sep-18 Source: Federal Reserve Board (Haver Analytics) 4
Commercial and residential real estate values are also high. Price Indices, 4Q8 = 1 18 16 Multifamily Office Retail Industrial Home Price 14 1 1 8 Q7 Q8 Q9 Q1 Q11 Q1 Q13 Q14 Q15 Q16 Q17 Q18 Sources: CoStar, CoreLogic (Moody's Analytics). Corporate debt is at an all time high. Nonfinancial Corporate Debt as a Share of GDP 6 45 46. Includes % junk and 4% BBB-rated bonds. 3 15 Q91 4Q95 Q 4Q4 Q9 4Q13 Q18 Sources: Federal Reserve, Bureau of Economic Analysis, National Bureau of Economic Research (Haver Analytics). 5
Pennsylvania job growth has caught up. Employment Growth, Year-Over-Year, Percent 3 1-1 - -3-4 Pennsylvania U.S. -5 Sep-7 Jun-1 Mar-13 Dec-15 Sep-18 Source: BLS (Haver Analytics). Data are three-month moving averages. Health service jobs dominate employment growth. EduHealth PrBusSvcs LeisHosp Constr TrTranUtil Manufacturing OthSvcs FIRE Govt Info Pennsylvania Total 8-5 5 1 15 5 3 35 Employment Growth, Year-over-year, Thousands Source: BLS (Haver Analytics). Data are second quarter, 18. 6
PA unemployment is fairly consistent within the Northeast. Source: BLS. Data are three month moving averages. Higher unemployment rates tend to be in rural counties Source: BLS. Data are three month moving averages. 7
Home prices are not moving in lockstep. Year Over Year Home Price Change Percent 9 Q17 8 Q18 7 6 5 4 3 1 CT VT NH ME MA RI DC MD DE NJ PA NY U.S. Source: CoreLogic using the Case Shiller methodology (Moody's Analytics). Pittsburgh home prices are very stable. Year-Over-Year Home Price Change Percent 14 1 U.S. 6 Pittsburgh Pennsylvania 6 1 Jun 9 Dec 1 Jun 1 Dec 13 Jun 15 Dec 16 Jun 18 Sources: CoreLogic, Inc., Moody's Analytics. 8
Metro level home prices are mostly rising. Year Over Year Home Price Change Percent 14 1 1 8 6 4 4 Jun 17 Jun 18 Johnstown Scranton Williamsport E. Stroudsburg Chambersburg Erie Pittsburgh Montgomery Cnty. York Altoona Harrisburg State College Lancaster Allentown Gettysburg Bloomsburg Reading Lebanon Philadelphia Pennsylvania United States Source: CoreLogic using the Case Shiller methodology (Moody's Analytics). Multifamily construction is raising some flags. Albany Boston 1 Buffalo 3 Long Island New York 15 No. New Jersey 4 Philadelphia 5 Pittsburgh Providence Stamford 3 Washington 11 Five markets with 1 Supply Both Albany 1 Baltimore 3 Boston 3 Hartford 1 New York 1 Philadelphia Pittsburgh 1 Washington 3 Vacancy Baltimore Boston 1 Hartford 1 Lehigh Valley 1 Philadelphia Utica 1 Washington Source: FDIC, using Q18 CoStar data. 9
New York and Washington office markets have different concerns. Baltimore 1 Boston 3 Buffalo 1 Dover 1 New Haven 1 New York 11 No. New Jersey 1 Philadelphia Pittsburgh 1 Portland, ME 1 Salisbury, MD 1 Syracuse 1 Washington 6 Supply Both New York 1 Washington 1 Vacancy Baltimore 3 Boston 3 Hartford 4 New Haven New York 6 No. New Jersey 5 Philadelphia 3 Pittsburgh 1 Stamford 6 Washington 13 Worcester 1 Source: FDIC, using Q18 CoStar data. Retail concerns are fairly widespread, but not too deep. Albany 3 Boston Hartford Lancaster 1 Long Island 1 Manchester 1 New York 1 No. New Jersey Philadelphia 1 Pittsburgh 1 Portland 1 Stamford Washington 4 Supply Both Long Island 1 New York 1 No. New Jersey 1 Philadelphia 3 Salisbury 1 Washington 3 Vacancy Boston 1 E. Stroudsburg 1 Hartford 1 New Haven 1 New York 5 No. New Jersey 4 Philadelphia 3 Pittsburgh Poughkeepsie 1 Providence 1 Reading 1 Washington 8 York 1 Source: FDIC, using Q18 CoStar data. 1
Industrial concerns also touch a lot of submarkets. Baltimore 3 Chambersburg 1 Hartford 1 Lehigh Valley New York 5 No. New Jersey Philadelphia 3 Trenton 1 Washington Supply Both Boston 1 Harrisburg 1 Pittsburgh 1 Washington 1 Worcester 1 Vacancy Albany 1 Baltimore 6 Boston 3 Hartford 6 New Haven 1 New York 5 Philadelphia 1 Pittsburgh 1 Providence 1 Salisbury 1 Springfield 1 Stamford 1 Syracuse 1 Vineland 1 Washington 1 Worcester 1 Source: FDIC, using Q18 CoStar data. New York Region CRE concentrations are increasing. Commercial Real Estate Loans to Total Capital (FDIC Region) Median Percent 4 35 Recession San Francisco New York Chicago U.S. Atlanta Dallas Kansas City 3 5 15 1 5 Q 8 Q 1 Q 1 Q 14 Q 16 Q 18 Source: FDIC. 11
Long term assets are relatively high in the Region s institutions. Long term Assets to Total Assets Median Percent 6 5 4 3 33 34 34 36 41 43 44 47 49 49 49 49 5 7 1 15 DE U.S. RI NY MD DC PR PA VI VT CT MA ME NJ NH Source: FDIC. Note: Long term assets include those that mature or reprice in 5 or more years; data as of June 3, 18. As loans have increased, liquidity has declined. Liquid Assets to Total Assets Median Percent 3 5 U.S. 15 1 15 New York Region 13 5 Recession Q 8 Q 1 Q 1 Q 14 Q 16 Q 18 Source: FDIC. Note: Includes cash, due from balances, securities at market value net of pledged securities, Fed Funds sold, and securities purchased under agreements to resell. 1
Looking ahead Upside Risks to the Economy: o Fiscal stimulus persists o Broader contribution from business investment o Productivity increase Downside Risks to the Economy: o Spike in inflation, interest rates o Trade relations o Asset price declines, loss of confidence Thank you! 13