October 5, 2020

George Mokrzan, Ph.D., Director of Economics The Economic Outlook

After a sharp 31.4% annualized rate of decline in the second quarter resulting from COVID-19 related economic shutdowns, real GDP growth is forecasted to reemerge strongly in the second half of the year, led by V-like recovery in the third quarter at an upwardly revised 30.8% annualized pace. Consumer spending on durable goods has led resurgent growth, but strong business capital spending on equipment, booming residential construction, returning international trade activity and the beginnings of recovery in service sectors battered by the COVID-19 crisis have broadened the recovery. Inventory rebuilding will likely add a further boost to economic growth in the near term even as consumer spending returns to normal per-COVID 19 growth rates. Overall GDP growth for the year is forecasted to decrease 3.7% in 2020 and rise 4.9% in 2021, with full recovery to pre-COVID-19 levels in mid-year 2021. Risks to the forecast are unusually high in both directions, depending on developments in the containment of the virus. Suppressed by the global downturn, inflation is likely to be low in 2020 overall before commencing a gradual but sustained acceleration in 2021, rising an average annual rate of 2.0% in 2021. Labor markets are expected to continue a strong recovery in the second half of the year, although many workers in the travel, leisure, hospitality, and restaurant industries will not return to those jobs until the COVID-19 crisis is contained, most likely next year with anticipated vaccine successes. The unemployment rate is forecasted to decline from 7.9% in August to 7.5% by year-end 2020, with continual but more gradual declines next year to 4.8% by year-end 2021. The will likely maintain the Fed Funds rate target in the 0.0%-0.25% range at least to the end of 2021. Expanded purchases of bonds in addition to high bond purchases by foreign central in Europe and Japan will likely suppress long-term interest rates for the foreseeable future. Rising annual inflation and economic growth are expected to lift the 10-year Treasury yield into the mid 1.0% to 2.0% range next year. Real GDP Makes V-like Recovery in the Third Quarter Monetary policy will likely remain highly accommodative well into 2021 with policy interest rates maintained at historical lows near zero. Fiscal policy under the CARES Act and previous legislation to counter the COVID-19 crisis have been highly supportive of impacted workers, small businesses, highly impacted industries, and financial markets, helping to sustain a strong rebound in consumer spending and economic activity. Federal fiscal stimulus is expected to decline in the fourth quarter, reducing support for the negatively impacted transportation and small business sectors, but state insurance programs are likely to provide continued support to most of the unemployed.

Although COVID-19 will likely continue to pose headwinds to growth, such as through online schooling and periodic resurgences, no further widespread economic closures are expected. The high likelihood of new vaccines and other medical developments by early 2021 to counter the spread and severity of COVID-19 should promote confidence and full economic recovery. Consumers and businesses will likely continue to improve the efficiency of virus avoidance techniques as well, and gradually resume travel and other high social contact activities. Until the time when consumers feel high comfort with social contacts, they will likely continue to shift their high spending capability towards vehicles, home improvements, recreational equipment, and forms of entertainment that require relatively low social contact with the public. A Far Way to Go, but Labor Markets Recovering After spiking to 14.7% in April, the unemployment rate declined to 8.4% in August, and 7.9% in September, on the rapid return of millions of workers laid off by the COVID-19 closures. The unemployment rate is expected to continue to decline as workers return to reopening establishments. The unemployment rate is forecasted to decline to 7.5% in December and continue to decline in 2021 to 4.7% at year end, as economic growth raises worker demand. Employment growth was strong in the third quarter overall as non-farm payrolls grew by 3,911,000. The private sector added 3,425,000 new jobs, and the government sector rebounded from a weak second quarter with 486,000 net new jobs. The employment gains were remarkably broad-based including sectors seriously impacted by the COVID-19 shutdowns and restrictions. Private Service Producing employment grew 3,221,000 jobs, including 657,500 in Retail Trade, 203,300 in Transportation and Warehousing, 439,000 in Professional and Business Services, 429,000 in Education and Health Services, and 1,094,000 jobs in the Leisure and Hospitality. Goods Producing industries created 204,000 jobs with 143,000 occurring in Manufacturing. Since the April bottom, the United States economy returned 11,417,000 workers to employment. More employment growth of 10,743,000 jobs is needed to return to the pre-COVID employment high in February. However, the strong broad- based employment gains in all sectors including those most negatively impacted by COVID-19 reflect the strength of the United States economy, its ability to adjust to unusual stresses and its ability to create jobs. As consumers and businesses continue to adapt to the COVID-19 environment, and as medical advances and vaccines provide added support in that adaptation, labor markets will likely respond with continual strong employment gains and concurrent declines in the unemployment rate. The Unemployment Rate is forecasted to decline from historically high rates

