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2nd Quarter 2016 COLUMBUS Stuart Hoffman Chief Economist Gus Faucher Deputy Chief Economist THE PNC FINANCIAL SERVICES GROUP | William Adams Senior Economist Kurt Rankin Economist Mekael Teshome Economist The Tower at PNC Plaza | 300 Fifth Avenue | Pittsburgh, PA 15222-2401 JOB SITUATION Job growth in Columbus accelerated going into 2016 and the market area remains one of the strongest performers in Midwest (Chart 1). Manufacturing was volatile in 2015 but other economic drivers, namely finance, healthcare, education and professional services, continue to provide strong support thanks to rapid population growth. Attesting to the strength of Columbus’ economy, private sector employment is now more than 10 percent higher than its prerecession peak, compared with less than 5 percent nationwide. The local unemployment rate rose to 4 percent in December 2015 from September 2015. However, this was entirely due to labor force growth outpacing job growth and can be interpreted as a sign of confidence in the local labor market. Also encouraging is that the public sector’s multiyear attrition paused in the final two quarters of 2015, giving some support to regional jobs and income. Chart 1 Job Growth, (% change year ago) & Unemployment Rate, (%, SA) 6% PNC fore cast 5% 4% 3% 2% 1% 0% -1% 14 15 16 17 Unemployment Rate Total Manufacturing Services (ex. Ed. & HC) Chart sources: Bureau of Labor Statistics; The PNC Financial Services Group INCOME A tighter labor market will help lift wages faster in the second half of 2016, while the large drop in gasoline prices over the past year and a half will boost real disposable incomes through slower consumer price inflation. Average wages rose at more than twice the national rate as fast job gains in higher wage services outpaced gains in low-wage services. The median income in the area is relatively high for the Midwest (Chart 2). Finance, business services, education and healthcare dominate the economy and offer wellpaying and stable jobs. Although manufacturing is a relatively small portion of the local economy, the jobs tend to be with better performing firms and have annual earnings that are higher than state and national averages. Although per capita income in the region is close to the U.S. average, living costs are below average, so purchasing power in the region is stronger than elsewhere in the U.S. Columbus is an excellent example of the benefits of industrial diversification with an emphasis on higher learning— the end result is high and stable wages. Chart 2 Median Household Income (Ths. $, SA) $62K PNC fore cast $61K $60K $59K $58K $57K $56K $55K $54K $53K 14 15 16 17 Median Household Income Chart sources: Bureau of Census; Moody’s Analytics; The PNC Financial Services Group COLUMBUS Chart 3 Home Sales (Ths., SAAR) & Price Growth, (% change year ago) HOUSING Columbus’ mature economic expansion and great demographics will prop up the housing market over the next couple of years. High affordability, increased access to credit and continued jobs and income growth will lift home sales (Chart 3). Even though mortgage rates will rise, they will remain low by historic comparisons. The area’s housing supply is relatively tight because of the low vacancy rate and strong household formations generating demand for homes. Also, strong demand for housing from institutional investors helped reduce the inventory of foreclosed properties in Central Ohio. Though still at a low level, single-family starts are perking up. Multifamily construction will be an important driver of construction, in part, because of the above-average share of the population that is between ages 18 and 34. The large presence of colleges and universities attracts people in this cohort who are more likely to be renters. Finally, housing remains affordable, despite the price increases of recent years. House prices will continue to rise at a moderate pace over the next couple of years. 6.0% 47.5K 47.0K 5.5% 46.5K 46.0K 5.0% 45.5K 4.5% 45.0K 44.5K 4.0% 44.0K 43.5K 3.5% 43.0K 3.0% 42.5K 14 15 16 Existing Home Sales (R) 17 Case-Shiller Price Index (L) Chart sources: National Association of Realtors; Fiserv, Inc.; The PNC Financial Services Group Chart 4 Demographic Growth, (% change year ago) & Net Migration, (Ths., SA) DEMOGRAPHICS Large, stable employers provide Columbus with demographic trends that run contrary to usual Midwestern patterns (Chart 4). A strong job market attracts a large number of in-migrants and this enables population growth to routinely outperform the national pace. The presence of Ohio State University and national business powerhouses such as JP Morgan Chase, Nationwide Insurance and OhioHealth is also a draw for students and young professionals. As a result, the metro area’s median age is 35.7 years, versus 37.5 years