Kurt J. Rankin Asset & Liability Management May 21, 2019 Economic Outlook Economic Outlook Kurt J. Rankin Asset & Liability Management May 21, 2019

Surpise Q1 Bodes Well for 2019 Business investment & consumption provide solid economic fundamentals Real GDP, (Annualized % change) Source: Bureau of Economic Analysis; The PNC Financial Services Group

Full Employment is Pushing New Limits Unemployment Rate reflects a healthy economic environment Unemployment Rate, (%, SA) Source: Bureau of Labor Statistics

“Full Employment” Is A Relative Term Labor force participation reflects mid-70s levels; early-80s trend conditions Labor Force Participation Rate: Total, (%, SA) 4% (=67% - 63%) of Resident Population 16+ (=257 mil.) = 10 mil. Assume retirement… = 5 mil. Assume half have jobs, half not… Unemployment Rate = 5.1% Source: Bureau of Labor Statistics

Demographic Changes Are Afoot New demand for labor means ‘prime age’ workers will have to stay on track Labor Force Participation Rate, (%, SA) Source: Bureau of Labor Statistics

Consumer Spending Potential Remains Strong Household debt has room to responsibly rise and spur job creation % of disposable income, SA Source: Federal Reserve; Bureau of Economic Analysis

Corporate Profits re-Setting the Bar Profit growth refuses to bow to historic norms % change year-ago Source: U.S. Federal Reserve; Bureau of Economic Analysis

Yield Curve Implications Highly contrived monetary policy conditions belie this Recession Predictor’s value Fed Funds Rate, (%, NSA) Source: U.S. Federal Reserve

‘Trade War’ Implications Consumer prices – and thus recession potential – inextricably tied to import costs % change year ago Source: Bureau of Economic Analysis

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