Economic Update New York Bankers Association

Economics

Economic Update

New York Bankers Association

November 13, 2020

Charles W. Calomiris Chief Economist and Senior Deputy Comptroller for Economics

Key Takeaways

Real GDP growth in 3Q:20 was historically high, but did not return output to pre-COVID levels and masked a slowing recovery

The strength and speed of recovery is uncertain and will largely depend on the virus and policy responses to the path the virus takes this year and next

New York state is mired in one of the deepest recessions in its history and is among the furthest from its pre-pandemic state, but the recovery is underway

Banks in New York initially suffered a larger drop than the overall Community bank aggregate performance

NY banks in this recovery were growing faster but faced higher costs and NIM pressures which held performance slightly below peers

NY banks have ? of their loan portfolio in real estate with CRE dominant share so the path for CRE will have a large impact on performance

2

Agenda

Overview of general economic conditions Impact on banks

3

Consensus forecasts above trend growth in 2021 with unemployment remaining over 6 percent

Real GDP, % change annual rate

Quarterly average unemployment rate, %

3.0 2.2

5 3.9 4

3 2

1

0

Blue Chip consensus

-1

forecast:

average of over

-2

50 economic

forecasters

-3

Recession

-4.0

-4

-5

07 09 11 13 15 17 19 21

Official rate

April

14.7

May

13.3

June

11.1

July

10.2

August 8.4

September 7.9

Adjusted for errors 19.5 16.4 12.3 11.2 9.1 8.3

9.9

18

16.1*

16

14

13.0

12

10

8.8

8

6.3 6

4

Recession

3.5

2

07 09 11 13 15 17 19 21

Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Blue Chip Consensus (October 2020)

*Quarterly official U.S. unemployment rate adjusted for misclassification error noted by BLS.

4

Wide range in baseline forecasts of growth and unemployment shows high degree of uncertainty

Real GDP growth, baseline forecasts, quarterly change at an annualized rate, %

7

Top 10 pessimistic avg.

B.C. consensus

6

Top 10 optimistic avg.

5

4

3

2

U.S. unemployment rate, baseline forecasts %

10

Top 10 optimistic avg.

B.C. consensus

Top 10 pessimistic avg.

9

8

7

6

1

5

4Q:20

0 4Q:21

Source: Blue Chip Consensus Forecast (October 2020)

4Q:20

4Q:21

4

5

Why is this not a normal cycle? COVID-19 has created unusual economic conditions

Monthly unemployment rate (%) 16 14 12 10 8 6 4 2

Avg. % change in #

0

of small businesses open

-10

-20

% change

from

-30

January

2020

-40

-50

Mortgage delinquency rate

16

14

12

10

8

6

4

2

0

03/20 04/20 05/20 06/20 07/20 08/20 09/20 10/20 11/20

Personal income

15

Total income, % 10

change from Jan.

5

0

-5

Income (exc. stimulus and unemployment insurance), % change from Jan.

-10

-15

S&P 500

3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000

Housing starts, millions

1.7

1.5

1.3

1.1

0.9

0.7

Sources: BLS; Homebase; Mortgage Bankers Association; BEA; Standard and Poor's; Census Bureau 6

Labor market improved in October, but monthly job gains continued to shrink

Change in monthly total U.S. nonfarm employment, millions

4.8

6

0.2

0.3

2.7

4

1.8

1.5

0.7

0.6

2

0

-1.4

-2

-4

-6

February to October change in

-8

nonfarm employment: -10.1 million or -6.6%

-10

-12

-14

-16

-18

-20

-20.8

-22

Source: BLS (SA; employment data through October 2020) 7

Consumer sentiment remains low in the face of continued restrictions and virus outbreaks

Survey of Consumer Sentiment: Current Economic Conditions

130 120 110 100 90 80 70 60 50

Sources: University of Michigan (October 2020) 8

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