2016 Economic Outlook Presentation

Welcome to the
Economic Outlook Luncheon

Mrs. Lori Piper
SVP/Senior Commercial Lending Officer,
Enterprise Bank

Today’s Panelists
3
Mr. Steve Norton Mr. Charlie
Arlinghaus
Mr. Jeff
McDonald
Executive Director,
NH Center for
Public Policy
President of The
Josiah Bartlett Center
for Public Policy
Chief Investment
Officer, Enterprise
Investment Advisors

Mr. Steve Norton
Executive Director, NH Center for Public Policy
Economics
Short and Long Term

NH’s Economy
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
New Hampshire Total Compensation Paid by Selected Industries
(Thousands of Dollars)
Manufacturing + High Tech
Healthcare
Retail Trade
Finance
Construction
Education
Real Estate
Local and State Government
Mfg Only

Short Term
Continuing Uncertainty

NH – Less of a decline, but a slower recovery
92.0
94.0
96.0
98.0
100.0
102.0
104.0
106.0
108.0
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Dec2007=100
Index of Total NonFarm Employment
US NH MA
New Hampshire
United States
Massachusetts

Economic Forecast?
NEEP Forecast Summary Comparisons
Average Annual Rates of Growth October 2015 Forecast
Actual
2010-2014
Forecast
2014-2018
Gross State Product
GSP-New Hampshire 3.3 2.5
GSP-New England 1.4 2.6
GDP-United States 1.9 2.8
Total Non-Farm Jobs
Jobs-New Hampshire 0.9 1.4
Jobs-New England 1.2 1.4
Jobs-United States 1.6 2.1
Moderate Growth Anticipated

Economic Consequence of the Market Turmoil
• Negative consequences
 Lower stock prices impacts consumer spending through
wealth effect and businesses’ cost of capital.
 Stronger value of the $ weakens the trade balance.
 Emerging market economies struggle to adjust to lower
commodity prices.
• Positive consequences
 Lower oil prices is a net positive as stronger consumer
spending more than offsets the hit to the energy industry.
 Lower mortgage rates supports housing and refinancing
activity.
 Reduces over-valuation in asset markets and chances that
a bubble will form. Allows Fed to raise rates more slowly.
Source: Moody’s Analytics, September 1, 2015

Overall Risk Index
Wealth Effect 40%, trade 40%, energy 20%
Sources: BLS, Moody’s Analytics

Long Term
Labor Force Challenges

Size of Labor Force
Working-Age Population (Age 20-64)
• Assuming no migration the working-
age population in New Hampshire will
decline nearly 10% in the state.
• The northern rural counties will see
larger declines.
• Carroll County sees the biggest
declines.
% Change
2010-2030
US 1.0%
NH -9.7%
Strafford -2.4%
Hillsborough -5.5%
Cheshire -8.9%
Merrimack -10.2%
Grafton -11.2%
Rockingham -12.3%
Sullivan -14.7%
Belknap -16.3%
Coos -20.0%
Carroll -24.4%
Source: Daniel Lee, Plymouth State University

New Hampshire’s Population Numbers
Depend on Immigrants
New Hampshire County Net Migration from 2010 to 2014
Census Estimates Net 2014
County Foreign Born Domestic Migration Residents
Belknap County, New Hampshire 293 292 585 60,305
Carroll County, New Hampshire 81 82 163 47,399
Cheshire County, New Hampshire 157 -1,193 -1,036 76,115
Coos County, New Hampshire 77 -799 -722 31,653
Grafton County, New Hampshire 1,105 -475 630 89,658
Hillsborough County, New Hampshire 4,075 -5,413 -1,338 405,184
Merrimack County, New Hampshire 871 -530 341 147,171
Rockingham County, New Hampshire 844 2,937 3,781 300,621
Strafford County, New Hampshire 531 505 1,036 125,604
Sullivan County, New Hampshire 103 -530 -427 43,103
8,137 -5,124 3,013 1,326,813

15.6%
13.9%
12.9%
5.7%
4.3%
3.4%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Massachusetts Connecticut Rhode Island New
Hampshire
Vermont Maine
Foreign Born Population in New England States (2013)
Percent of Total Population
New Hampshire Share of Foreign Born Less than
US, Regional

5.2%
16.1%
9.7%
22.9%
16.3%
14.7%
8.8%
4.4%
1.9%
0.5%
6.0%
9.4%
34.6%
17.0%
12.8%
10.0%
6.5%
3.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Under 5
years
5 to 17
years
18 to 24
years
25 to 44
years
45 to 54
years
55 to 64
years
65 to 74
years
75 to 84
years
85 years
and over
New Hampshire Native and Foreign Born Population by Age, 2013
Native Foreign born
New Hampshire Foreign Born Concentrated in Prime Working Age

Immigrants and Native Education Patterns
6.40%
29.80% 29.60%
22.10%
12.20%
19.20%
23.00%
19.20% 19.70%
18.90%
0%
5%
10%
15%
20%
25%
30%
35%
Less than high
school graduate
High school
graduate (includes
equivalency)
Some college or
associate's degree
Bachelor's degree Graduate or
professional
degree
New Hampshire Native and Foreign Born Population Over 25
by Educational Attainment, 2013
Native Foreign born