in the U.S., and the share of the population between ages 18 and 34 is much higher than the national average. The relative youthfulness of the population helps Columbus maintain a higher-thanaverage labor force participation rate which is a plus for its long-term economic potential. The population is well-educated with 35 percent of adults over age 25 with at least a bachelor’s degree. That rate is 27 percent and 30 percent in Ohio and the U.S., respectively. A well-diversified economy and affordable living costs will maintain the market area’s favorable demographic trends for the foreseeable future. PNC fore cast 4.4K PNC fore cast 4.0K 3.6K 2.5% 2.0% 3.2K 2.8K 1.5% 2.4K 2.0K 1.0% 1.6K 1.2K 0.5% 0.8K 0.4K 0.0K 0.0% 14 15 Net Migration (L) 16 17 Population Growth (R) Households Growth (R) Chart sources: Bureau of Census; Bureau of Economic Analysis Moody’s Analytics; The PNC Financial Services Group 2 COLUMBUS OUTLOOK SUMMARY Columbus’ economy is at cruising speed and is set for another year of strong job growth. Finance, professional services, education and healthcare are likely to be the primary growth drivers in the near term. Stronger consumption spending nationwide will boost the region’s manufacturers, especially its auto-related producers. The unemployment rate will likely range between 3.5 and 4 percent for the rest of this year as moderate labor force growth partially offsets job creation. The tighter labor market will fuel wage growth at faster rate than the national average. Gasoline prices that are about two dollars per gallon cheaper than their recent peak in 2014 will free up a considerable amount of money for consumers to either save or spend and will boost purchasing power through slower consumer price inflation. Columbus will remain among the growth leaders in the Midwest, even as the region’s economy settles into its long-term growth rate. One of Columbus’ advantages is that economic growth is generally stable—neither overheating so as to open the economy up to sharp economic collapse, nor sinking drastically during downturns. This implies that even if it bested the U.S. during the economic recovery, Columbus’ pace of job growth will likely approximate the nation’s as the macro-economy transitions into an above-average growth phase. Longer term, a diverse industrial base, healthy population growth, a young and educated workforce, and low living and business costs will underpin the market area’s economic potential. Regional transportation and processing offer Columbus opportunities to exceed expectations. The market area is the geographic center of Ohio and easily links the East Coast to Chicago, Indianapolis and St. Louis. FORECAST TABLE Employment Growth, (% change) Unemployment Rate, (%) Median Household Income, (Ths. $) House Prices**, (% change) Single-Family Permits* (% change) Multifamily Permits* (% change) 2015 2.1 5.3 53.7 4.6 10.2 11.6 U.S. 2016F 1.7 4.8 55.2 5.1 8.2 0.4 2017F 1.3 4.7 56.4 3.4 4.4 1.3 2015 2.4 4.0 58.1 4.2 -1.5 -2.5 Columbus 2016F 2.1 3.6 59.3 4.3 15.3 11.5 2017F 1.6 3.6 60.7 4.1 3.8 2.0 *U.S. starts, F = PNC forecast, **Case-Shiller House Price Index Employment Growth, (% change) Unemployment Rate, (%) Median Household Income, (Ths. $) House Prices**, (% change) Single-Family Permits* (% change) Multifamily Permits* (% change) U.S. 2007-2012† 2012-2017† -0.6 1.7 7.7 6.1 50.8 54.4 -4.8 0.7 -12.3 8.4 -4.2 10.2 Columbus 2007-2012† 2012-2017† 0.1 2.2 7.2 4.8 51.7 56.9 -1.3 4.5 -7.6 7.0 13.4 0.1 *U.S. starts, †per annum, **Case-Shiller House Price Index Table sources: Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis; National Association of Realtors; National Association of Home Builders; FHFA; Moody's Analytics; The PNC Financial Services Group 3 COLUMBUS LONG-RUN EMPLOYMENT TRENDS Chart 5 Total Employment, (% change year ago) PNC fore cast 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% 02 03 04 05 06 07 08 09 10 11 Columbus 12 13 14 15 16 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% 17 U.S. Chart sources: Bureau of Labor Statistics; The PNC Financial Services Group LONG-RUN DEMOGRAPHIC TRENDS Chart 6 Population, (% change year ago) PNC fore cast 1.6% 1.2% 0.8% 0.4% 0.0% 02 03 04 05 06 07 08 09 10 Columbus 11 12 13 14 15 16 17 U.S. Chart sources: Bureau of Census; Moody’s Analytics; The PNC Financial Services Group LONG-RUN HOUSE-PRICE TRENDS Chart 7 Case-Shiller House Price Index, (% change year ago) PNC fore cast 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% -20% -20% 02 03 04 05 06 07 08 09 Columbus 10 11 12 13 14 15 16 17 U.S. Chart source: National Association of Realtors; Fiserv, Inc.; The PNC Financial Services Group Visit http://www.pnc.com/economicreports to view the full listing of economic reports published by PNC’s economists. Disclaimer: The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. 4