The Economic Outlook Dr. George Mokrzan Director of Economics November 9, 217
The Economic Outlook for the Nation The U.S. economy (real GDP) is forecasted to grow at a moderate pace of 2.3% in 218, close to projected 2.2% growth in 217, and up from 1.6% in 216. Consumer spending is expected to continue a gradual moderating trend. Consumers are benefitting from strengthened labor markets, solid overall finances and relatively strong consumer confidence. However, consumer pent-up demand has been easing, and personal income growth has been slowing. Business Equipment and Exports are expected to continue to recover from weakness in 2 and 216. A strong international economy is supporting commodity prices as well as export growth. Manufacturing is the strongest overall sector in 217. Agricultural prices should benefit from rising world economic growth. After 2 slow years, inflation is expected to return to 2.% in 217, and 2.2% next year. Both short-term and long-term interest rates are probably headed upwards, but the magnitude has a high degree of uncertainty. With respect to the Fed and interest rates, our view is that the risks for the Fed Funds rate target and overall market interest rates are to the upside, which will largely depend on the net stimulatory impact of potential fiscal policy change by the new administration and Congress. 2
Economic Activity Volatile, but Strongest Overall since August 25 65 6 55 5 45 4 ISM Index -- Manufacturing and Non-Manufacturing Composite (Greater than 5 = Growth) 65 6 55 5 45 4 35 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 35 Combined Non-manufacturing & Manufacturing Most Recent Data: October 217 Historical Data Source: Institute for Supply Management, Haver Analytics, Inc. Recessions shown in Grey 3
New Orders for Manufacturing and Non-Manufacturing Rising 8 7 ISM New Orders Index (Growth Greater Than 5) 8 7 6 5 6 5 4 3 4 3 2 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 2 Manufacturing Non-Manufacturing Most Recent Data: October 217 Historical Data Source: Institute for Supply Management Haver Analytics, Inc. Recessions shown in Grey 4
Unemployment Claims Trend Indicating Continued Economic Expansion Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey 5
Employment Growth Solid in Recovery Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey 6
Official Unemployment Rate at 4.1% and Falling Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey 7
Underemployment at 7.9% -- Lowest Since December 26 Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey. 8
Workforce Participation Has Begun to Rise in Non-retirement Ages. Potential for New Workers May be Large Labor Force Participation Rates By Age Group (NSA) 85 85 8 8 75 75 7 7 65 65 6 6 55 55 5 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 5 2-24 Years Old 25-54 Years Old 55-64 Years Old Latest month plotted: Q3 217 Historical Data Source: Haver, Inc., BLS, Recessions shown in Grey 9
Household Financial Obligations Ratio has Risen Somewhat, but Level Still Comparable to Early 198s Financial obligations have fallen on historically low interest rates and debt reductions from historically high levels. 18.5 18. 17.5 17. 16.5 16..5. 14.5 8 82 84 86 Household Financial Obligation Ratio 88 9 92 94 96 98 Latest data plotted: 217-Q2 Household Debt Service Ratio (ratio of debt-service payments to disposable personal income), plus auto lease payments, rent on tenant-occupied property, homewoners' insurance and property tax 2 4 6 8 1 12 14 16 Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey. *Financial Obligations Ratio (FOR) is an estimate of the ratio of financial obligations payments to disposable personal income. It s a broader measure than the debt service ratio and includes automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance and property tax payments. 1
Debt High in All Sectors, but Households have brought down Mortgage Debt Historical Data Source: Federal Reserve, Haver Analytics, Inc., recessions shown in gray 11
Consumer inflation components have become increasingly disperse between goods, energy, food and services Consumer Price Inflation 12 Month Percent Change 8 7 6 5 4 3 2 1-1 -2-3 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 8 7 6 5 4 3 2 1-1 -2-3 CPI-U Goods less foods and energy Food at Home Services less energy services Owners' Equivalent Rent -- Primary Residence Latest data plotted: September 217 Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey 12
