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) $1,996 $1,575 $1,5 $1,9 $15, $15,5 $15,9 $16,51 $17,1 % change over the four quarters 1.9% -.8% -.%.8%.%.%.6%.5%.8% Nonfarm employment Job count (fourth quarter) 18,6, 15,9,667 19,877,667 1,65, 1,6,667 1,85,667 17,7,667 19,69,88 11,679,6 % change over the four quarters.9% -.% -.1%.6% 1.5% 1.7% 1.8% 1.8% 1.% WHAT THE TABLE SHOWS: Illinois 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. Illinois economy has been expanding more slowly than the national economy, a trend that may continue into 1 and 1. Average monthly change 11,667-9,61-68, 6,58 165,889 18,5 18,5 18,5 18,5 Illinois Real GDP $ billions (fourth quarter) $586 $57 $565 $576 $587 $596 $65 $61 $6 % change over the four quarters.% -.1% -1.5% 1.9%.% 1.6% 1.%.6%.% Nonfarm employment Job count (fourth quarter) 5,98, 5,88, 5,59, 5,6, 5,69,67 5,77, 5,8,867 5,87,16 5,96,765 % change over the four quarters.6% -1.7% -5.%.9% 1.% 1.%.9%.8% 1.% Average monthly change,11-8,8 -,7,18,519 6,86,97,86,71 The state s economy is forecast to speed up gradually but employment likely will continue to recover only moderately. 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: Illinois Economic Outlook Commercial Banking

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, 1 The Economy s Structure PERCENT OF TOTAL GDP DERIVED FROM SELECTED INDUSTRIES US industry mix Illinois' 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). Illinois economy has a disproportionate share of wholesale trade businesses, financial companies, and professional and technical services. Real estate is a large 1% of the economy, similar to the national economy. The state s outsized exposure to real estate and finance have been a liability. The outsized manufacturing footprint will be a source of support in coming years for Illinois. Source: US Department of Commerce. Updated through 11. Regional Perspectives: Illinois Economic Outlook Commercial Banking

4 Bankruptcies RATIO OF BANKRUPTCY FILINGS TO THE 7 Q NUMBER The figure illustrates trends in bankruptcy 5 5 filings by businesses and persons relative to the number of filings in 7 Q, prior to the Business bankruptcy filings Nonbusiness bankruptcy filings recession. Bankruptcy filings are easing slowly. All US bankruptcy filings (shaded area) Indicators of financial stress are a useful coincident indication of economic distress and they indicate that the state is still suffering from lingering problems related to the housing crisis in the last decade. 1 1 Source: Administrative Office of the U.S. Courts; Updated through March Regional Perspectives: Illinois Economic Outlook Commercial Banking

5 Oil & Gas Activity NUMBER OF DRILLING RIGS ON LAND, INLAND WATERS, AND OFFSHORE, 15 The figure illustrates recent trends in the rig count for petroleum drilling operations. The state s oil and gas industry is small but,5, United States (left scale) Illinois (right scale) 1 9 appears to be expanding. Illinois small energy sector is riding on the wave of shale development. 1,5 Source: Baker Hughes rig count. Updated through 1 Q1. 1, Regional Perspectives: Illinois Economic Outlook Commercial Banking 5

6 FRB Chicago Business Survey REAL GDP (% CHANGE 1 MONTHS EARLIER) DIFFUSION INDEX (7 = 1) The figure illustrates GDP growth in Illinois 8 6 Illinois real GDP (left scale) FRB Chicago's manufacturing survey (right scale) Forecast and the Federal Reserve Bank of Chicago s survey of local conditions. Manufacturing conditions continue to improve, according to the Federal Reserve Bank of Chicago s survey but the recovery is slow-going. 1 Growth is forecast to pick up speed into 1 and Sources: Federal Reserve Bank of Chicago; US Department of Commerce. Updated through October 1 (surveys) and 1 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: Illinois Economic Outlook Commercial Banking 6

7 Private Business Surveys REAL GDP (% CHANGE 1 MONTHS EARLIER) DIFFUSION INDEXES (5 = NO CHANGE) Illinois real GDP (left scale) Business Barometer Index, Chicago Purchasing Managers (right scale) Forecast The figures shows the Business Barometer Index, based on the survey of purchasing managers, and real GDP growth in Illinois (a reading above 5 means the state s economy is growing, while less than 5 means the economy is shrinking). The index comprises seven business activity indicators, including production, new orders, order backlogs, inventories, employment, supplier deliveries, and prices paid. The index, a timely measure of the strength of the local economy, has rebounded. Business activity is firming. Sources: Institute of Supply Management; US Department of Commerce. Updated through April 1 (survey) and 1 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: Illinois Economic Outlook Commercial Banking 7

8 Initial Jobless Claims RATIO OF INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE TO THE 7 Q LEVEL The figure tracks layoffs in Illinois and the.5.5 national level of claims. Weekly layoffs, both the state and national. Illinois US (solid area). tallies, are illustrated in the figure as a ratio to the level of layoffs in the fourth quarter of 7, prior to the recession Layoffs are back down to pre-recession levels Layoffs will signal any change in the economy s momentum and, for that reason, the signals from the job market point to an even better economy in 1 and Source: US Department of Labor. Updated through May 17, 1 (state) and May, 1 (US). Regional Perspectives: Illinois Economic Outlook Commercial Banking 8

