Ohio Tax 2018 Economic Forecast & Outlook for U.S. & Ohio - PDF document

27th Annual Tuesday & Wednesday, January 23‐24, 2018 Hya� Regency Columbus, Columbus, Ohio Ohio Tax 2018 Economic Forecast & Outlook for U.S. & Ohio Businesses Jeffrey Korzenik. Senior Vice President & Chief Investment Officer Fifth Third Bank Chicago Wednesday, January 24, 2018 1:00 p.m. to 2:00 p.m.

Biographical Information Jeff Korzenik, Chief Investment Strategist & Senior Vice President Fifth Third Investment Management Group 222 S. Riverside Plaza, Chicago, IL 60606 Jeff Korzenik is Chief Investment Strategist for Fifth Third Bank, where he is responsible for the Bank’s overall client investment strategy. For more than 30 years, Jeff has been a thought leader in the investment industry. A regular guest on CNBC and Bloomberg, Jeff’s writings on economics and public policy have been published in The Chicago Tribune, The Boston Globe, Forbes and other periodicals. He has been quoted in publications including The New York Times, The Wall Street Journal and Barron’s. In addition to regular speaking appearances at conferences and public events, Jeff was invited to testify on Capitol Hill as an expert witness on the use of commodity indexes by pensions and other institutional investors. Jeff earned both a Bachelor of Arts degree in Economics and a Certificate of Proficiency in Near Eastern Studies from Princeton University in Princeton, N.J. Professional and Civic A passionate supporter of cultural organizations, Jeff serves as a Trustee of the Harris Theater for Music and Dance, and as an Overseer of the Peabody Essex Museum.

Four Considerations for 2018: Do Worry, Be Happy! Jeff Korzenik Chief Investment Strategist

Four Considerations for 2018: Do Worry, Be Happy! 1. It doesn’t get any better than this…and it won’t. 2. Peak stimulus is behind us. 3. Opioids are our biggest labor problem ; reentry is our biggest labor opportunity. 4. States & Municipalities: It’s not the debt, it’s the liability. 2

1. It doesn’t get any better than this…and it won’t. 3

The world economy has never been in better shape. 45 40 35 30 # of Countries 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expanding Contracting Source: Organisation for Economic Co-Operation and Development, as of 9/23/2017; note: expanding indicates countries with positive GDP growth rates year over year and contracting indicates negative GDP growth year over year; includes 35 OECD countries and 10 non- OECD countries 4

U.S. small business optimism is at decade highs. 5

Earnings have been boosted by easy year-over-year comps… S&P 500 Earnings Trends $160.0 12.0% $140.0 10.0% $120.0 8.0% S&P 500 EPS Growth Rate $100.0 S&P 500 EPS 6.0% $80.0 4.0% $60.0 2.0% $40.0 0.0% $20.0 $0.0 -2.0% 2015 2016 2017 2018 Expected S&P 500 EPS S&P 500 EPS Growth Rate Source: FactSet 6

…and an unexpectedly weaker dollar. 7

2. Peak stimulus is behind us. 8

Tax policy is set to support higher growth this year. Credit: Cornerstone Macro 9

The deregulatory tone has been set. Total Number of Total Finalized Cost Paperwork Hours Regulations Finalized (in billions) 140,000,000 500 250.0 120,000,000 450 100,000,000 400 200.0 350 80,000,000 300 150.0 60,000,000 250 40,000,000 200 100.0 20,000,000 150 - 100 50.0 50 (20,000,000) 0 0.0 (40,000,000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: American Action Forum Regulation Rodeo 10

Global central banks are moving towards removal of accommodation… 80% 60% 40% 20% 0% -20% -40% -60% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YoY Change in Global Central Bank Balance Sheets YoY Change in MSCI ACWI Source: Bloomberg; balance sheets include the European Central Bank, The Bank of Japan and the Federal Reserve 11

…and they are running out of securities to purchase. Credit: Deutsche Bank Research 12

The Fed continues to normalize policy and officials are predicting three rate hikes in 2018. Source: Federal Reserve 13

The yield curve continues to flatten from peak steepness. Normal curve Inverted curve 14

3. Opioids are our biggest labor problem ; reentry is our biggest labor opportunity. 15

Is the economy running out of labor? 16

The opioid epidemic continues to worsen. Total Drug Overdose Deaths in the U.S. 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: Centers for Disease Control and Prevention A study from Princeton economist Alan Kreuger suggests the rise in opioid prescriptions from 1999 to 2015 could account for 20 percent of the decline in the male labor force participation rate during the same period, or a loss of more than 1.4 million men from the labor force. 17

Reentry is our biggest labor opportunity. 80,000,000 70,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 19,000,000 20,000,000 10,000,000 7,304,910 2,392,589 0 Currently In Prison or On Currently or Formerly In Prison Current or Past Felony Interaction with the Law Parole or On Parole Supervision Source: University of Georgia, National Employment Law Project 18

Second chancers are our biggest labor opportunity. Private Sector Government Employers willing to Reduction of barriers to employ second employment of second chancers and provide chancers and support for support for needs employers who hire them typical to that community A True Second Chance Society Non-profits Preparation and referral of workforce, supplemental employee support, respecting the needs of employers 19

Inaction comes at a cost… Annual shortfall of workers at full employment: Average payroll growth minus natural demographic = 1.248 million and immigration contribution 5-year re-arrest rate (~76.6%) x Number of people released from jails and prison = 1.149 million annually (~1.5 million) Number of people reportedly misusing prescription opioids = 12.5 million Cost of each year of potential growth lost: GDP of $19 trillion x ~2% real growth = $380 billion Source: Fifth Third, University of Georgia, U.S. Department of Health & Human Services, Bureau of Justice Statistics; Note: all numbers are estimates, estimated 2017 GDP data used 20

4. States & Municipalities: It’s not the debt, it’s the liability. 21

The state pension funding gap is climbing. Tracking State Pension Assets and Liabilities, FY 1997-2015 Source: The Pew Charitable Trusts 22

How well-funded are pension plans in your state? Source: Tax Foundation Funded ratio of public pension plans as of 2014 23

Investment Implications • International diversification • Broader approach to risk assets • A better year for Main Street than Wall Street • Short term interest rates continue to climb; U.S. curve continue to flatten even though fundamentals argue for higher rates • Wage inflation will be higher but productivity will offset, preventing runaway inflation • Increased selectivity in municipal portfolios • Corporate credits supported by pension investor overreach • Let inning 8 begin! But be wary of the end of the game. 24