April 3, 2014

Economic Forecast OUTPUT AND EMPLOYMENT

WHAT THE TABLE SHOWS:  Michigan’s GDP forecast is derived from the

2007

2008

2009

2010

2011

2012

2013

2014

2015

of the 50 states based on employment

United States

shares. So, forecast misses reflect surprises

Real GDP $ billions (fourth quarter) % change over the four quarters

national forecast by allocating output to each

$14,996

$14,575

$14,540

$14,942

$15,242

$15,540

$15,933

$16,490

$17,109

1.9%

-2.8%

-0.2%

2.8%

2.0%

2.0%

2.5%

3.5%

3.8%

in the aggregate forecast as well as unexpected shifts in a state’s GDP share.  Michigan is reviving like the national

Nonfarm employment Job count (fourth quarter) % change over the four quarters Average monthly change

138,246,000 135,493,667 129,877,667 130,652,000

132,642,667

134,853,667

137,247,667

139,209,881

141,187,603

0.9%

-2.0%

-4.1%

0.6%

1.5%

1.7%

1.8%

1.4%

1.4%

101,667

-229,361

-468,000

64,528

165,889

184,250

199,500

163,518

163,518

economy.

KEY MESSAGES:  Michigan’s economy is forecast to continue

Michigan

to gradually accelerate into 2014 and 2015.

Real GDP $ billions (fourth quarter) % change over the four quarters

$359

$334

$320

$334

$344

$351

$358

$371

$385

-2.3%

-7.2%

-4.0%

4.4%

3.0%

2.0%

2.1%

3.5%

4.0%

4,246,300

4,081,767

3,835,100

3,891,500

3,987,033

4,030,833

4,095,000

4,163,571

4,232,685

Nonfarm employment Job count (fourth quarter) % change over the four quarters

-1.2%

-3.9%

-6.0%

1.5%

2.5%

1.1%

1.6%

1.7%

1.7%

Average monthly change

-4,133

-13,711

-20,556

4,700

7,961

3,650

5,347

5,714

5,759

Regional Perspectives: Michigan Economic Outlook

Note: GDP figures are based on quarterly values that are interpolated from annual GDP estimates using quarterly employment changes. Unbolded figures are reported actual values and bold figures represent forecasts. Sources: US Department of Commerce; US Department of Labor.

Commercial Banking

2

April 3, 2014

The Economy’s Structure PERCENT OF TOTAL GDP DERIVED FROM SELECTED INDUSTRIES

WHAT THE CHART SHOWS:  The figure compares the relative importance of

14

selected industries to the state’s economy with

12

the national footprint of each industry (state US industry mix

10

and national figures reflect the value added of

Michigan industry mix

each industry as a percent of aggregate state

8

or US nominal GDP, respectively).

6

 Michigan’s outsized exposure to manufacturing

Government

Other services

Hotel and food service

Arts, entertainment, and recreation

Health care and social assistance

Educational services

Administrative and waste management services

Management of companies

Professional and technical services

Real estate

Finance and insurance

Information

Transportation

Retail trade

Wholesale trade

Nondudrable manufacturing

Durable manufacturing

Construction

0

Utilities

transformation of industry in this decade. Mining

underscores its vulnerability to the

2 Agriculture

4

 Away from the disproportionately large footprint of the motor vehicle industry, the state’s economy generally mirrors the composition of the national economy.

KEY MESSAGES:  The state’s services businesses bring some stability to its economy and now the revival in the manufacturing industries is becoming a positive force. Source: US Department of Commerce. Updated through 2011.

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

3

April 3, 2014

Bankruptcies RATIO OF BANKRUPTCY FILINGS TO THE 2007 Q4 NUMBER

WHAT THE CHART SHOWS:  The figure illustrates trends in bankruptcy

5

5

filings by businesses and persons relative to the number of filings in 2007 Q4, prior to the

4

Business bankruptcy filings Nonbusiness bankruptcy filings

recession.

4

 Financial stress is back down to prerecession levels.

3

All US bankruptcy filings (shaded area)

3

KEY MESSAGES:  Indicators of financial stress are a useful coincident indication of economic distress.

2

2

 From this perspective, economic pressures are slowly receding.

1

1

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

0

Regional Perspectives: Michigan Economic Outlook

Source: Administrative Office of the U.S. Courts; Updated through December 2013.

Commercial Banking

4

April 3, 2014

FRB Chicago Business Survey REAL GDP (% CHANGE 12 MONTHS EARLIER)

DIFFUSION INDEX (2007 = 100)

WHAT THE CHART SHOWS:  The figure shows GDP growth in Michigan

8 6

150

Michigan real GDP (left scale) FRB Chicago's manufacturing survey (right scale)

along with the Federal Reserve Bank of Chicago’s survey of local conditions.  Business conditions continue to improve,

Forecast

according to the Federal Reserve Bank of

4

125

2

Chicago’s survey.

