U.S. & Western NY Economic Outlook Commercial Planning & Analysis Department May 12, 2010

‘10 Seasonally Adjusted at Annual Rate U.S. Real Gross Domestic Product Trillions of Constant Q1:10 Dollars $ 14.6 $14.3 $14.8 Sources: U.S. Bureau of Economic Analysis The Big Picture: The recession’s over, but output remains 1.2% below the 2008 peak Linked Qtr Annualized Percent Change 2009 Q1 -6.4% Q2 -0.7% Q3 2.2% Q4 5.6% 2010 Q1 3. 2% Q1 Growth Drivers Stronger consumer spending +2.6 pts Change in private inventories +1.6 pts Stronger investment in equipment & software +0.8 pts Stronger exports (gross) +0.7 pts

2.4 % RECESSIONRECESSION Inflation-Adjusted Year-Over-Year Percentage Change U.S. Personal Consumption Expenditure Growth Mar Consumers Are Peeking Out of the Foxhole … Real spending in March grew at fastest rate since Aug % average since Jan 1990 RECESSIONRECESSION Source: U.S. Bureau of Economic Analysis RECESSIONRECESSION

‘10 Seasonally Adjusted U.S. Industrial Production - Manufacturing Production Source: Federal Reserve Industrial Production (R) Capacity Utilization (L) Year-over-Year % Change …While Manufacturers Are Easing Off The Brakes As demand improves, factories are ramping up production Capacity Utilization Y-o-Y Chg in Industrial Production

Seasonally Adjusted U.S. Unemployment Rate Apr Source: U.S. Bureau of Labor Statistics 4.4% Mar ‘07 RECESSIONRECESSION RECESSIONRECESSION June ’03 6.3% 9.9 % But not enough to keep the jobless rate from remaining near a 26-year high… RECESSIONRECESSION June ’92 7.8% 5.7% average since Jan 1990

How’s Western NY performing in this environment?

97.4 % 95.3 % ‘10 Based on 12-month moving average employment Western Portion of Upstate NY (counties west of Utica-Rome metro area) United States Source: U.S. Bureau of Labor Statistics Mar Mar ’ % Oct ’ % Less Boom, Less Bust… Net Change From Employment Peak United States -7.1 points Western NY -3.6 points Relative Change in Private Sector Employment Since January 2002 Western New York vs. United States

‘ % (Mar) 9.9 % United States Sources: U.S. Bureau of Labor Statistics, New York State Department of Labor NYS data seasonally adjusted by M&T The regional jobless rate remains nearly two percentage points below the U.S. average Western Portion of Upstate NY Seasonally Adjusted Unemployment Rate Western Portion of Upstate NY vs. U.S.

Year-Over-Year Percentage Change Private Sector Employment Growth Western Portion of Upstate NY vs. U.S % United States -1.3 % Mar ‘10 Western Portion of Upstate NY Source: U.S. Bureau of Labor Statistics WNY job losses are easing and remain below the U.S. average

Illinois Georgia Wisconsin Oklahoma Arizona Kansas California Colorado Nevada Wyoming Year-Over-Year Percentage Change in Private Sector Employment U.S. States – First Quarter 2009 vs Source: U.S. Bureau of Labor Statistics Top 10 States Bottom 10 States 0.7% -0.2% -1.0% -1.5% -1.7% -1.9% -2.1% -2.2% -2.3% -3.8% -3.9% -4.1% -4.2% -4.3% -4.7% -5.3% -6.0% Alaska North Dakota New Hampshire Vermont Western Upstate NY New York Downstate NY Iowa Louisiana Virginia

Utica-Rome Buffalo Syracuse Albany Poughkeepsie / Newburgh New York City Rochester United States Binghamton Source: U.S. Bureau of Labor Statistics Year-Over-Year Percentage Change in Private Sector Employment NYS Metro Areas – First Quarter 2009 vs. 2010

Buffalo Area Trends

Year-Over-Year Percentage Change Private Sector Employment Growth Buffalo Metro Area vs. United States Source: U.S. Bureau of Labor Statistics % % Buffalo ‘10 United States Job losses are easing and remain below the U.S. average