2 Consumption Spending Continues to Surge Resurgence in consumer spending is generating strong overall GDP growth in the third quarter, with increased spending on goods offsetting slower recovery in services directly impacted by the COVID-19 crisis. Breaking down the consumer spending changes into major components: • Personal Consumption expenditures on Durable Goods rose 12.2% annually in August for the largest 12-month percentage increase since October 2001. Most of retail sales fit the “goods” definition of Personal Consumption. Non-durable goods rose a relatively modest 2.6% annually in August, also highly improved from -9.6% in April. • Personal Expenditures on Services improved significantly from -16.1% Year-on-Year in April to -5.4% year-on-year in August. COVID-19 had its biggest negative impact on this category, which includes air transportation, tourism, hospitality, restaurants, and other businesses dependent on high social contact. Full recovery in spending on services will probably not occur until a combination of consumer adaptations and medical advancements, such as vaccines, restore most of pre-COVID-19 social interactions, probably sometime next year. • Total Personal Consumption Expenditures were down -1.9% in August from August 2019, significantly improved from the -16.1% annual decline in April. The annual decline is expected to continue to narrow towards zero in the coming months. • Comparing the consumer spending response of the most recent recession to the Great Recession of 2008/2009 highlights the strong differences between the causes and nature of the respective recessions. The 2008/2009 recession was caused by weak fundamentals in the United States economy, primarily in housing and financial markets, that caused a long recession and a slow recovery. In contrast, the 2020 recession was caused by a pandemic natural disaster that halted most economic activity for a short period. Economic activity has been resuming quickly since, although complete recovery in areas directly impacted by COVID-19 will likely take a longer time period depending on the incidence of the virus, speed of consumer adaptation, and medical advancements such as vaccines. Despite these uncertainties and challenges, complete closures (as occurred early in the crisis) are not likely given significantly greater capability over earlier this year in combating the virus including the growing list of medical advancements and vaccine tests. Led by Durable Goods, Personal Consumption has been Recovering at a Fast Pace Since April

3 The Consumer Returns Consumers have performed the heavy lifting of the recovery to date, yet they have potential to continue to spend solidly in the months ahead. The consumer entered the COVID-19 period with strong fundamentals fostered by the longest economic recovery in history. Though volatile in the last year, the aggregate Household Financial Leverage ratio (the ratio of total debt relative to total financial assets) was 17.4% in the second quarter, the second lowest quarter since Q2 1976. In addition to strong financial capability, consumers are benefitting from plentiful, if not excess, liquidity. The M2 measure of money supply alone has risen nearly $3 trillion between February and August, reflecting high demand deposits and other liquid instruments. Consumer Benefiting from Strong Balance Sheets Overall

Personal income growth was on a strong trend entering the COVID-19 crisis. The timely CARES Act helped to maintain that attribute in the second quarter and into July, especially for those who tragically lost their jobs. Although fiscal policy support may be ebbing, income growth generated in the private sector is picking up. Personal income in the economy continued to grow at a solid 4.7% rate in August compared to August 2019, providing sustained fuel for consumption and savings growth. The strong income generating capacity of the economy is expected to pick up where fiscal policy supports are leaving off. Personal Income Continues Solid Growth after CARES Act Support Ends