KEY MESSAGES:

0

100

-2

 Business conditions are forecast to continue to strengthen this year. Sources: Federal Reserve Bank of Chicago; US Department of Commerce. Updated through October 2013 (surveys) and 2013 Q4 (GDP).

-4

75

-6 -8

50

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity.

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

5

April 3, 2014

Private Business Surveys REAL GDP (% CHANGE 12 MONTHS EARLIER)

DIFFUSION INDEXES (50 = NO CHANGE)

WHAT THE CHART SHOWS:  The figures shows the Business Barometer

6 5

90

managers, and real GDP growth in Illinois (a

Forecast

4

3 2 1 0 -1

-2 -3 -4 Real GDP in the Midwest (left scale) -5 Business Barometer Index, Mid-America Purchasing Managers (right scale) -6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Index, based on the survey of purchasing

80

reading above 50 means the state’s economy is growing, while less than 50

70 60 50 40

means the economy is shrinking). The index comprises seven business activity indicators, including production, new orders, order backlogs, inventories, employment, supplier deliveries, and prices paid.  The index is has rebounded recently. KEY MESSAGES:

30

 Diffusion indexes, like those based on responses from purchasing managers, are a

20 10

timely indicator of activity in the state and these may be moderating. Note: Business Barometer data unavailable prior to 1997. Sources: Institute of Supply Management; US Department of Commerce. Updated through February 2014 (survey) and 2013 Q4 (GDP).

Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity.

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

6

April 3, 2014

Private Business Surveys REAL GDP (% CHANGE 12 MONTHS EARLIER)

DIFFUSION INDEXES (50 = NO CHANGE)

WHAT THE CHART SHOWS:  The figure features the business conditions

8

70

index in Southeast Michigan, based on a survey of purchasing managers and

Forecast

6

Michigan’s real GDP trends.  Purchasing managers are signaling slightly

4

60

2

KEY MESSAGES:

0

50

-2 -4 -6

slower growth.

 Still, business activity is forecast to strengthen gradually in coming years. Note: Purchasing Managers data unavailable prior to 2004.

Michigan real GDP (left scale)

40

Southeast Michigan Purchasing Managers Index (right scale)

-8 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Sources: Institute of Supply Management; US Department of Commerce. Updated through February 2014 (survey) and 2013 Q4 (GDP).

30

Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity.

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

7

April 3, 2014

Initial Jobless Claims RATIO OF INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE TO THE 2007 Q4 LEVEL

WHAT THE CHART SHOWS:  The figure tracks layoffs in Michigan and the

2.25

2.25

national level of claims.  Weekly layoffs, both the state and national

2.00 1.75

2.00 Michigan US (solid area)

to the level of layoffs in the fourth quarter of

1.75

1.50

1.50

1.25

1.25

1.00

1.00

0.75

0.75 Michigan accounts for 33.5% of US auto manufacturing employment

0.50 2007

0.50 2008

tallies, are illustrated in the figure as a ratio

2009

2010

Regional Perspectives: Michigan Economic Outlook

2011

2012

2013

2014

2007, prior to the recession.  Layoffs in Michigan have plunged to levels that are far below pre-recession levels, in part, owing to the smaller size of the labor force compared with the last decade’s level.

KEY MESSAGES:  The turnaround in the motor vehicle industry and the drop in the real trade-weighted value of the dollar versus most trading partners are driving the Wolverine State’s recovery. Source: US Department of Labor. Updated through February 18, 2014 (state) and February 25, 2014 (US).

Commercial Banking

8

April 3, 2014

Economic Growth REAL GDP GROWTH (PERCENT CHANGE FROM FOUR QUARTERS EARLIER)

WHAT THE CHART SHOWS:  Real GDP growth in Michigan (the line in the

7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8

Michigan US

Forecast

7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8

figure) is superimposed on top of US real GDP growth (bars in the figure).  Michigan’s growth is pacing the nation’s, even if it has moderated somewhat.

KEY MESSAGES:  Michigan’s economy is projected to speed up further in the coming year. Source: US Department of Commerce. Updated through 2012 (state) and 2013 Q4 (US). Quarterly estimates for states after 2012 are interpolated from employment figures, based on the historical correlation of state and national employment changes.

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

9

April 3, 2014

Economic Output REAL GDP LEVEL (RATIO TO 2000 Q4)

WHAT THE CHART SHOWS:  The figure illustrates the evolution of real

1.40

1.40

1.35

GDP of the state and the overall US economy since the fourth quarter of 2000,

1.35

the peak of the previous business cycle—

1.30

1.30

that is, at any point in time the lines trace the

1.25

1.25

ratio of real GDP to its level in 2000 Q4.