9 Economic Growth REAL GDP GROWTH (PERCENT CHANGE FROM FOUR QUARTERS EARLIER) Illinois US Forecast Real GDP growth in Illinois (the line in the figure) is superimposed on top of US real GDP growth (bars in the figure). Illinois economy is growing again, in line with the national trend. Illinois recovery is expected to strengthen gradually into 1 and 15. Source: US Department of Commerce. Updated through 1 (state) and 1 Q1 (US). Quarterly estimates for states after 1 are interpolated from employment figures (through April 1), based on the historical correlation of state and national employment changes. Regional Perspectives: Illinois Economic Outlook Commercial Banking 9

10 Economic Output REAL GDP LEVEL (RATIO TO Q) The figure illustrates the evolution of real GDP of the state and the overall US economy since the fourth quarter of, 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 Q US Illinois lagged the national economy in the last decade and is not expected to make up that gap for a while Illinois Like the national economy, Illinois has been in a slow recovery since summer 9. Source: US Department of Commerce. Updated through 1 (state) and 1 Q1 (US). Quarterly estimates for states after 1 are interpolated from employment figures (through April 1), based on the historical correlation of state and national employment changes. Regional Perspectives: Illinois Economic Outlook Commercial Banking 1

11 Employment Growth NONFARM PAYROLL EMPLOYMENT (PERCENT CHANGE FROM 1 MONTHS EARLIER) Job growth in Illinois is compared with the national average. Illinois US Forecast Job growth has been lagging the national pace of employment expansion and likely will continue on that track for the foreseeable 1 1 future The jobs recovery matches the trends in the previous economic recovery Source: US Department of Labor. Updated through April 1 (state) and April 1 (US) Regional Perspectives: Illinois Economic Outlook Commercial Banking 11

12 Employment NONFARM PAYROLL EMPLOYMENT (RATIO TO THE Q LEVEL) US Forecast Illinois The figure illustrates the evolution of employment in the state compared with the nation since Q, the peak of the previous business cycle. The lines trace out the ratio of employment at the time to employment in Q. Illinois businesses have recovered or replaced almost two-thirds of the jobs lost in the recession. The job market is recovering but gains are likely to lag the national recovery. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US). Regional Perspectives: Illinois Economic Outlook Commercial Banking 1

13 Intrastate Employment NONFARM PAYROLL EMPLOYMENT IN SELECTED COMMUNITIES (RATIO TO Q LEVEL) Employment trends across the state Forecast US forecast US Lake County-Kenosha County Peoria Bloomington-Normal Kankakee-Bradley Davenport-Moline-Rock Island Springfield Employment in most communities is on the mend. The mid-section of the state seems to be struggling. Most communities are beginning to feel the state s recovery Chicago, Joliet, Naperville, II-Wi-In Chicago-Joliet- Naperville Champaign-Urbana Rockford Decatur Source: US Department of Labor. Updated through April 1 (state) and April 1 (US) Danville Illinois forecast Illinois Regional Perspectives: Illinois Economic Outlook Commercial Banking 1

14 Unemployment UNEMPLOYMENT (PERCENT OF THE LABOR FORCE) Illinois 9 US (shaded) 8 Forecast Unemployment rate trends in Illinois, compared with the national average. Illinois unemployment rate soared to about 11½ percent in the recession, a worse performance than that of the national economy. It has been declining unevenly in the recovery, but remains far about the ½ percent low in the last business expansion. The unemployment rate is the single best indicator of the relative economic performance of a region. Recent trends in the unemployment rate imply the economy is recovering only slowly. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US). Regional Perspectives: Illinois Economic Outlook Commercial Banking 1

15 Relative House Prices RATIO OF THE STATE S HOUSE PRICES TO THE NATIONAL AVERAGE (1995 Q = 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. Illinois real estate prices mirrored the national run-up and then followed the market down as well. Real estate values have been lagging the national trend in recent years Lagging real estate values are an echo of the state s economic struggles. Source: FHFA. Updated through 1 Q. Regional Perspectives: Illinois Economic Outlook Commercial Banking 15

16 Real Estate Markets HOUSE PRICES IN SELECTED COMMUNITIES (RATIO TO THE 1995 Q LEVEL) The figure tracks the cumulative percentage.5.5 deviation in house prices since 1995 in selected local markets and compares those US Lake County Bloomington Kankakee Chicago Danville Decatur Champaign-Urbana with the national average. The correction of inflated house prices in the last decade now appears to be winding down. Some surveys point to a modest rebound of real estate prices in the Chicago area Peoria Rockford Springfield Chicago (Case-Shiller) KEY MESSAGE: House prices are beginning to stabilize now that they have returned to historically affordable levels Sources: FHFA; Standard & Poor s. Updated through 1 Q. Regional Perspectives: Illinois Economic Outlook Commercial Banking 16

17 New Home Building HOUSING STARTS (RATIO TO THE JULY 199 LEVEL) New home construction in Illinois, compared.. with the US average level of construction. Illinois building activity remains flat and.5 US Illinois.5 disruptive weather this winter has chilled activity further... New home building is expected to pick up 1.5 Forecast 1.5 gradually, in part, spurred by a perception that interest rates may be rising back to more normal levels. Source: Census Department. Updated through March 1 (state) and April 1 (US) Regional Perspectives: Illinois Economic Outlook Commercial Banking 17

18 Office Markets PERCENT OF OFFICE SPACE THAT IS VACANT Office building conditions in Chicago, 5 5 compared with the national average. Office vacancy rates are beginning to drift Chicago metropolitan area down. Commercial real estate conditions should begin to improve in 1 as the local economy firms. 1 1 Source: CB Richard Ellis (formerly CB Commercial Property Information Systems), Office Vacancy Index of the United States. Updated through 1 Q1. 5 All metropolitan areas (shaded area) Regional Perspectives: Illinois Economic Outlook Commercial Banking 18

19 CONTACT: James E. Glassman Telephone: (1) 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.