4 Although the need for stimulus to fuel the economic recovery is lessening, many individuals, small businesses, and industries will likely continue to be impacted by COVID-19 until the pandemic is finally contained. Unemployed workers will fortunately continue to obtain support from state unemployment compensation programs, the primary means of support for the unemployed. However, some small businesses will likely encounter financial stress until social distancing limitations are significantly reduced. The air transportation industry has also incurred the worst loss of business in its history. Continued fiscal support is likely warranted, but risks to policy support will likely remain. Consumer Confidence Begins to Rebound Consumer Confidence in September rose to a reading of 101.8 – up from 86.30 in August for the biggest one-month gain in the index since 2003. Local Regional Confidence has also risen strongly, maintaining its advantage over national consumer confidence. Regions of the country that generally have a relatively high concentration of manufacturing over services are generally experiencing quicker and stronger resurgences in economic growth from the COVID-19 recession. Consumers in these areas sense a brighter future ahead, especially if the recent resurgence in manufacturing is bolstered further by new investment and onshoring in the coming years. The Huntington footprint regional economy (, , , , , , and ) has benefitted from diversification and strong economic growth in recent years. The manufacturing industry has become increasingly technologically driven and produces evermore world-class products. The strong recovery in durable goods industries since April supports the region’s large manufacturing sector, the region’s large auto industry, and its many local suppliers. The growing realization that reliable domestic suppliers are necessary for economic, defense, and medical security raises the likelihood that the wider regional economy will play an increasingly important role in the future of the economy in the United States and globe, as exemplified by plans that vaccines against COVID-19 will be produced in the region in the coming months. Consumer Confidence Rises; Higher in Midwest than in Nation

Housing Markets Rising on Economic Recovery, Strong Fundamentals, and Low Interest Rates Strongly rising Housing Sales in August reflected the overall resurgence in housing markets. Existing Home sales rose at a 6.0 million annual rate for the highest sales month since December 2006. All 4 major regions of the country had V-like recoveries from early spring lows. On a 12-month percent basis through August, total existing home sales were up 13.0% in the South, 9.7% in the West, 9.3% in the Midwest, and 5.7% in the Northeast. Not to be outdone, new single-family Home Sales in the nation rose to a 1.01 million annual rate in August – the highest level since September 2006. The 5 Midwest led the other 3 major regions of the country with 55% growth of newly constructed single-family homes. High affordability and a resurging economy were likely factors propelling the outstanding sales gain in the Midwest. Low inventories of homes for sale are benefitting all regions. At the current sales rate, new home inventories were at a record low 3.3 months in August, creating further upward demand for building permits and housing starts. Both measures of new residential construction rose strongly during the summer months, even as August was slightly slower than July. The forecast is for continued strong growth in virtually all areas of housing. This forecast is a function of improving fundamentals and not the frothiness of the housing boom. Rising demand, tight supply, and the continuation of record low residential mortgage rates will likely propel housing to new highs in the next year. Interest rates (excluding closing costs on 30-year fixed rate mortgages) were slightly above 3.0% on September 29, including rates on jumbo mortgages of over $417,000. (Please see the chart below). The highest builder confidence since the last century according to the Home Builders’ Housing Market Index indicates builders are proactively responding to the positive fundamentals in housing markets, as well. Mortgage Rates Drop to Historic Lows

Existing Home Sales Rise Highest since Dec. 2006

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New Single-Family Home Sales Rise to Highest Rate since Sept. 2006

Midwest Leads in August with 55% annual increase in New Single-Family Home Sales

Household wealth and general economic activity are rising with strong home price appreciation. According to ’s Home Value index on median home prices in the United States, median home prices rose 0.68% in August for the largest monthly gain since October 2013. Median home prices were up 5.1% in the United States for the strongest annual gain since March 2019. The states in the Huntington Footprint generally had stronger median home price appreciation than the national average. Ohio led at 6.4%, followed by Kentucky and Indiana at 6.1%, Michigan at 5.1%, and Pennsylvania slightly below the national average at 5.0%. West Virginia and Illinois had below average home price appreciation of 2.0% and 1.8%, as those states were likely impacted more severely by the COVID-19 and its fallout than the other states. The severe drop in energy prices that slowed West Virginia was the result of the global demand shock on commodity prices. High population density made containment of COVID-19 relatively more challenging in . Despite these challenges, both states incurred positive home price appreciation in line with inflation in the last year.