Producer Prices Rising Broadly Again Producer Prices 12 Month Percent Change 5 5 4 4 3 3 2 2 1 1-1 -1-2 11 12 13 14 16 17-2 Final Demand Excluding Food, Energy and Services Final Demand Producer Prices Latest data plotted: September 217 Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey 13
FIBER pointing to gradually rising inflation from lowest levels since the Great Recession 5.5 FIBER Industrial Materials Price Index Log Scale 5.5 5. 5. 4.5 4.5 4. 4. 3.5 3.5 3. 6163 6567 6971 7375 7779 8183 8587 8991 9395 9799 13 57 911 13 17 Most Recent Data: October 217 3. Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey 14
World Commodity Prices Challenged by Slow Demand Growth and Strong Supply in recent years Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey; Most Recent Data: Oct. 31, 217
Headline Inflation has Led Long-term Interest Rates 2 Inflation Leads Long-term Interest Rates 2 1 1 5 5-5 54 57 6 63 66 69 72 75 78 81 84 87 9 93 96 99 2 5 8 11 14 17-5 1-Year Treasury interest rate CPI-U 12-month Change Most Recent Data: September 217 Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey; 16
Real GDP Growth has been modest during the current Economic Recovery Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey 17
Real Personal Income before taxes and transfer receipts has been volatile Historical Data Source: Haver Analytics, Inc. Recessions shown in Grey 18
Personal Income Trends Generally Upward, but real per capita disposable income growth has slowed 15 1 95 9 85 8 75 7 65 6 55 5 45 4 35 3 25 2 1 5 Personal Income Growth Since 2 (Percent) 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 15 1 95 9 85 8 75 7 65 6 55 5 45 4 35 3 25 2 1 5 Disposable Personal Income Real (inflation adj) Disposable P. Income Personal Income Per Capita Real Disposable P. Income Latest month plotted: September 217 Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey 19
Net Farm Income ($Billions) has struggled in Current Expansion Historical Data Source: FACTSET, Inc. Recessions shown in Grey; Most Recent Data: 2 2
Prices Received by Farmers rising in 217; Highly sensitive to the business cycle and world economic conditions Historical Data Source: Haver Analytics, Inc. Recessions in Grey 21
Business Sales Recovering After 2-Year Slump 2 1 Business Sales -- Seasonally Adjusted 12-Month Percent Change 2 1-1 -2-3 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 Total Business Manufacturing Wholesale Trade Retail Trade Most Recent Data: August 217-1 -2-3 Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey 22
Capital Goods Orders showing nascent signs of Business Equipment Recovery in 217 3 2 1-1 -2-3 -4 Non-Defense Capital Goods Excluding Aircraft 12-Month Change (SA Billions$) 939495969798991234567891111213141617 New Orders Latest month plotted: September 217 3 2 1-1 -2-3 -4 Historical Data Source: Haver Analytics, Inc. Recessions Shown in Grey 23
Exports Growing Again as International Economy Improves U.S. Exports 12 Month Percent Change 32 24 16 8-8 -16-24 -32 5 6 7 8 9 1 11 12 13 14 16 17 32 24 16 8-8 -16-24 -32 Exports, f.a.s.: Goods (SA, Millions $) Exports of Services (SA, Millions $) Latest data plotted: September 217 Historical Data Source: Haver Analytics, Inc. Recessions in Grey 24
The U.S. Advanced Economy Export Growth Leader 18 17 16 14 13 12 11 1 9 8 3 4 5 6 Export Trade Volume Monthly (January 23 = 1) 7 8 9 1 11 12 13 14 16 17 18 17 16 14 13 12 11 1 9 8 Total Advanced Economies United States World Euro Area Japan Latest month plotted: August 217 Historical Data Source: Haver Analytics, Inc. Recessions in Grey 25
Global Growth Strongest since May 26 Historical Data Source: Haver Analytics, Inc. Recessions in Grey 26
Agricultural export prices show greater sensitivity to world economic conditions than non-agricultural export prices Historical Data Source: Haver Analytics, Inc. Recessions in Grey 27
Dollar has risen strongly and held much of its gains despite drop in 217 On Positive Side: Strong dollar could help some emerging economies to recover, although it creates debt risks for others 14 Foreign Exchange Value of U.S. Dollar Nominal Trade-Weighted Indexes (3/73=1) 14 12 12 1 1 8 8 6 1 2 3 4 5 6 7 8 vs. Major Currencies Most Recent Data: November 2, 217 9 1 11 12 13 14 vs. All Currencies 16 17 6 Historical Data Source: Federal Reserve, Haver Analytics, Inc., recessions shown in gray 28
Most Regional States Have Grown Faster than the National Average During the Economic Recovery 55 5 45 4 35 3 25 2 1 5-5 Philadelphia FRB Coincident Economic Activity Index Since End of Recession (June 29) 1 11 12 Ohio Indiana Michigan Kentucky Pennsylvania WV Illinois Wisconsin U.S. Most Recent Data: September 217 -- Seasonally Adjusted Data 13 14 16 17 55 5 45 4 35 3 25 2 1 5-5 Source: Philadelphia FRB State Coincident Indexes 29
