U.S. & Rochester Area

Economic Outlook

Gary Keith – Vice President and Regional Economist

Commercial Planning & Analytics Department

January 31, 2020

2.1%2.0%

3.1%

1.1%

2.9%

3.5%

2.5%

3.5%

M&TBank

Seasonally Adjusted Annual Rate

U.S. Real Gross Domestic Product Growth

Source: U.S. Bureau of Economic Analysis

A Lot Has Changed in the Past 12 Months

Growth Has Decelerated...And Faces Multiple Headwinds

On an annualized basis, economic growth has averaged 2% over the

past four quarters—the slowest pace since mid-2016

3.1% average

2©2020 M&T Bank, Member FDIC

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2017 2018 2018 2018 2018 2019 2019 2019

2.0% average

Four Quarters Average

Four Quarters Average

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

-1.4%

©2020 M&T Bank, Member FDIC 3M&TBank

Growth in World Merchandise Trade

-3.2%November

World Merchandise Trade

U.S. Merchandise Exports

Sources: CPB World Trade Monitor, U.S. Commerce Dept. Data are three-month moving averages

11.7%

2013 2014 2015 2016 2017 2018 2019

Perhaps the Greatest Headwind

Drag From Declining Global Trade

Evolving U.S. trade and tariff policies, a strong dollar

and global uncertainty are hurting export demand

0%

5%

10%

15%

20%

25%

30%

35%

40%

1960s 1970s 1980s 1990s 2000s 2016

28.5%

©2020 M&T Bank, Member FDIC 4M&TBank

Exports Share of World Economic Output

Source: World Trade Organization

11.9%

United States

Worldwide Total

China 4.3% 19.7%

Euro Area 18.5% 44.3%

United Kingdom 20.2% 28.3%

Canada 17.0% 31.0%

1960 2016

Why Is This a Concern?

Foreign Trade Increasingly Drives the Global Economy

As a share of worldwide GDP, exports have more than doubled over the past fifty

years, putting countries—including the U.S.—at greater risk for trade disruptions

M&TBank

The Case For Optimism? Solid Labor Fundamentals

©2020 M&T Bank, Member FDIC 5Source: U.S. Bureau of Labor Statistics

U.S. Private Sector Employment

105

110

115

120

125

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Dec.

129.7

Dec 2007

116.0

R

E

C

E

S

S

I

O

N

Job Creation Remains Remarkably Consistent

2 million new jobs have been

created annually since 2010,

pushing employment 12%

above the pre-recession peak

2013 2014 2015 2016 2017 2018 2019 Nov.

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5 Private Sector Job Openings

Millions

6.1

“Help Wanted” Signs

Are Still Abundant

Despite a slight pullback from

November 2018’s all-time high,

strong hiring plans set the stage for

further income & spending growth

M&TBank

Seasonally Adjusted Year-Over-Year Percentage Change

U.S. Real Personal Consumption Growth

©2020 M&T Bank, Member FDIC 6Source: U.S. Bureau of Economic Analysis

2.4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

R

E

C

E

S

S

I

O

N

3.3% average

Jan 1990

to Dec 2007

2.2% average

July 2009

to Nov. 2019

1990s 2000s 2010s ‘19 Nov.

R

E

C

E

S

S

I

O

N

R

E

C

E

S

S

I

O

N

Consumer Spending Remains Robust

With personal consumption representing

70% of GDP, strong performance in this

sector puts a floor under economic growth

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

M&TBank

Forecast

©2020 M&T Bank, Member FDIC

1.99%

1.50%

7Sources: Federal Reserve, M&T Bank forecast

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Interest Rate ForecastDecember 31, 2019

10 Year Rate Overnight Rate

Monetary Policy Will Remain Accommodative

The Fed is expected to cut short-term rates one more time

(September 2020) while medium- and long-term rates are expected

to drift sideways, keeping an upward slope on the yield curve

1.9%2.3%

2.9%2.4%

1.6%

2.9%

3.8%3.5%

2.9%

1.9%

-0.1%

-2.5%

2.6%

1.6% 1.8%2.2% 2.5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Sources: U.S. Bureau of Economic Analysis, Blue Chip consensus forecast

