Economic & Market Outlook August 2017 The investments described herein are: NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY
Average Hourly Earnings Wage gains are still weak relative to what many expected given the tight labor markets. Total Private Employment +2.4% y/y Manufacturing Industries +2.3% y/y Despite significant tightening of the labor markets, wage growth has so far remained very low compared to past cycles. Service Industries +2.3% y/y 2
Demographics: Providing for an Aging Population 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 And labor markets are likely also tightening because of longer-term demographic changes. 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 U.S. Population By Age (as a % of Total Population) Ages 25-64 12/31/2050 = 47.7% ( ) Source: U.S. Census Bureau Ages 25 to 64 Ages 65 and older Ages 0-24 12/31/2050 = 32.1% ( ) 4.0 : 1 25-64 / 65+ 2010 Yearly Data 12/31/1900-12/31/2050 2.3 : 1 25-64 / 65+ Ages 65+ 12/31/2050 = 20.2% ( ) 2040 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 (E985) Copyright 2012 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/. 3
Business Sector 4
Business Sales Business sales have increased over the past year, but are flat relative to three years ago. R e c e s s i o n E x p a n s i o n Average of the Last Six Economic Cycles Current Economic Cycle Business sales have grown faster this past year, but have been flat over the last three years. 5
Capacity Utilization Low capacity utilization rates have made many industries intensely competitive. U.S. capacity utilization has eroded significantly over the last 50 years. 1960 1970 1980 1990 2000 2010 6
Consumer Income & Spending Growth 7
Income and Spending Growth Spending outgrew income last year, but has slowed this year. Personal Income +2.8% y/y After-tax Income +2.8% y/y Consumption +4.2% y/y 1980 8
Exports 9
Exports Exports struggled as the dollar rose in value but may improve as the dollar weakens. Average of the Last Six Business Cycles R e c e s s i o n E x p a n s i o n Current Economic Cycle 10
Purchasing Power Parity (Net of Inflation) of the U.S. Dollar Most international currencies are cheap relative to the dollar. The U.S. dollar is about 10% overvalued.
Market Outlook 12
Key Private Bank Investment Recommendations Stocks Bonds Cash Alternative Assets Emphasize Deemphasize Minimal Client Specific Geographic Region United States Developed International Emerging Deemphasize Emphasize Neutral Market Capitalization Large Cap Mid-Cap Small Cap August 2017 Emphasize Deemphasize Deemphasize
Disclosures Key Private Bank is part of KeyBank National Association. Trust services provided by KeyBank National Association. Investments are: NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY 14