Economic Forecast OUTPUT AND EMPLOYMENT WHAT THE TABLE SHOWS:

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2 Economic Forecast OUTPUT AND EMPLOYMENT United States Real GDP $ billions (fourth quarter) $14,996 $14,575 $14,54 $14,942 $15,242 $15,54 $15,942 $16,51 $17,12 % change over the four quarters 1.9% -2.8% -.2% 2.8% 2.% 2.% 2.6% 3.5% 3.8% Nonfarm employment Job count (fourth quarter) 138,246, 135,493, ,877,667 13,652, 132,642, ,853, ,247, ,694, ,679,46 % change over the four quarters.9% -2.% -4.1%.6% 1.5% 1.7% 1.8% 1.8% 1.4% Average monthly change 11, , , 64, , ,25 184,25 184,25 184,25 WHAT THE TABLE SHOWS: New York s GDP forecast is derived from the national forecast by allocating output to each of the 5 states based on employment shares. So, forecast misses reflect surprises in the aggregate forecast as well as unexpected shifts in a state s GDP share. New York has recovered as well as any state despite the disruptive crosscurrents in its key financial sector and its job market has fully recovered the losses from the recession. New York Real GDP $ billions (fourth quarter) $1,1 $982 $989 $1,18 $1,3 $1,44 $1,65 $1,98 $1,139 % change over the four quarters -.2% -1.9%.6% 2.9% 1.2% 1.4% 1.9% 3.1% 3.7% Nonfarm employment Job count (fourth quarter) 8,764,633 8,731,733 8,488,467 8,588,433 8,714,767 8,833,533 8,956,2 9,91,572 9,28,155 % change over the four quarters 1.3% -.4% -2.8% 1.2% 1.5% 1.4% 1.4% 1.5% 1.3% Average monthly change 9,43-2,742-2,272 8,331 1,528 9,897 1,222 11,281 9,715 New York s economy is forecast to speed up slightly in 214 and 215. Note: GDP figures are based on quarterly values that are interpolated from annual GDP estimates using quarterly employment changes. Unbolded figures are reported actual values and bold figures represent forecasts. Sources: US Department of Commerce; US Department of Labor. Regional Perspectives: New York Economic Outlook Commercial Banking 2

3 Agriculture Mining Utilities Construction Durable manufacturing Nondudrable manufacturing Wholesale trade Retail trade Transportation Information Finance and insurance Real estate Professional and technical services Management of companies Administrative and waste management services Educational services Health care and social assistance Arts, entertainment, and recreation Hotel and food service Other services Government June 2, 214 The Economy s Structure PERCENT OF TOTAL GDP DERIVED FROM SELECTED INDUSTRIES US industry mix New York industry mix The figure compares the relative importance of selected industries to the state s economy with the national footprint of each industry (state and national figures reflect the value added of each industry as a percent of aggregate state or US nominal GDP, respectively). The information and finance industries account for a much larger share of the region s GDP, compared with those industries footprints in the national economy. New York is faring reasonably well, considering the outsized footprint of the financial services industry in the local economy. Source: US Department of Commerce. Updated through 211. Regional Perspectives: New York Economic Outlook Commercial Banking 3

4 Bankruptcies RATIO OF BANKRUPTCY FILINGS TO THE 27 Q4 NUMBER The figure illustrates trends in bankruptcy 9 9 filings by businesses and persons relative to Business bankruptcy filings Nonbusiness bankruptcy filings All US bankruptcy filings (shaded area) the number of filings in 27 Q4, prior to the recession. Bankruptcy filings have retreated to normal levels Financial distress related to the national credit crunch in the fall of 28 has largely 3 3 passed. 2 2 Source: Administrative Office of the U.S. Courts; Updated through March Regional Perspectives: New York Economic Outlook Commercial Banking 4

5 FRB New York Business Survey REAL GDP (% CHANGE 12 MONTHS EARLIER) DIFFUSION INDEXES ( = NO CHANGE) New York real GDP (left scale) FRB-NY's Empire State survey, current conditions (right scale) FRB-NY's Empire State survey, expected conditions (right scale) Forecast GDP growth in New York state and the Federal Reserve Bank of New York s Empire State survey of views about both the current state of the economy and expected (six months from now) conditions. The index readings represent the net difference in the percent expecting improving conditions and those expecting worsening conditions. The Empire State survey has picked up a bit and business respondents remain bullish about the near-term outlook. Business sentiment surveys are expected to improve some in the coming months. Note: Survey data unavailable prior to 21. Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity. Sources: Federal Reserve Bank of New York; US Department of Commerce. Updated through May 214 (surveys) and 214 Q1 (GDP). Regional Perspectives: New York Economic Outlook Commercial Banking 5