Seasonally Adjusted U.S. and Buffalo Area Unemployment Rate 8.0 % (Mar) 9.9 % Buffalo United States Sources: U.S. Bureau of Labor Statistics, New York State Department of Labor Note: Buffalo data seasonally adjusted by M&T Like most upstate NY metros, Buffalo’s jobless rate remains below the U.S. average—and seems to be diverging from the national trend ‘10

Year-Over-Year Percentage Change Existing Home Price Appreciation Buffalo-Niagara Falls Metro Area vs. United States Source: Office of Federal Housing Enterprise Oversight United States % 1.8 % Buffalo Note: Excludes homes financed with non-conforming loans (subprime, I.O., jumbos, etc.); Includes refis Why is Buffalo Doing So Well? Local price appreciation has topped the U.S. norm since 2007—helping to insulate WNY from major swings in consumer spending 6 th highest appreciation out of 299 Metro Areas measured in Q4 2009

100 Largest U.S. Metro Areas Buffalo-NF Single Family Home Building Permits Per 100,000 Residents Buffalo vs. 100 Largest U.S. Metro Areas * Based on 2008 population Source: U.S. Census Bureau Less Boom, Less Bust WNY home builders avoided speculative over building, preventing a housing bubble from forming

Year-Over-Year Percentage Change Construction Employment Buffalo Metro Area vs. United States Sources: U.S. Bureau of Labor Statistics, New York State Department of Labor % -0.6 % ‘10 United States Buffalo Net Result: Construction job losses are less of a drag on the Buffalo economy

Year-Over-Year Percentage Change Retail Trade Employment Buffalo Metro Area vs. United States Sources: U.S. Bureau of Labor Statistics, New York State Department of Labor % 3.6 % ‘10 United States Buffalo Another Positive As consumer spending stabilizes, retail hiring starts to rebound

Year-Over-Year Percent Change in Automobile Traffic Into U.S. via Four Buffalo Area Bridges (Left Scale – RED) Exchange Value of Canadian Dollar Per U.S. Dollar (Right Scale – BLUE) Stronger Canadian Dollar Lends a Hand… Sources: Federal Reserve, Niagara Falls and Peace Bridge Commissions Canadian Dollar is at Par with U.S. Change in Automobile Crossings Can. Dollar Exchange Rate In USD

‘10 Buffalo Consumer Confidence Buffalo Metro Area vs. United States Index: 1996 Q1 = 100 United States Sources: Siena Research Institute, University of Michigan A Long, Slow Climb Ahead Confidence is slowly improving, but remains well below pre-recession levels

Rochester Area Trends

Year-Over-Year Percentage Change Private Sector Employment Growth Rochester Metro Area vs. United States Source: U.S. Bureau of Labor Statistics % % Rochester ‘10 United States Job losses are easing and remain below the U.S. average

Share of Total Private Sector Employee Compensation* Health Care & Education Payroll Income Rochester Metro Area vs. United States Rochester 1,800 net new jobs created over the past 12 months (+1.8%) United States ‘ % 15.9 % * 4-Quarter running total Sources: U.S. Bureau of Labor Statistics A Nice Shock Absorber… Health care & education are a major source of stability for the Rochester economy

Share of Total Private Sector Employee Compensation* Manufacturing Payroll Income Rochester Metro Area vs. United States Rochester 6,100 net jobs lost over the past 12 months (-9.3%) United States ‘ % 13.6 % * 4-Quarter running total Sources: U.S. Bureau of Labor Statistics …To Help Offset Factory Layoffs Industrial payrolls continue to shrink, but remain a major income source

1.6% 2.1% -0.2% -2.0% -1.1% -4.8% -2.4% -3.2% -9.3% Source: U.S. Bureau of Labor Statistics Health Care Services Private Education Financial Activities Construction Retail (Ex. Food Stores) Wholesale Trade Leisure & Hospitality Professional & Business Services Manufacturing Percentage Change Manufacturing layoffs account for 71% of 2010 job losses, even though they make up just 12% of total employment Year-Over-Year Absolute Change Rochester Area Job Gain/Loss – Q1 2010