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Median Home Values Begin to Accelerate Upwards in Most States

New Business Applications Rise Strongly Despite Downturn Despite a sharp decline in economic activity during the second quarter, new business applications rose a solid 4.8% in the nation. The rise reflected unwavering business confidence among many entrepreneurs in a fundamentally sound economy. New opportunities for revenue and profit growth have been occurring despite a temporary economic slowdown. Business applications were especially high in the interior parts of the country. Among the states in the region, new business applications rose 24.2% in Illinois, 11.5% in Indiana, 9.6% in Wisconsin, 9.4% in Ohio, and 7.0% in Kentucky. At 3.5%, new business applications were somewhat below the national average but rising in Michigan. Pennsylvania and West Virginia had the slowest activity at -1.6% and -0.4%, respectively. The overall strength in new business applications provides a potential offset to business closures caused by the pandemic and builds the foundations for new economic growth in the future. Business Applications Rise Strongly in Midwest States Despite Recession

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Resurgence of Job Openings Signal the Beginnings of Economic Recovery The Job Openings rate for the national economy rose from a low of 3.7% in April to 4.5% in July – the strongest rate since October 2019. Job Opening rates attained pre-COVID-19 highs in all major employment sectors except Government. The total Private Job Opening rate was 4.8%, solidly into the range of 2018 and 2019. Furthermore, the private sector Job Opening Rates have been broad-based except for Information and Mining & Logging. At the regional level, the Midwest resumed its pre-COVID-19 leadership as its July Job Openings rate of 4.9% exceeded the rates in the South at 4.6%, the Northeast at 4.3%, and the West at 4.2%. Strong, broad-based Job Openings growth reflects new vigor in economic activity, the end of the COVID-19 recession, and the strengthening of a new wave of employment growth across most of the economy. Led by Private Sector Recovery, the Job Openings Rate Rebounds Strongly

Job Openings Rate Rises in Largest Private Sector Employment Sectors, including those impacted the most by COVID-19

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The Midwest Resumes Leadership in Job Openings Rate

Small Businesses Reopening Small Businesses are joining the economic recovery as they increasingly return to normalcy in their hiring and capital investment. According to the NFIB survey of small businesses in September, most businesses returned to pre-COVID-19 employment and capital investment plans. This is particularly positive as the COVID-19 shock was especially debilitating to small businesses that required high social contact, such as those in transportation, hospitality, and restaurants. Small Business Hiring and Capital Spending Plans Returning to Pre-COVID 19 Level

Not all small businesses shared in the recovery to date. According to daily activity data, approximately 20% of single proprietor and other small businesses in the Homebase database for the United States were closed during July and August, resulting in around 20% fewer employee hours worked at these establishments, primarily in restaurants, food services, and small retail. (Source: Homebase, Haver Analytics) Full containment of the COVID-19 crisis will likely be required to return these businesses to operation, and sadly not all will return. However, a larger proportion of the smallest businesses 10 have reopened in the Huntington Footprint region than in the nation overall, as evident in the following chart with data through the end of August: Fewer Small Business Closures Regionally than in Nation

Business Inventories Decline Sharply, Creating Incentives to Re-Stock Strong sales and mandated production halts had a depleting impact on Inventories in the second and third quarters. Led by steep declines in Retail Inventories, the total Business Inventory/Sales ratio declined to 1.33 in July for the leanest overall inventories relative to sales since November 2014. Consumers virtually cleaned out retail inventories as the total Retail Inventory/Sales ratio declined to a record low of 1.22 in June, before inching up to 1.23 in July. Total Manufacturing and Wholesale inventories declined to their lowest levels since February, the first month of the COVID-19 recession. Tight inventories will likely lead to massive restocking efforts in the second half of the year. Increased manufacturing production and imports will be necessary to not only return inventories to seasonal levels, but also prepare retailers for the expected continuation of solid retail sales into the holiday season. Restocking efforts will be especially challenging for strong selling items, such as vehicles, home furnishings, building & garden supplies, electronics, and health & beauty aids, to name a few that have been in high demand in the post COVID-19 period. Inventories Becoming Lean Again

11 Led by Retail, Business Sales Rise Quickly after Shutdowns Business Sales rose strongly for 3 consecutive months since April, narrowing the 12-month percentage decline caused by COVID-19 from -18.4% in April to just -1.2% in July. Manufacturing sales improved from -14.4% to -4.1%, and Wholesalers rose form -20.2% to -4.0%, but Retail Sales reversed from -15.3% in April to a gain of 5.1% in July. Strong retail sales should have a positive impact going forward on Wholesalers and Manufacturers, as new orders are lifted for a wide range of goods down the supply chain. This trend is expected to extend for several months, or longer, as firms must refill inventories to generate future sales and revenues. Business Sales Recovering