6 Private Business Surveys REAL GDP (% CHANGE 12 MONTHS EARLIER) DIFFUSION INDEXES (5 = NO CHANGE) New York State s real GDP growth and the Forecast survey of local businesses conducted by the NY Association of Purchasing Managers. The NY-NAPM (New York National Association of Purchasing Managers) is pointing to a pickup in activity. The financial sector is not as much of a drag on the region as earlier feared. -2 NY real GDP (left scale) Current Business Condition, New York Purchasing Managers Index (right scale) Note: Survey data unavailable prior to Sources: Institute of Supply Management; US Department of Commerce. Updated through April 214 (survey) and 214 Q1 (GDP) Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity. Regional Perspectives: New York Economic Outlook Commercial Banking 6

7 Initial Jobless Claims RATIO OF INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE TO THE 27 Q4 LEVEL Layoffs in New York state are compared with the national trend in jobless claims in the figure. 2. New York US (solid area) 2. Weekly layoffs, both the state and national tallies, are illustrated in the figure as a ratio to the level of layoffs in the fourth quarter of , prior to the recession. Layoffs remain a little elevated relative to pre-recession levels New York accounts for 2.6% of auto manufacturing employment The slightly elevated level of layoffs likely reflects frictions associated with a diverse economy and the shifting ground under the financial sector. Source: US Department of Labor. Updated through May 17, 214 (state) and May 24, 214 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 7

8 Economic Growth REAL GDP GROWTH (PERCENT CHANGE FROM FOUR QUARTERS EARLIER) New York US Forecast Real GDP growth in New York (the line in the figure) is superimposed on top of US real GDP growth (bars in the figure). New York s economy has matched the performance of the national economy so far. New York s economy is likely to speed up in the coming year, tracking the national economy. Source: US Department of Commerce. Updated through 212 (state) and 214 Q1 (US). Quarterly estimates for states after 212 are interpolated from employment figures (through April 214), based on the historical correlation of state and national employment changes. Regional Perspectives: New York Economic Outlook Commercial Banking 8

9 Economic Output REAL GDP LEVEL (RATIO TO 2 Q4) The figure illustrates the evolution of real GDP of the state and the overall US economy since the fourth quarter of 2, Forecast the peak of the previous business cycle that is, at any point in time the lines trace the ratio of real GDP to its level in 2 Q US New York lagged the national economy in the first half of the 2s, but has matched the national economy s growth since then New York Notwithstanding the restraints on the state s key industry, New York s economy is back on track, a strong performance considering the headwinds that the mature industrial states face. Source: US Department of Commerce. Updated through 212 (state) and 214 Q1 (US). Quarterly estimates for states after 212 are interpolated from employment figures (through April 214), based on the historical correlation of state and national employment changes. Regional Perspectives: New York Economic Outlook Commercial Banking 9

10 Employment Growth NONFARM PAYROLL EMPLOYMENT (PERCENT CHANGE FROM 12 MONTHS EARLIER) 4 4 New York s employment growth, compared with the nation s. 3 Forecast 3 Job growth remains strong. 2 1 New York US 2 1 Employment is forecast to expand at a moderate pace in coming years. Source: US Department of Labor. Updated through April 214 (state) and April 214 (US) Regional Perspectives: New York Economic Outlook Commercial Banking 1

11 Employment in Relative Terms NONFARM PAYROLL EMPLOYMENT (RATIO TO 2 Q4) 1.8 Forecast US New York The figure illustrates the evolution of employment in the state compared with the nation since 2 Q4, the peak of the previous business cycle. The lines trace out the ratio of employment at the time to employment in 2 Q4. New York s job market lagged the national economy s for all of 2s expansion. New York s businesses have restored or replaced all of the jobs that were lost during the recession and then some. The state is only one of a handful of states, mostly those benefiting from the boom in the energy sector, that have fully recovered the jobs lost during the recession. Source: US Department of Labor. Updated through April 214 (state) and April 214 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 11

12 Employment in Absolute Terms NONFARM PAYROLL EMPLOYMENT (THOUSANDS) 9,1 9, 8,9 New York (left scale) 8,8 8,7 8,6 8,5 8,4 8,3 US (right scale) 8,2 Forecast 8,1 8, 7, ,5 14, 137,5 135, 132,5 13, 127,5 125, 122,5 The actual count of payroll employment since 2 Q4, the peak of the last business expansion. New York s job market lagged the national economy s for all of 2s expansion. The state s employment count now stands at a record high. New York s employment trends are highly significant and the state is only one of a handful of states, mostly those benefiting from the boom in the energy sector, that have fully recovered the jobs lost during the recession. Source: US Department of Labor. Updated through April 214 (state) and April 214 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 12