FORECAST

8

3.0% annual average

from 1990-2007

©2020 M&T Bank, Member FDIC

The Expansion Should Continue For Another Year

The economy is expected to grow at a slightly slower rate in 2020—

with potential drags from a tightening labor market, evolving trade

policy and monetary and geopolitical uncertainty

M&TBank

U.S. Real Gross Domestic Product Growth

9

National Association of Realtors

U.S. Housing Market Forecast

Source: Lawrence Yun presentation at Residential Real Estate Economic Issues and Trends Forum—November 8, 2019

M&TBank©2020 M&T Bank, Member FDIC 9

Rochester Area

Economic Trends &

Near-Term Outlook

#1 COLDEST CITY

ROCHESTER, N.Y.The corporate home to Eastman Kodak Company was the smallest major-metro region in the ranking, with barely one million population, and had the least dynamic labor market.

To determine the overall hottest and coldest labor markets, The Wall Street Journal looked at the 53 metro areas with more than 1 million people.

The Journal’s ranking is based on the following attributes:

• Average unemployment rate in 2018

• Labor-force participation rate in 2018

• Change in employment and change in labor force for the 4th quarter of 2018 from a year earlier

• Change in average weekly wage in the first half of 2018 from the first half 2017

March 1, 2019

11M&TBank

-1%

0%

1%

2%

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

M&TBank

Year-Over-Year Percentage Change

Private Sector Employment Growth

1.5%

1.4%

UnitedStates

©2020 M&T Bank, Member FDIC 12

But Taking a Closer Look, a Much Better Picture Emerges

2019 Hiring Upswing Is Closing the “Gap” With the U.S.

While Rochester’s labor market performance remains volatile, job creation

has accelerated and finished the year nearly on par with the U.S. average

2017 2018 2019

RochesterMetro Area

Source: U.S. Bureau of Labor Statistics Note: figures are preliminary and subject to revision in March 2020

M&TBank

-1,200

-700

-600

-100

800

1,100

1,300

2,000Construction

Leisure & Hospitality

Private Health Care

Professional, Scientific

& Technical Services

Retail Trade

Financial Activities

Manufacturing

Admin. (“Back Office”) Business Services

©2020 M&T Bank, Member FDIC 13

Year-Over-Year Absolute Change

Rochester Area Job Growth—2019 Average

Construction

Job Creation

Led the Way

While back office

administrative and

manufacturing

losses offset gains

in other sectors

Source: U.S. Bureau of Labor Statistics Note: figures are preliminary and subject to revision in March 2020

9.3%

2.8%

1.4%

2.7%

-0.1%

-2.6%

-1.3%

-3.9%

Percentage

Change

14

Seasonally Adjusted

Rochester Area Unemployment Rate

3%

4%

5%

6%

7%

8%

9%

10%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Dec.

R

E

C

E

S

S

I

O

N

4.4%

RochesterMetro Area

The Local Jobless

Rate is Near a

Two-Decade Low

while the U.S. rate is

at a 50-year low

Housing demand is

highly correlated with

unemployment trends

14M&TBank©2020 M&T Bank, Member FDIC

R

E

C

E

S

S

I

O

N

3.5%

UnitedStates

Source: U.S. Bureau of Labor Statistics

Rochester data seasonally adjusted by M&T

$19.0

$19.5

$20.0

$20.5

$21.0

$21.5

$22.0

$22.5

Billions of Constant 2019 Dollars

Rochester Area Real Private Sector Wages

$22.2

Net Result

Payroll Income & Spending

Power Climb to a New High

Adjusted for inflation, average payroll

wages for Rochester area private

sector workers rose 1.6% last year

and are up 10.7% since 2013

06 07 08 09 10 11 12 13 14 15 16 17 18 19est

RochesterMetro Area

M&TBank15

Recession

©2020 M&T Bank, Member FDIC Sources: U.S. Census Bureau, Bureau of Economic Analysis, M&T Bank forecast for Q3 & Q4 2019