Business Spending on Equipment Growing Again, except for Civilian Aircraft After declining sharply during the recession, spending on business equipment excluding aircraft has rebounded solidly, rising 2.8% in the last year to its highest level since July 2018. The quick recovery in business equipment investment is likely the result of the V-like recovery of the overall economy in the third quarter, strong underlying fundamentals in manufacturing and other industries, and the need to remain productive in a changing environment that encompasses working-from-home and working under strict health guidelines and restrictions. The rise in spending is weighted towards electronic technology and communications equipment, but machinery and other specialized areas of investment have also shown solid growth during recent months. However, investment did not recover in all areas. Investment in civilian aircraft, besieged by technical challenges even before the COVID-19 crisis, underwent net cancellations in 5 of the last 6 months. Defense aircraft and parts orders have provided some offset, but civilian aircraft production will likely remain the weakest area of business equipment investment until the COVID-19 crisis is past, and travelers begin to return to air travel in rising numbers. The wide dissemination of vaccines to the traveling public will likely be necessary before this condition is met. General Business Equipment Spending Recovers

12 Civilian Aircraft Depressed by COVID-19 and Technical Challenges

Given the large drop in orders for civilian aircraft that was mostly a function of the uncontrollable circumstances of the pandemic, how strong is the overall recovery in Durable Goods excluding this sector? New Durable Goods orders excluding Civilian Aircraft dropped as much 24.0% in April from the preceding year. By July, new orders of $237.8 billion were above the pre-recession peak of $237.5 billion in February. To put this recovery into context, it was not until April 2014 that Durable Goods excluding Aircraft recovered to the previous pre-recession peak of $219.2 billion in December 2007. What took 6 years and 4 months to achieve in the last economic recovery from recession was accomplished in just 5 months. This recovery in durable goods orders could be choppy in the next few months as the surge of pent-up orders in the first few months after the shutdown is not likely to be repeated. However, the speed and strength of the bounce back is historic, nonetheless. Durable Goods Orders Excluding Civilian Aircraft Make Complete Recovery

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Summary Table Key Economic Indicators October 5, 2020 272018 20120198 202020*19 202021*20* Total Real GDP Annual Growth Rates 2.9% 2.3% -3.7% 4.9% 2012 Chained Dollars

Consumption 3.0% 2.6% -4.3% 4.4% Non-Residential Fixed Investment 6.4% 2.1% -5.4% 5.7% Residential Fixed Investment -1.5% -1.5% 1.2% 10.1% Exports 3.0% 0.0% -14.7% 4.2% Imports 4.4% 1.0% -14.2% 4.8% Government Purchases 1.7% 2.3% 2.0% 1.8% Change in Private Inventories $48.1 $67.0 $-115.5 $31.3 (Billions 2012 Chained Dollars)

Trade-Weighted Dollar Index (Jan. 2006 = 100) 115.6 114.7 116.5 115.5

Nominal GDP 5.4% 4.1% -2.6% 7.0% Current dollars

Consumer Price Index for Urban Consumers 2.4% 1.8% 1.0% 2.0% (CPI-U) - Annual Rate

Federal Funds Rate Target 2.25% to 1.50% to 0.00% to 0.00% to Year-end range 2.50% 1.75% 0.25% 0.25%

10-year Treasury Note 2.69% 1.92% 1.00% 1.60% Year-end interest rate yield

National Income Pre-tax Corporate Profits 3.4% 0.0% -14.5% 6.5% Average annual growth rate

Net New Average Monthly Non-Farm Payrolls 193K 178K -575K +366K (Thousands of Workers) Unemployment Rate -- Annual Average 3.9% 3.7% 8.3% 5.7%

• Data Sources: Haver Analytics, Federal Reserve, Factset Inc., and other sources noted in text. * Forecasts: Huntington Investment Management of the Private , Division of Huntington National Bank

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This publication contains general information. The views and strategies described may not be suitable for all investors. Any forecasts presented are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Individuals should consult with their investment adviser regarding their particular circumstances. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. Contents herein have been compiled or derived in part from sources believed reliable and contain information and opinions that are accurate and complete. However, Huntington is not responsible for those sources and makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions. The opinions, estimates, and projections contained herein are as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Investing in securities involves risk, including possible loss of principal amount invested. Past performance is no guarantee of future results.

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