1.20

1.20

Forecast

US

 Michigan’ economy stagnated in the last decade. It suffered badly during the

1.15

1.15

recession, but has recovered about two-

1.10

1.10

thirds of the output lost.

1.05

1.05

1.00

1.00

0.95 0.90

Michigan

0.85

0.95 0.90 0.85

KEY MESSAGES:  Michigan’s economy is slowly reviving. Source: US Department of Commerce. Updated through 2012 (state) and 2013 Q4 (US). Quarterly estimates for states after 2012 are interpolated from employment figures, based on the historical correlation of state and national employment changes.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

10

April 3, 2014

Employment Growth NONFARM PAYROLL EMPLOYMENT (PERCENT CHANGE FROM 12 MONTHS EARLIER)

WHAT THE CHART SHOWS:  Job growth in the state, compared with the

5

5

4

4 Forecast

3

national employment trends.  Echoing the recovery in the state’s GDP,

3

employment is growing as well, although a

2

2

little more slowly in the past year than

1

1

earlier.

0

0

-1

-1

-2

-2

-3 -4

Michigan US

-3 -4

-5

-5

-6

-6

-7

-7

-8

-8

-9

KEY MESSAGES:  Michigan’s economy at least has turned the corner and is leaving a difficult decade behind.  Job growth is forecast to remain steady and moderate. Source: US Department of Labor. Updated through February 2014 (state) and February 2014 (US).

-9

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

11

April 3, 2014

Employment in Relative Terms NONFARM PAYROLL EMPLOYMENT (RATIO TO THE 2000 Q4 LEVEL)

WHAT THE CHART SHOWS:  The figure illustrates the evolution of

1.10

1.10

employment in the state compared with the nation since 2000 Q4, the peak of the previous business cycle. The lines trace out

1.05

1.05

US

the ratio of employment at the time to employment in 2000 Q4.

Forecast

1.00

1.00

 Michigan lost 392,000 jobs since the latest recession began in December 2007.

0.95

0.95

 The state’s payroll count has contracted almost 20% in the last decade, but so far has retraced ¼ of that.

0.90

0.90 Michigan

0.85

KEY MESSAGES:

0.85

 Michigan is slowly on the mend. Source: US Department of Labor. Updated through February 2014 (state) and February 2014 (US).

0.80

0.80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

12

April 3, 2014

Employment in Absolute Terms NONFARM PAYROLL EMPLOYMENT (THOUSANDS)

WHAT THE CHART SHOWS:  The figure trades job trends in Michigan.

4,200

140,000

 Michigan’s business community has replaced or recovered about 40 percent of

4,150

the jobs that were lost during the 2007-09

137,500

4,100

US (right scale) Michigan (left scale)

Forecast

4,050

recession.

KEY MESSAGES:

135,000

 Economic activity in Michigan has been recovering gradually, reflecting support from

4,000

its manufacturing businesses.

132,500

3,950

Source: US Department of Labor. Updated through December 2013 (state) and February 2014 (US).

3,900

130,000

3,850 3,800 2006

127,500

2007

2008

2009

2010

Regional Perspectives: Michigan Economic Outlook

2011

2012

2013

2014

2015

Commercial Banking

13

April 3, 2014

Intrastate Employment NONFARM PAYROLL EMPLOYMENT IN SELECTED COMMUNITIES (RATIO TO 2000 Q4 LEVEL)

WHAT THE CHART SHOWS:  Job trends in local communities within the

1.10

1.10

US

Forecast

1.05

1.05

1.00

1.00

0.95

0.95

0.90

US forecast

0.90

0.85

0.85

0.80

0.80

Ann Arbor Holland-Grand Haven

Grand Rapids-Wyoming

state.  Auto-exposed communities close to Detroit are struggling far more than the economically-more-diversified communities in the central and southwestern regions of

Lansing-East Lansing Muskegon-Norton Shores Battle Creek

the state.  Southwest and Western Michigan have been

Kalamazoo-Portage

more successful in weathering the

Saginaw

transformation of the manufacturing industry.

Warren-Troy-Farmington Hills Niles-Benton Harbor

 With the exception of Battle Creek and Flint, employment is expanding.

Jackson

Flint Detroit-Warren-Livonia Detroit-Livonia-Dearborn

0.75

0.75 2001

2003

2005

2007

2009

2011

2013

2015

KEY MESSAGES:  Michigan’s economic fortunes still ride on

Michigan forecast

the fortunes of the motor vehicle industry so

Michigan

that industry’s recovery is a good omen.