13 Intrastate Employment NONFARM PAYROLL EMPLOYMENT IN SELECTED COMMUNITIES (RATIO TO 2 Q4 LEVEL) US Forecast US Ithaca New York City Poughkeepsie Glens Falls New York-White Plains Putnam Nassau-Suffolk Albany Buffalo Syracuse Rochester Utica-Rome Binghamton Elmira Kingston New York State New York State Forecast Forecast Lines are the cumulative percentage change in employment since 2 Q4, the peak of the previous business expansion. Employment in most communities has stabilized or is turning up, although economic conditions across the state vary widely. Communities in the western part of the state have been more challenged than those up along the Hudson River. New York City faces the greatest challenge in the coming years, in the wake of the financial market crisis, and the economic adjustments to the financial shock have yet to be fully felt. Source: US Department of Labor. Updated through April 214 (state) and April 214 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 13

14 Unemployment UNEMPLOYMENT (PERCENT OF THE LABOR FORCE) Trends in New York s unemployment rate, 12 1 New York Forecast 12 1 compared with the national average. Unemployment peaked at 9 percent and has been coming down albeit unevenly. 8 US (shaded) 8 The unemployment rate is the single best indicator of the relative economic 6 6 performance of a region. The gradual decline in unemployment is a 4 4 sign that the economy is growing faster than its underlying potential. 2 2 Source: US Department of Labor. Updated through April 214 (state) and April (US) Regional Perspectives: New York Economic Outlook Commercial Banking 14

15 Relative House Prices RATIO OF THE STATE S HOUSE PRICES TO THE NATIONAL AVERAGE (1995 Q2 = 1.) The figure tracks the relative price of houses in the state versus the nation that is, it reflects the ratio of the state price index to the national house price index, with that ratio set to unity in the summer of A drop in the line means that house prices in the state lag the national trend. States that did not suffer from speculative conditions saw a decline in the relative price of houses in this last decade. New York s real estate markets have lagged the national upswing, because its real estate is relatively pricey compared with the national average Real estate prices in New York are becoming less expensive relative to the national average. Source: FHFA. Updated through 213 Q4. Regional Perspectives: New York Economic Outlook Commercial Banking 15

16 Real Estate Markets HOUSE PRICES IN SELECTED COMMUNITIES (RATIO TO THE 1995 Q2 LEVEL) The figure tracks the cumulative percentage US Kingston Ithaca Buffalo Elmira Glens Falls Binghamton Albany-Schenectady Nassau-Suffolk Metro Division New York Metro Area Poughkeepsie Rochester Syracuse Utica-Rome deviation in house prices since 1995 in selected local markets and compares those with the national average. Communities that saw the biggest price gains are now seeing the biggest reversals. Real estate markets in New York City have corrected significantly, but may be stabilizing. House prices have been stable in upstate New York. House prices in Binghamton, Buffalo, Elmira, Rochester, Syracuse, and Utica lagged the nationwide trends and are steady. Prices in Albany, Glens Falls, and Ithaca rose faster New York State New York (Case-Shiller) than the national average through 26 and prices in these communities have slowed relatively more than in other New York areas KEY MESSAGE: House prices are likely to be relatively stable in the coming year. Sources: FHFA; Standard & Poor s. Updated through 213 Q4. Regional Perspectives: New York Economic Outlook Commercial Banking 16

17 New Home Building HOUSING STARTS (RATIO TO THE JULY 199 LEVEL) The pace of new home building (housing starts) in New York, compared with the national trends. New York s home building trends were distorted in the past year by New York City US New York Forecast regulations in the summer of 28 that induced a surge in activity early in the summer and, in that sense, the subsequent downshift in activity was slightly exaggerated. Home building is rebounding New York s housing slowdown is more related to the recession and the financial crisis that is hurting Wall Street than to inflated housing markets. The region s expensive property values are likely to be a challenge for the housing market in coming quarters. Source: Census Department. Updated through March 214 (state) and April 214 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 17

18 Office Markets PERCENT OF OFFICE SPACE THAT IS VACANT Office market conditions in selected Westchester Long Island Downtown Manhattan Midtown Manhattan Manhattan Midtown South markets. Vacancy rates in the City have been relatively stable and market conditions in Downtown Manhattan are improving. New York s office markets tend to parallel the trends in the national market. Note: Data for Manhattan and Midtown South are not available prior to Source: CB Richard Ellis (formerly CB Commercial Property Information Systems), Office Vacancy Index of the United States. Updated through 214 Q All metropolitan areas (shaded area) Regional Perspectives: New York Economic Outlook Commercial Banking 18