16

12,95113,134

13,982

15,25815,047

14,77214,773

2013 2014 2015 2016 2017 2018 2019

Rochester Regional Housing Market*

Closed & Pending Sales of Existing Homes

Total Closed Sales Pending Sales (At Year End)

Healthy Labor Market Continues to Drive Sales Activity

Although existing home sales were flat in 2019, they remain high by historic

standards, supported by favorable labor, income and consumer confidence

fundamentals and mortgage rates that remain affordable

Source: Greater Rochester Realtors Association M&TBank©2020 M&T Bank, Member FDIC

* Monroe, Cayuga, Allegany, Genesee, Livingston, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties

16

12,772

13,256

14,363

15,19615,050

14,708

15,043

2013 2014 2015 2016 2017 2018 2019

17

22,860 22,622

23,958

22,545

20,808

20,297 20,107

Rochester Regional Housing Market*

Inventory of Existing Homes For Sale

New Listings

Supply Constraints Remain a Major Challenge

Inventory pressures intensified yet again in 2019—

will we start to see some relief in the coming year?

M&TBank©2020 M&T Bank, Member FDIC 17Source: Greater Rochester Realtors Association

* Monroe, Cayuga, Allegany, Genesee, Livingston, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties

2013 2014 2015 2016 2017 2018 2019

5,446

5,0114,842

3,636

3,033

2,703 2,429

Inventory of Homes For SaleAt the End of the Year

2013 2014 2015 2016 2017 2018 2019

18

-0.8%

2.8%

-1.2%

4.0%

7.7%

5.6%

Rochester Regional Housing Market*

Median Price of Existing Homes Sold

Annual Change in Median Price

Net Result: Economics 101

Solid Demand + Limited Supply = Positive Pricing Power

Tight inventories should support moderate price increases again in 2020

M&TBank©2020 M&T Bank, Member FDIC 18Source: Greater Rochester Realtors Association

* Monroe, Cayuga, Allegany, Genesee, Livingston, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties

2014 2015 2016 2017 2018 2019

$124,000$123,000

$126,500$125,000

$130,000

$140,000

$147,817

Median Sales Price

2013 2014 2015 2016 2017 2018 2019

19

`

7%

14%

18%

24%

26%

11%21 to 28 years

29 to 38 years

39 to 53 years

54 to 63 years

64 to 72 years

73 to 93 years

26 years

34 years

45 years

59 years

68 years

76 years

Median Age

Age Distribution of U.S. Home Buyers

37%

Source: 2019 NAR Home Buyer and Seller Generational Trends

Demographic Trends Are Favorable For Housing Demand

The 21-38 year old age group, which now makes up the largest

segment of the U.S. workforce, continues to increase in size—

providing strong support for new and existing home sales in 2020

M&TBank 19©2020 M&T Bank, Member FDIC

20

110,000

115,000

120,000

125,000

130,000

135,000

140,000

145,000

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Relative Change Since 2007

Population 25 to 34 Years Old

RochesterMetro Area

United

States

+9.8%

+20.6%

07 08 09 10 11 12 13 14 15 16 17 18

Rochester Metropolitan Area

Population 25 to 34 Years Old

07 08 09 10 11 12 13 14 15 16 17 18

142,856

118,477

Growth in Rochester’s “Millennial” Population

Should Support Further Housing Demand

Source: U.S. Census Bureau M&TBank 20©2020 M&T Bank, Member FDIC

Rochester’s Population

Growth Since 2007…

The 25-34 year old age group

has increased by nearly

25,000 over the past decade

…Has Been Double

the U.S. Average

Planting the seeds for strong

spending and housing demand

over the next few years