U.S. Economic Outlook Focus on Market Fundamentals Daniel De Castro Senior Economist – Southern Company 8 June 2016

Key factors determining our short-term sales growth and the level of economic activity: Economic Growth Economic Growth Jobs Net Migration Net Migration Growth in Household s Growth in Household s Housing Market Recovery Housing Market Recovery Residential Sales Residential Sales Commerci al Sales Commerci al Sales Labor Productivit y Capital Potential GDP Labor Force Unemployment Population Energy Business Investment Education Our framework for understanding the economy Growth of population and capital will determine the long-term growth of the U.S. economy 2 Sources: Southern Company

Historically, electricity sales have moved in tandem with the economy Electricity sales in our region being driven by growth in population and capital Sources: Southern Company 3

Sources: U.S. Bureau of Economic Analysis (BEA) The U.S. economy continues to perform relatively well The recovery remains on track supported by robust employment growth and consumer spending 4

The U.S. consumer continues to power the current economic expansion Consumer spending growth depends on disposable income growth, which continues to strengthen 5 Sources: U.S. Bureau of Economic Analysis (BEA)

Sources: U.S. Bureau of Labor Statistics (BLS) Population growth is a key driver of long-term economic growth Georgia continues to see faster population growth than the nation, boosted by net migration 6

The U.S. labor market remains solid with more jobs and more pay The number of Americans working or looking for work continues to increase Sources: U.S. Bureau of Labor Statistics (BLS) 7

Employers are creating more vacancies as consumption grows at a healthy pace Job openings remain near a 14 year record high reaching 5.7 million in March 2016 Sources: U.S. Bureau of Labor Statistics (BLS) 8

Georgia continues to outpace the U.S. in employment growth Georgia added over 400k jobs since 2010 and employment is now 2.2% above its pre- recession peak Sources: U.S. Bureau of Labor Statistics (BLS) 9

Wage gains continue to outpace price inflation Most measures show wage growth acceleration consistent with a market close to full employment Sources: U.S. Bureau of Labor Statistics (BLS), U.S. Bureau of Economic Analysis (BEA) 10

Consumers in the United States are feeling better by nearly every measure Consumer confidence and spending continue to improve despite persistently slow income growth 11 Sources: The Conference Board, University of Michigan

The recovery in housing markets is gaining momentum Sustained job growth will support housing demand, while tight supply will drive up prices 12 Sources: U.S. Census Bureau, U.S. Federal Housing Finance Agency (FHFA); Freddie Mac; Fannie Mae

Multifamily units will account for about one-third of housing starts New construction continues to favor apartments, which pack less of an employment/GDP punch 13 Sources: U.S. Census Bureau

Sources: Southern Company High share of multifamily housing partly due to demographic shifts Each SF home adds about 3 jobs, about 2.5 times the jobs that a unit in a MF building creates 14

Manufacturing remains weak but recent data suggests that the worst may be over Manufacturing is struggling with soft demand, (still) low commodity prices and a strong dollar Sources: U.S. Board of Governors of the Federal Reserve System (FRB) 15

The weakest part of the U.S. economy isn't exactly screaming recession In every recession back to 1973, about 70% of manufacturing sectors had y/y production declines Sources: U.S. Board of Governors of the Federal Reserve System (FRB) 16 44%

Some of SOCO industrial segments continue to experience some weakness Industrial sales growth in SOCO has softened due to weak export demand and a strong dollar Industrial Segments Segment Q12015 Q22015 Q32015 Q Q1Observations Chemicals Weakness in domestic demand and plant outages/maintenance turnarounds Primary Metals More competition from cheap imported products (China) Non Mfg Continued weakness in global commodity markets - excess of supply in coal markets Paper Customer specific growth (Gulf) Transportation Strong demand for motor vehicles Stone, Clay, Glass Sustained recovery in the housing sector Textiles Specific customer related issues in Georgia Pipeline Mild winter and low natural gas prices Petroleum Volatility in crude oil prices and softness in demand; plant outage Lumber Strong sustained recovery in the housing sector Sources: Southern Company 17

Manufacturing expanded for the second straight month, albeit at a slower pace A jump in new orders and production suggests that the manufacturing sector has hit bottom Sources: Institute for Supply Management (ISM) 18

The strong U.S. dollar continues to weigh on exports and reduces inflation The dollar has weakened recently, but it has accelerated 19% against major currencies since 2014 Sources: U.S. Department of Labor 19

China’s economic growth will downshift in the long run China’s economic growth in 2015 was the slowest in 25 Years – China's GDP grew 6.9% in 2015 Sources: IHS Economics 20

Volatility in oil prices remains despite prices recovering from record lows Active rotary rigs are falling and energy related investment and jobs have been slashed in half Sources: Baker Hughes, U.S. Bureau of Economic Analysis (BEA), U.S. Energy Information Administration (EIA) 21

Lower energy prices did provide an initial boost to consumer spending Though not all the gasoline windfall was spent and consumers opted to pocket savings at the pump Sources: U.S. Bureau of Economic Analysis (BEA) 22

Consumers’ balance sheets look about as good as they ever have Household debt growth continues to lag income gains and debt burdens are at a record low Sources: U.S. Board of Governors of the Federal Reserve System (FRB), Moody’s Analytics 23

Cheap oil has been good news for auto producers with growing vehicle demand Total sales averaged 17.4 million in 2015 with light trucks reaching their highest share since 2004 Sources: AutoData 24

More Americans appear to be eating food away from home in recent months Some of the savings at the pump seem to have been spent at restaurants and bars 25 Sources: IHS Economics

The U.S. is still positioned as a worldwide leader in terms of labor productivity And also leads in competitive manufacturing vs. the world’s 10 largest exporters Sources: Boston Consulting Group (BCG) 26

The U.S. economy continues to grow supported by robust employment growth, a steady recovery in the housing sector and strong consumer spending. Consumer spending is being supported by rising incomes and low inflation. Manufacturing production will decline through the first half of A strong dollar, low oil prices, and weak global growth conditions continue to restrain industrial sector growth. Foreign trade will be a drag on GDP growth due to a strong dollar and sluggish growth in export markets. Despite the economic headwinds blowing from overseas, the U.S. economy should be able to push forward. GDP is expected to grow at 1.8% for 2016 and 3.0% in U.S. consumers will continue to lead the way, as they have nothing but tailwinds. Consumers have plenty of savings, as they have stashed away most of what they saved on their lower gasoline bills and growing optimism about the availability of jobs is giving consumers the confidence to spend their money. Recent employment reports have been solid as measures of labor market underutilization improved, but wage growth remains tepid, at best. Faster wage growth will boost income and lead to stronger growth in consumer spending, driving greater employment and increased demand for housing in If the U.S. job market continues to strengthen – and, more importantly, if wages start to rise – Americans will feel confident that the economic recovery will be sustained, and we might see stronger consumer spending. Overall economic growth has slowed, but this should prove temporary The U.S. economy will move from an economic recovery to above-trend growth 27

Thank you! Daniel De Castro Senior Economist – Southern Company