M&T BankUnderstanding what’s important

U.S. & CenterState NY

Economic Outlook Gary D. Keith – Regional Economist

January 13, 2016

2.4%

1.5%

2.2%1.6%

2.5%

-2.8%-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

U.S. Real Gross Domestic Product Growth

2009 2010 2011 2012 2013 2014

Sources: U.S. Bureau of Economic Analysis, Consensus estimate for Q4 2015

3.0% annual average

from 1990-2007

Growth Has Ramped Up Slightly—But Remains Highly Volatile

Real GDP has expanded at a 3.0% or higher rate in 5 of the past 10 quarters but has

averaged just 2.5% for the entire period—only slightly above the 2.1% pace from 2010-14

2.1% average 2.5% average

2©2016 M&T Bank, Member FDIC

2.0% 1.8%

3.9%

0.6%

2.1%

4.3%4.6%

-0.9%

3.8%

3.0%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2013 2014 2014 2014 2014 2015 2015 2015 2015

Past Five Years Past Ten Quarters

Est.

105

110

115

120

U.S. Private Sector Employment

Source: U.S. Bureau of Labor Statistics

RECESSION

On the Other Hand:

Job Growth Remains Remarkably Consistent

2.5 million new jobs have been added annually since 2010,

pushing employment 4.5% above the pre-recession peak

05 06 07 08 09 10 11 12 13 14 15

Millions

©2016 M&T Bank, Member FDIC

121.2

Feb 2010

107.2

Dec 2007

116.0

3

3.5

4.0

4.5

5.0

5.5

6.0

6.5

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

Seasonally Adjusted Annual Rate

Number of U.S. Nonfarm Job Openings

2013 2014 2015

3.9 million annual

average from 2000-07

Millions

5.4

Even More Encouraging:

Hiring Momentum Should

Continue Into 2016

Employers continue to ramp up

hiring plans, setting the stage for

faster income & spending growth

Source: U.S. Bureau of Labor Statistics©2016 M&T Bank, Member FDIC 4

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2.7%

R

E

C

E

S

S

I

O

N

Inflation-Adjusted Year-Over-Year Percentage Change

U.S. Personal Consumption Spending Growth

90 92 94 96 98 00 02 04 06 08 10 12 15 Oct

3.3% average

Jan 1990 to Dec 2007

Source: U.S. Bureau of Economic Analysis

R

E

C

E

S

S

I

O

N

R

E

C

E

S

S

I

O

N

Net Result—Spending Picks Up Steam

With consumer spending representing 70%

of GDP, faster growth in this key sector will

ripple through the economy

5

1.9% average

July 2009 to Oct 2015

©2016 M&T Bank, Member FDIC

U.S. Real Gross Domestic Product Growth

2.5%2.4%

3.3%

2.7%

1.8%

-0.3%

-2.8%

2.5%

1.6%

2.2% 2.4%

1.5%

2.4%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

04 05 06 07 08 09 10 11 12 13 14 15 16

2016 Growth Should Continue to Modestly Improve

The economy is expected to expand at a solid if unspectacular

pace in 2016, moving closer to its long-term potential

Sources: U.S. Bureau of Economic Analysis, Consensus Forecast

F

O

R

E

C

A

S

T

F

O

R

E

C

A

S

T

6

3.0% annual average

from 1990-2007

©2016 M&T Bank, Member FDIC

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2010 2011 2012 2013 2014 2015 2016 2017

Interest Rate Forecast

Forecast

2.39%

1.38%

1.87%

2 Year LIBOR swap

1 Month LIBOR

10 Year LIBOR swap

7

Monetary Policy Will Slowly Tighten Even

As Long-Term Rates Remain Relatively Flat

Short-term rates are expected to rise 100bp through year-end 2017 while weak

global growth will keep downward pressure on medium- and long term rates

©2016 M&T Bank, Member FDIC

So, the Economy’s

Getting Back to

“Normal”…Right?

57%

58%

59%

60%

61%

62%

63%

64%

65%

74%

75%

76%

77%

78%

79%

80%

81%

82%

94 96 98 00 02 04 06 08 10 12 14 15

94 96 98 00 02 04 06 08 10 12 14 15

59.3%

77.2%

Not By a Long Shot:

Labor Market Participation

Is Still Way Too Low…

While demographics account for

half of the decline, 8.5 million more

workers would be employed if the

ratio were equal to 1990-2007 norms

…Even Among Prime

Working Age Individuals

If the ratio were equal to the 1994

to 2007 average, 3.6 million more

workers would be employed

U.S. Employment-to-Population Ratio

16+ Years of Age

25 to 54 Years of Age

62.8% average

Jan 1994 to Dec 2007

80.1% average

Jan 1994 to Dec 2007

©2016 M&T Bank, Member FDIC 9Source: U.S. Bureau of Labor Statistics

The Economy Looks Very Different Depending on Where You Stand

10

The recovery has proceeded at sharply different

rates for different sectors—with “goods producers”