Total Private Sector Payroll Income Rochester Metropolitan Area Manufacturing vs. Education & Health Care Manufacturing Health Care & Education ‘09 $ 3.7 $ 3.8 * 4-Quarter running total Sources: U.S. Bureau of Labor Statistics Billions

Federal Reserve Bank of New York NYS Manufacturing Activity Index Index Numbers Above 0 = Expansion 31.9 Increase Decrease NET 2009 Oct 51.1% 17.6% Nov 41.3% 19.0% Dec 24.5% 20.0% Jan 33.1% 17.2% Feb 41.6% 16.7% Mar 43.3% 20.4% Apr 47.5% 15.6% Positive Outlook NYS manufacturing activity (most of which is Upstate) is rising once again

ROCHESTER Buffalo Binghamton Syracuse U.S. Metro Area Average Manufacturing Share of Gross Metropolitan Product Upstate NY Metro Areas vs. United States Industrial Impact Stronger factory output should provide a key boost to the Upstate NY economy during the second half of 2010

The New Normal? With less consumer spending, real sales tax receipts have shifted downward by 8.5% since mid-2008 But are up 0.8% since November ‘10 Constant March 2010 Dollars (millions) Monroe, Livingston, Ontario, Orleans & Wayne counties Note: data are cash sales tax collections (excluding EFTs) for county governments only—excluding cities and school districts Sources: NYS Department of Taxation & Finance, U.S. Bureau of Economic Analysis $ 525 Inflation Adjusted 12-Month Running Total County Sales Tax Collections in the Rochester Metropolitan Area

‘10 Rochester 26.8 % 14.5 % Year-Over-Year Percentage Change Consumer Confidence Rochester Metro Area vs. United States Positive Outlook Confidence is starting to improve, easing downward pressure on household spending Sources: Siena Research Institute, University of Michigan United States

Syracuse Area Trends

Source: U.S. Bureau of Labor Statistics % % Year-Over-Year Percentage Change Private Sector Employment Growth Syracuse Metro Area vs. United States A Recurring Pattern Job losses have been less severe than the national norm Syracuse ‘10 United States

Seasonally Adjusted U.S. and Syracuse Area Unemployment Rate 8.0 % (Mar) 9.9 % Syracuse United States Sources: U.S. Bureau of Labor Statistics, New York State Department of Labor Note: Syracuse data seasonally adjusted by M&T Consistent with other upstate metro areas, Syracuse’s jobless rate remains well below the U.S. average ‘10

4.0% 1.7% 2.2% 3.5% -1.9% -8.8% -5.9% -5.8% -6.1% Source: U.S. Bureau of Labor Statistics Private Education Health Care Services Leisure & Hospitality Construction Retail Transportation Wholesale Trade Financial Activities Manufacturing Percentage Change Transportation & wholesale trade layoffs account for 37% of 2010 job losses, even though they make up just 7% of total employment Year-Over-Year Absolute Change Syracuse Area Job Gain/Loss – Q1 2010

Source: U.S. Bureau of Labor Statistics * 12-month moving average 17.9 % 22.8 % Percentage of Average Private Sector Jobs* Health Care & Private Education Employment Syracuse Metro Area vs. United States Similar to Rochester Evolving labor market insulates Syracuse economy Syracuse ‘10 United States

Source: U.S. Bureau of Labor Statistics -11.3% 4.8 % Year-Over-Year Percentage Change Construction Employment Syracuse Metro Area vs. United States Another Positive… Building activity continues to support local economy Syracuse ‘10 United States

Source: U.S. Bureau of Labor Statistics % % Year-Over-Year Percentage Change Wholesale Trade & Transportation Job Growth Syracuse Metro Area vs. United States …But Also a Negative Local job losses remain well above the U.S. average Syracuse ‘10 United States

Syracuse Consumer Confidence Index Syracuse Metro Area vs. United States Slowly Getting Back On Our Feet… Consumer sentiment is improving — but will remain fragile until the jobless rate begins to shrink Sources: Sienna Research Institute, University of Michigan United States ‘10

Source: U.S. Bureau of Labor Statistics * 12-month moving average 18.3 % 21.1 % Percentage of Average Private Sector Jobs* State and Local Government Employment Syracuse Metro Area vs. United States Potential Storm Cloud Will NYS budget woes hurt state & local employment levels? Syracuse ‘10 United States

Economic Outlook ?