19 The Financial Footprint FINANCIAL SECTOR EMPLOYMENT (PERCENT OF THE RESPECTIVE JOB COUNT) 14% 12% 1% 8% 6% 4% 2% % US NY New York City The percentage of employees working in the financial industry in 1999 and today. As expected, the financial industry employs a significantly higher percentage of the work force in New York City, than the state, which in turn employs significantly more than the national average. Nonetheless, the financial sector s footprint in the City s economy has shrunk over the past decade, to 11.5 percent recently from 13.1 percent in The shakeup in the financial industry has been a significant challenge for New York City. Source: US Department of Labor. Updated through December 212 (city and state) and January 213 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 19

20 The Financial Footprint EMPLOYMENT (THOUSANDS), UNLESS NOTED OTHERWISE WHAT THE TABLE SHOWS: US New York State Employment 131,51 135,494 Employment in the financial industry 7,766 7,84 Percent of jobs in the financial industry Employment 8,674 8,884 Employment in the financial industry Percent of jobs in the financial industry The details on employment concentrated in the financial industry, nationally, for New York State, and for New York City. The percentage of the labor force involved in financial activities is significantly higher in New York State compared with the nation. The percentage of folks working in the financial industry in New York City is double the national average. The shakeup in the financial industry is a challenge for New York City. New York City Employment 3,728 3,944 Employment in the financial industry Percent of jobs in the financial industry Source: US Department of Labor. Updated through December 212 (city and state) and January 213 (US). Regional Perspectives: New York Economic Outlook Commercial Banking 2

21 Profitability of Finance FINANCIAL SECTOR PRE TAX PROFITS (BILLIONS OF DOLLARS ANNUALLY) Pretax profits earned by the financial industry. Profits collapsed in the fourth quarter of 28 when credit markets froze, but have rebounded completely since then. Profits of the financial industry exploded in this decade, likely exaggerated by revenues associated with the housing boom that is unlikely to come back any time soon. The industry remains profitable but bank regulation could slow overall profits growth that historically has supported the local economy Source: US Department of Commerce. Updated through 213 Q3. Regional Perspectives: New York Economic Outlook Commercial Banking 21

22 versus all profits FINANCIAL SECTOR PRE TAX PROFITS (PERCENT OF ALL US PROFITS) 35% 3% 25% 2% 15% 1% 5% % -5% -1% -15% % 3% 25% 2% 15% 1% 5% % -5% -1% -15% Pretax profits of the financial sector as a percent of all profits earned by all businesses. Profits of the financial industry accounted for about 15% of all corporate profits prior to the 199s, 2% during the 199s, and roughly 3-35% in the last decade. Profits since have fallen back to less than 25 percent of all profits. The financial sector was unusually profitable following the deregulation that began in earnest in 198. Some reversion to the past is likely, with financial industry profits falling back into the 15-2% range of total corporate profits, more in the range of the 199s. The structural reversion of financial industry profits likely will restrain labor compensation as well in this important segment of the New York economy. Source: US Department of Commerce. Updated through 213 Q3. Regional Perspectives: New York Economic Outlook Commercial Banking 22

23 versus GDP FINANCIAL SECTOR PRE TAX PROFITS (PERCENT OF NOMINAL GDP) 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% -.5% -1.% % 3.% 2.5% 2.% 1.5% 1.%.5%.% -.5% -1.% Pretax profits of the financial sector as a percent of nominal GDP. Profits of the financial industry were about 1.5% of GDP prior to the 199s, 2% during the 199s, and reached about 3.% at the peak in this decade. Financial sector profitability likely will settle back toward 2% of GDP. Source: US Department of Commerce. Updated through 213 Q3. Regional Perspectives: New York Economic Outlook Commercial Banking 23

24 Financial Sector Employment EMPLOYMENT (THOUSANDS) SHARE (PERCENT OF PRIVATE JOBS) 9, 8, Employment in financial activities (left scale) 7, 6, 5, 4, 3, Share of private employment (right scale) 2, 1, % 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% 4.% Employment in the financial industry (the red line and the scale is on the left) has fallen back slightly in recent years and stands about where it was at the beginning of the New Millennium. The shaded zone in the figure above illustrates the percentage of all jobs that are in the financial industry. The share has been edging down since the mid-198s. The financial industry is highly productive, in part, a result of waves of consolidation since the deregulation of the industry in 198. Source: US Department of Labor. Updated through February 214. Regional Perspectives: New York Economic Outlook Commercial Banking 24

25 CONTACT: James E. Glassman Telephone: (212) JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, JPMC ). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.