Source: US Department of Labor. Updated through December 2013 (state) and February 2014 (US).

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

14

April 3, 2014

Unemployment UNEMPLOYMENT (PERCENT OF THE LABOR FORCE)

WHAT THE CHART SHOWS:  Unemployment rate trends in Michigan,

16

16

14

14

10

Michigan US (shaded)

 Michigan’s unemployment rate stayed around 7 percent for most of the last decade, despite the national recovery that

Forecast

12

compared with the national average.

12

saw national unemployment rate fall to 4½ percent.

10

 The state’s unemployment rate has plunged to almost 8 percent from the 14 percent plus

8

8

6

6

4

4

peak in the recession.

KEY MESSAGES:  The unemployment rate is the single best indicator of the relative economic

2

2

0 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

0

performance of a region.  Unemployment is forecast to continue to fall.

Regional Perspectives: Michigan Economic Outlook

Source: US Department of Labor. Updated through December 2013 (state) and February 2014 (US).

Commercial Banking

15

April 3, 2014

Relative House Prices RATIO OF THE STATE’S HOUSE PRICES TO THE NATIONAL AVERAGE (1995 Q2 = 1.0)

WHAT THE CHART SHOWS:  The figure tracks the relative price of houses

1.2

1.2

in the state versus the nation—that is, it reflects the ratio of the state price index to

1.1

1.1

the national house price index, with that ratio set to unity in the summer of 1995. A drop in the line means that house prices in the

1.0

1.0

state lag the national trend. States that did not suffer from speculative conditions saw a

0.9

0.9

decline in the relative price of houses in this last decade.  Michigan’s house prices have fallen 15

0.8

0.8

percent below the national average compared with the norm prior to the previous

0.7

0.7

decade.

KEY MESSAGES:

0.6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

0.6

 Michigan’s real estate problems are the result of its earlier economic struggles and not real estate speculation. Source: FHFA. Updated through 2013 Q4.

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

16

April 3, 2014

Real Estate Markets HOUSE PRICES IN SELECTED COMMUNITIES (RATIO TO THE 1995 Q2 LEVEL)

WHAT THE CHART SHOWS:  The figure tracks the cumulative percentage

2.00

2.00

deviation in house prices since 1995 in selected local markets and compares those

1.75

1.50

US

Holland

Ann Arbor

Grand Rapids

Bay City

Detroit

Flint

Battle Creek

Jackson

Kalamazoo

Lansing

Monroe

Muskegon

Niles-Benton Harbor

Saginaw

Detroit (Case-Shiller)

with the national average.

1.75

 Virtually all local real estate markets have lagged national market trends since middecade but prices are climbing in many

1.50

areas.

KEY MESSAGE:

1.25

1.25

 Housing markets are more vulnerable the closer the proximity to Detroit and the heart of the motor vehicle industry.

1.00

1.00

0.75

0.75

Sources: FHFA; Standard & Poor’s. Updated through 2013 Q4.

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Regional Perspectives: Michigan Economic Outlook

Commercial Banking

17

April 3, 2014

New Home Building HOUSING STARTS (RATIO TO THE JULY 1990 LEVEL)

WHAT THE CHART SHOWS:  Home building in Michigan, compared with

2.0

2.0

the pace of national home construction.  The figure illustrates the level of activity relative to July 1990.  Home building activity has yet to pick up

1.5

1.5

US Michigan

meaningfully.

Forecast

KEY MESSAGES:

1.0

1.0

 Housing activity is forecast to recover slowly. Source: Census Department. Updated through January 2014.

0.5

0.5

0.0

0.0 2000

2002

2004

2006

Regional Perspectives: Michigan Economic Outlook

2008

2010

2012

2014

Commercial Banking

18

April 3, 2014

Office Markets PERCENT OF OFFICE SPACE THAT IS VACANT

WHAT THE CHART SHOWS:  The state of the office market in Detroit and

35

35

that in the nation.  A large percentage of the office market

30

30

remains vacant but the office vacancy rate now seems to be coming down gradually.

25

Detroit metropolitan area

25 KEY MESSAGES:

20

20

15

15

10

10

5

All metropolitan areas (shaded area)

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Regional Perspectives: Michigan Economic Outlook

 Naturally, the struggling economy is taking a toll on the commercial real estate market.  Pressures in Detroit’s depressed market may be easing. Source: CB Richard Ellis (formerly CB Commercial Property Information Systems), Office Vacancy Index of the United States. Updated through 2013 Q4.

5 0

Commercial Banking

19

CONTACT: James E. Glassman Telephone: (212) 270-0778 [email protected]

© 2014 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.