‘10 Economic Cycle Research Institute U.S. Leading Economic Index Index Components Money supply (M2) Commodity prices Mortgage purchase applications Corporate bond quality spread NYSE Composite Index Ten-year Treasury yield Initial jobless claims Indicates a turning point in the economic cycle when changes in the direction of the index are persistent, pronounced, and pervasive over several months. Designed to turn down before a recession and turn up before an expansion Apr 30 Index 1992 = Month Outlook Further growth appears to be on the horizon… Weather- related dip

Institute For Supply Management U.S. Manufacturing Activity Index Index Numbers Greater Than 50 = Expansion 60.4 "Manufacturers continue to see extraordinary strength in new orders, as the New Orders Index has averaged 61.6 percent for the past 10 months.” “…signs for employment in the sector continue to improve as the Employment Index registered its fifth consecutive month of growth.” “…Overall, the recovery in manufacturing continues quite strong, and the signs are positive for continued growth." Norbert Ore—ISM Business Survey Committee chairman …led by a rebound in manufacturing, where activity expanded for the 9 th consecutive month in April

Inflation-Adjusted Percentage Change From Previous Quarter at Annualized Rate Fixed Investment in Equipment & Software by U.S. Businesses Business Spending Takes the Lead Capex is rebounding as firms move forward with necessary investments that were postponed over past several years FORECAST Sources: U.S. Bureau of Economic Analysis M&T Bank forecast

Q4 U.S. Household Debt Service Ratio As a Percent of Disposable Income 12.60% Q % Average Since % Source: Federal Reserve Sobering Reality Consumers will continue to repair battered balance sheets by saving & paying down debt for at least another year, keeping a lid on economic growth

-0.6 % RECESSIONRECESSION Inflation-Adjusted Year-Over-Year Percentage Change U.S. Personal Income Ex. Transfer Payments Mar Income Drag Persists Ex. government payments, real income remained below year-ago levels for the 26 th consecutive month 2.3% average since Jan 1990 RECESSIONRECESSION Source: U.S. Bureau of Economic Analysis RECESSIONRECESSION

Months’ Supply of Available Homes U.S. Single Family Homes For Sale Sources: U.S. Census Bureau, NAR RECESSIONRECESSION Existing Homes New Homes Months Supply At Current Sales Rate RECESSIONRECESSION Mar Jan: Housing Drag The housing market will face significant pressure for at least another year as inventory levels remain well above historic norms

Seasonally Adjusted U.S. Unemployment Rate Forecast FORECAST 10.0% 9.5% 8.9 % Labor Drag The jobless rate will remain elevated for an extended period Sources: U.S. Bureau of Labor Statistics, M&T estimates

Seasonally Adjusted at Annual Rate U.S. Real Gross Domestic Product Trillions of Constant Q1:10 Dollars $ 15.4 $14.3 $14.8 Sources: U.S. Bureau of Economic Analysis, M&T estimates Linked Qtr Annualized Percent Change 2010 Q1 3.2 % Q2 2.9 % Q3 3.0 % Q4 3.1 % 2011 Q1 3.1 % Q2 2.9% Q3 3.1 % Q4 3.2% FORECASTFORECAST $14.9 Modest Recovery The economy should expand by 3.0% in 2010 and by 3.1% in 2011—positive, but below historic norms

Federal Government Expenditures As a Percent of GDP Source: Congressional Budget Office Uncle Sam Lends a Hand Fiscal policy helps support growth— but what comes next? % % % % % % Year-Over-Year Spending Increase 25.1 % CBOFORECASTCBOFORECAST 25.4% 0.8% 1.4% 2.5% 1.3% (1.5%) (3.4%) (3.5%) (2.6%) (1.9%) (1.2%) (3.2%) (9.9%) (10.6%) (8.3%) Surplus/ Deficit as % of GDP