(30% of the economy) lagging “service providers”

Even among goods producers, growth rates are

diverging—with construction on the upswing and

manufacturing and mining trending downward

©2016 M&T Bank, Member FDIC

3.9% 3.9%5.3% 5.9%

-1.2%

2.0%0.5%

Q4 Q1 Q2 Q3 Q4 Q1 Q2

13 14 14 14 14 15 15

0.5% 1.7%3.9%

-0.6%

7.5%5.5%

21.7%

Q4 Q1 Q2 Q3 Q4 Q1 Q2

13 14 14 14 14 15 15

ConstructionGrowth in Real Output From Previous Quarter at Annualized Rate

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Goods Producing

Service Providing

2007 2008 2009 2010 2011 2012 2013 2014 ‘15 Q2

Manufacturing & MiningGrowth in Real Output From Previous Quarter at Annualized Rate

Relative Change in Output Since 2007

Source: U.S. Bureau of Economic Analysis

11

“IMF Cuts Global Growth Forecasts”

“The International Monetary Fund cut

its global growth forecasts for a second

time this year…saying the world

economy would grow at 3.1 percent –

0.2 percentage points below the

July prediction.”

The U.S. is expected to grow

2.6 percent – up from the 2.5 percent

forecast in July.”

Martin Barraud | OJO Images | Getty Images

“There is a shift between emerging

countries and developed countries.

The first ones, who were driving a

global recovery not so long ago,

are slowing down.”

©2016 M&T Bank, Member FDIC Source: Reuters—October 6, 2015

How’s the

CenterState NY

region performing?

Relative Change in Inflation-Adjusted GDP 2007

CenterState NY Real GDP Growth

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013 2014 2015est

* Syracuse, Utica-Rome, Ithaca and Watertown metro areas

13

CenterStateMetro Areas*

9.2%

3.0%

©2016 M&T Bank, Member FDIC Sources: U.S. Bureau of Economic Analysis, M&T estimates for 2015

Less Bust—But Also Less Boom

After outperforming the U.S. from 2009-12,

regional GDP growth once again has

fallen behind the national norm

All U.S.Metro Areas

-0.7%

-0.5%

-0.2%

0.9%

1.3%

1.5%

1.6%

2.1%

2.5%

2.8%

Source: U.S. Bureau of Labor Statistics

New York City

United States

Buffalo-Niagara

Rochester

Albany

UTICA-ROME

SYRACUSE

ITHACA

Binghamton

WATERTOWN

99,300

2,873,90

09,800

6,900

5,400

1,300

2,200

-100

-400

-200

Absolute Change

Year-Over-Year Percentage Change

Private Sector Job Growth – 2015*

Job Growth

Trails the

Upstate Norm

Regional hiring

pace lags well

behind Buffalo,

Rochester &

Albany

©2016 M&T Bank, Member FDIC 14* November year-to-date

4%

5%

6%

7%

8%

9%

10%

Seasonally Adjusted

CenterState NY Unemployment Rate

5.4%

5.0%

CenterState NY

UnitedStates

Note: CenterState data seasonally adjusted by M&T

15

Cayuga, Cortland, Herkimer, Jefferson,

Lewis, Madison, Oneida, Onondaga,

Oswego, Seneca, St. Lawrence &

Tompkins counties

Nov 2014

6.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015Nov

“But Isn’t Labor

Stress Continuing

to Decline?”

The regional jobless

rate is down 3+ points

since mid-2012

June 2012

8.8%

Sources: U.S. Bureau of Labor Statistics, NYS Department of Labor©2016 M&T Bank, Member FDIC

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

Relative Change Since January 2007

CenterState NY Labor Force

95.2%

102.7%

CenterState NY

16

Cayuga, Cortland, Herkimer,

Jefferson, Lewis, Madison,

Oneida, Onondaga, Oswego,

Seneca, St. Lawrence &

Tompkins counties

Nov 2015

683,700

2007 2008 2009 2010 2011 2012 2013 2014 2015

Note: CenterState region data seasonally adjusted by M&T

Nov 2013

694,600

Jan 2007

718,200UnitedStates

NovSources: U.S. Bureau of Labor Statistics, NYS Department of Labor©2016 M&T Bank, Member FDIC