Midwest Consumer Confidence in September at Highest Since 2 16 14 12 1 8 6 4 2 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 Nation Conference Board Consumer Confidence Index 1985=1 Latest month plotted: October 217 East North Central (OH,MI,IN,IL,WI) 16 14 12 1 8 6 4 2 Source: Haver Analytics, Conference Board Recessions shown in grey 3
Unemployment rates drop sharply; near their lowest points since the early 2s in most states September 217 State Unemployment Decline* 16 14 Unemployment Rate (SA) 16 14 Wisconsin 3.5% -5.4% Indiana 3.8% -6.9% Michigan 4.3% -1.6% Pennsylvania 4.8% -3.6% Illinois 5.% -5.5% West Virginia 5.1% -3.1% Kentucky 5.2% -5.7% Ohio 5.3% -5.4% 12 1 8 6 4 2 1 3 Michigan Indiana WV 5 7 9 11 13 Ohio Kentucky Nation Illinois Wisconsin Pennsylvania 17 12 1 8 6 4 2 U.S. 4.2% -5.3% Most Recent Data: September 217 for States Historical Data Source: Haver Analytics, Inc., BLS, Recessions in Grey * From end of recession June 29 31
State Employment Has Been Growing, But at Varying Speeds Percent Growth in Non-farm Payrolls since End of Recession (June 29) 12 12 9 9 6 6 3 3-3 1 11 12 13 14 Ohio Indiana Michigan Kentucky Pennsylvania Illinois Wisconsin WV U.S. 16 17-3 Most Recent Data: August 217 -- States Seasonally Adjusted Data Region: Ohio, Michigan, Indiana, Pennsylvania, West Virginia, Kentucky, Illinois, Wisconsin Historical Data Source: Haver Analytics, Inc. 32
Columbus MSA Surpasses Ohio, Other Large Ohio MSAs and Nation in creating jobs in New Millennium 21 18 12 9 6 3-3 -6-9 -12 - Percent Growth in Non-farm Payrolls since January 2 1 2 3 4 5 6 7 8 9 Ohio Columbus MSA Cincinnati MSA Cleveland MSA U.S. Most Recent Data: August 217 -- Seasonally Adjusted Data 1 11 12 13 14 16 17 21 18 12 9 6 3-3 -6-9 -12 - Historical Data Source: Haver Analytics, Inc. 33
Private Sector Goods the Strongest Growth Area of the Ohio Economy in the Recovery 1 Ohio Real GSP (Chained 29 $) Annual Rate of Change 1 8 8 6 6 4 4 2 2-2 -2-4 1 11 12 13 14 16-4 Private Goods Private Services Ohio Total GSP Most Recent Data: 216 Historical Data Source: Haver Analytics, Inc. 34
Ohio not yet experiencing the lift in exports of other states in 217 7 6 5 4 3 2 1 Total Monthly Exports (Mil. $) 3-Month Moving Average / Non-Seasonally Adjusted 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 16 17 Ohio West Virginia Illinois Kentucky Indiana Michigan Wisconsin Pennsylvania Most Recent Data: August 217; Non-Seasonally Adjusted 7 6 5 4 3 2 1 Historical Data Source: Haver Analytics, Inc. 35
The Philadelphia FRB Leading Indicator predicts strong regional growth in next 6 months except for Michigan and Indiana Source: Federal Reserve Bank of Philadelphia 36
Housing Markets have been generally more stable in the region than in the country 1 5-5 -1 FHFA House Price Index - Four Quarter Percent Change 1 5-5 -1-1 3 5 7 9 11 13 17 - Ohio Indiana WV Illinois Michigan Wisconsin U.S. Pennsylvania Kentucky Most Recent Data: Q2 217 Source: Haver Analytics, Inc. Recessions in Grey 37
Housing affordability highest in the Midwest 3 25 2 1 NAR Composite Housing Affordability Index 3 25 2 1 5 89 91 93 95 97 99 1 3 5 7 9 U.S. Midwest South West Northeast First Time Homebuyer U.S. Most Recent Data: August 217 11 13 17 5 Median family income qualifies for 8% mortgage on median priced home. Source: Haver Analytics, Inc. National Association of Realtors (NAR) 38
Disclaimer This publication contains general information. The views and strategies described may not be suitable for all investors. Any forecasts presented are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Individuals should consult with their investment adviser regarding their particular circumstances. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. Contents herein have been compiled or derived in part from sources believed reliable and contain information and opinions that are accurate and complete. However, Huntington is not responsible for those sources and makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions. The opinions, estimates and projections contained herein are as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Investing in securities involves risk, including possible loss of principal amount invested. Past performance is no guarantee of future results. Data Sources: Haver Analytics, FACTSET and and other sources shown for applicable slides and Huntington are federally registered service marks of Huntington Bancshares Incorporated. 217 Huntington Bancshares Incorporated. 39