Year-Over-Year Percentage Change U.S. Pre-Tax Corporate Profit Forecast Over Next 12 Months A Critical Handoff Business profits will have to continue rising to offset the stimulus wind down

United States -2.4% 3.1% 2.6% Canada -2.6% 3.1% 3.2% Mexico -6.5% 4.2% 4.5% Euro Zone -4.1% 1.0% 1.5% China 8.7% 10.0% 9.9% India 5.7% 8.8% 8.4% World -0.6% 4.2% 4.3% Real GDP Growth Forecast by Region Source: International Monetary Fund, April 2010

Fed Funds Month LIBOR Year Treasury Year Treasury Year Mortgage Inflation – CPI Interest Rate Forecast Q4 Q1 Q2 Q3 Q4 Q1

Questions?

Western NY* Private Sector Employment Manufacturing Jobs (000s) Non-Manufacturing Jobs (000s) Net Loss in Manufacturing Jobs: 98,400 (-41.0%) Net Gain in Non-Manufact. Jobs: 59,000 (+6.4%) Manufacturing (L) Non-Manufacturing (R) Source: U.S. Bureau of Labor Statistics Data are 12-month moving averages Job Growth Hokie Pokie Factory job losses offset gains in non-manufacturing employment * Buffalo, Rochester & Syracuse metro areas

Relative Decrease in Manufacturing Employment Since January 1999 Western New York vs. United States % % Western NY* RECESSIONRECESSION RECESSIONRECESSION Data are 12-month moving averages Western NY factory employment has declined at a 4.7% annual rate since 1999—modestly faster than the 3.5% nation average decrease Source: U.S. Bureau of Labor Statistics * Buffalo, Rochester & Syracuse metro areas United States

Manufacturing Share of Private Employment Western & Downstate New York vs. United States Source: U.S. Bureau of Labor Statistics 10.9 % 12.7 % Western NY* Downstate NY 4.0 % United States Despite the long-term decline in factory jobs, the WNY region still relies on manufacturing to a greater extent than the U.S. overall * Buffalo, Rochester & Syracuse metro areas

‘ % 2.2 % Mar Tortoise vs. Hare… Job growth outside the factory sector has been less volatile than for the U.S. overall Western New York vs. United States Increase in Private Non-Manufacturing Jobs Since January 2002 Western NY* United States Increase In Average Number Of Jobs From Total At Start of 2002 * Buffalo, Rochester & Syracuse metro areas

Increase In Average Number Of Jobs From Total At Start of 2002 Net Gain: 12,700 jobs 8.4 % Western New York vs. United States Increase in Professional & Business Services Jobs Since January ‘10 Mar Source: U.S. Bureau of Labor Statistics Opportunity #1 WNY has topped the U.S. growth rate over the past 6 years—can we continue to build on this progress? 0.5 % Western NY* United States * Buffalo, Rochester & Syracuse metro areas

Opportunity #2: Job creation at WNY colleges & universities has also topped the U.S. norm—how can we leverage this advantage? Increase In Average Number Of Jobs From Total At Start of 2002 Net Gain: 14,500 jobs 25.8 % Western New York vs. United States Increase in Private Education Employment Since January 2002 Source: U.S. Bureau of Labor Statistics 22.8 % Western NY United States ‘10 Mar * Buffalo, Rochester & Syracuse metro areas

Opportunity / Challenge: While health care has been a steady source of job creation, WNY has not kept pace with the national norm— can we ramp up growth with further investment in our medical sector? Increase In Average Number Of Jobs From Total At Start of 2002 Net Gain: 19,700 jobs 11.7 % Western New York vs. United States Increase in Private Health Care Services Jobs Since January 2002 Source: U.S. Bureau of Labor Statistics 22.7 % Western NY United States ‘10 Mar Note: includes social services * Buffalo, Rochester & Syracuse metro areas