Shrinking Labor Pool Raises Questions About Future Growth Potential

The regional workforce has contracted by nearly 11,000 over the past 24 months

(and by nearly 35,000 since January 2007), distorting the decline in jobless rate

75%

80%

85%

90%

95%

100%

105%

80.1%

Drag From Industrial Job

Losses Continues

Regional manufacturing

employment is down by over

12,000 since the start of 2007

87.9%

Cayuga, Cortland, Herkimer,

Jefferson, Lewis, Madison,

Oneida, Onondaga, Oswego,

St. Lawrence, Seneca &

Tompkins counties

Nov

CenterState NY

UnitedStates

17

2007 2008 2009 2010 2011 2012 2013 2014 ‘15

Sources: U.S. Bureau of Labor Statistics, NYS Department of Labor©2016 M&T Bank, Member FDIC

Note: CenterState region data seasonally adjusted by M&T

Relative Change Since January 2007

CenterState NY Manufacturing Employment

3.3%3.1%3.0%3.0%

2.7%

2.1%

50%

54%

58%59%

62% 62%

Utica- Syracuse Buffalo Albany Rochester All U.S.

Rome Metro Areas

©2016 M&T Bank, Member FDIC Sources: U.S. Bureau of Economic Analysis, M&T estimates

Diversification and Investment

in “New Economy” Sectors is

Critical to Future Growth

Utica- Syracuse Albany Rochester Buffalo All U.S.

Rome Metro Areas

Personal Income Growth

Follows a Similar Pattern

“Economy 2.0” Industry Share of GDP - 2014

Average Annual Growth in

Per Capita Personal Income 2010-14

“Cracking the Code” For Economic Growth

18

Economy 2.0 = “Eds & Meds,” Advanced Manufacturing, Information, Business Services, Finance, Insurance, Real Estate, Construction, Retail, Leisure & Hospitality

Economic Restructuring—A Tale of Two Regions

“Economy 2.0” sectors now make up 58% of Buffalo area output (up from

52% in 2007) versus 52% for CenterState metros (up from 51% 2007)

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014

All U.S.

Metro

Areas

19.4%

10.6%

Net Change in

Buffalo Output

Since 2007:

$4.7 Billion Buffalo-Niagara

Relative Change Since 2007

Real GDP From “Economy 2.0” Industries

Economy 2.0 = “Eds & Meds,” Advanced Manufacturing, Information, Business Services, Finance, Insurance, Real Estate, Construction, Retail, Leisure & Hospitality

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014

All U.S.

Metro

Areas

5.4%

10.6%

Net Change in

CenterState Output

Since 2007:

$1.3 Billion

CenterState

19Sources: U.S. Bureau of Economic Analysis, M&T Bank estimates©2016 M&T Bank, Member FDIC

-1,100

-500

-300

-200

-200

700

1,300

2,800

Year-Over-Year Absolute Change

CenterState Job Gain/Loss—Second Half of 2015*

Private Education &Health Care Services

Trade, Transportation & Utilities

Leisure & Hospitality

Government

Financial Activities

Manufacturing

Professional &Business Services

Construction

+1.8%

+1.0%

+1.2%

(0.1%)

(0.7%)

(0.5%)

(1.0%)

(4.6%)

% Change

Encouraging Trend—

But Still Not Firing

on All Cylinders

Solid growth in

education, health care,

trade and hospitality

employment is offset by

cuts in other sectors

20* June to NovemberSources: U.S. Bureau of Labor Statistics, NYS Department of Labor©2016 M&T Bank, Member FDIC

Total investment: $1.3 billion

Total expected jobs: 420

Total investment: $3.5 billion+

Total expected jobs: 2,500+

“The state, through the SUNY Polytechnic Institute, will build an 82,500-square-foot facility in DeWitt. Construction has started

and is expected to be completed in the second half of 2016.”

Syracuse Post Standard October 29, 2015

“Hooray! seems quite inadequate. So does woo-hoo! Or yippee! Traditional cheers are pretty lame when it comes to the announcement that two companies

will invest billions of dollars and bring roughly 1,500 additional jobs to Nano Utica.”

Utica Observer-Dispatch August 20, 2015

21©2016 M&T Bank, Member FDIC

Syracuse Post Standard

December10, 2015

“The Central New York region will

receive $500 million over five years

— doled out in roughly equal

installments of $100 million a year —

to help fund development projects

and programs designed to generate

long-term job growth.”

Upstate Revitalization Initiative

22©2016 M&T Bank, Member FDIC

M&T BankUnderstanding what’s important

U.S. & CenterState NY

Economic Outlook Gary D. Keith – Regional Economist

January 13, 2016