2013 Foreign Born with Bachelors Degree or Better
2013 ACS, , B06009 Foreign Born Foreign Born
Rank State Percentage BA or Better Population 25 and Over
4 Vermont 41.5% 8,902 21,459
9 New Hampshire 38.6% 24,395 63,196
13 Massachusetts 35.6% 319,823 898,587
14 Maine 35.0% 12,646 36,171
16 Connecticut 33.6% 145,832 434,636
43 Rhode Island 22.0% 25,460 115,548
New England 34.2% 537,058 1,569,597
18
New Hampshire Foreign Born Highly Educated

Immigration Expands the Economy
• Immigrants increase economic efficiency by reducing
labor shortages in low- and high-skilled markets because
their educational backgrounds fill holes in the native-born
labor market.
• Immigrants’ educational backgrounds typically
complement, rather than displace, the skills of the native-
born labor market.
THE ECONOMIC BENEFITS OF IMMIGRATION, Diana Furchtgott-Roth,
Senior Fellow, Manhattan Institute for Policy Research, February 2013

New Hampshire foreign born
Highly-Educated
• Four out of ten of New Hampshire’s foreign-born
residents have a bachelor’s degree or better, ranking
New Hampshire among the top ten states in the country
in the education level of foreign-born residents.
• Despite accounting for less than 6 percent of the state
population, the foreign born account for nearly one in ten
New Hampshire residents with a graduate or
professional degree.

• In 2013 New Hampshire foreign-born workers
earned about $2 billion in wages working in New
Hampshire industries, or about 6.4 percent of
the $29 billion in wages earned in the state.
• Over one third of those earnings were in
management, business, financial, computer and
mathematical occupations.
New Hampshire Foreign Born
Contribute to the Economy

• An expansion of the high-skilled visa program would
create an estimated 2,000 new jobs in New
Hampshire by 2020.
• By 2045, this expansion would add around $717
million to Gross State Product and increase
personal income by more than $706 million.
Source: Frederick R. Treyz, Corey Stottlemyer, and Rod Motamedi, “Key
Components of Immigration Reform: An Analysis of the Economic Effects of
Creating a Pathway to Legal Status, Expanding High-Skilled Visas, and
Reforming Lesser-Skilled Visas” (Amherst, MA: Regional Economic Models,
Inc., 2013).
But they could contribute more…

National Research on Foreign Born Business Owners
• Despite accounting for 13% of the population,
immigrants start one quarter of the new
businesses in the US.
• Immigrant founders started 52% of all new
Silicon Valley companies between 1995 and
2005.
• 21% of INC. 500 CEOs are foreign born.
• Source: INC. Magazine, “The Most Entrepreneurial Group in America
Wasn’t Born in America”.

New Hampshire Center
for Public Policy Studies
Want to learn more?
• Online: nhpolicy.org
• Facebook: facebook.com/nhpolicy
• Twitter: @nhpublicpolicy
• Our blog: policyblognh.org
• (603) 226-2500
“…to raise new ideas and improve policy debates through quality
information and analysis on issues shaping New Hampshire’s future.”
Board of Directors
James Putnam, Chair
David Alukonis
John Herney
Eric Herr
Dianne Mercier
Catherine A. Provencher
Todd I. Selig
Michael Whitney
Daniel Wolf
Martin L. Gross, Chair
Emeritus
Directors Emeritus
William H. Dunlap
Sheila T. Francoeur
Donna Sytek
Brian F. Walsh

Mr. Charlie M. Arlinghaus
President of The Josiah Bartlett Center for
Public Policy

Everything’s Better in Texas
Job Growth Since the Recession:
-0.11%
11.75%
0.44%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
2008 2009 2010 2011 2012 2013 2014 2015
New Hampshire Texas US, less TX

Wrong Side of the Border
94
96
98
100
102
104
106
2008 2009 2010 2011 2012 2013 2014 2015
Mass. adding jobs almost twice as fast as NH
MA NH

Location
Transport to
Market
Costs
Supplier
Labor
Costs
State and
Local
Taxes
Total
Measured
Costs
Nashville, TN $426 $159 $118 $703
Lexington, KY 423 186 106 715
St. Louis, MO 419 172 134 725
Bloomington, IL 417 202 162 781
Kalamazoo, MI 430 244 116 790
Terre Haute, IN 413 209 168 790
Marysville, OH 427 219 169 815
“Saturn and State Economic Development”, Bartik et al

Leapfrogging Maryland
TAX COMPETITION
Worst 10 8.50%
New Hampshire #39 8.20%
Massachusetts 8.00%
Median State [TN] 6.50%
Florida 5.50%
Top 11 5.00%
Texas

Who Pays Business Taxes?
Employees Firms Employees Pct of Total
20 or more 4,889 441,233 80.3%
5 or more 13,501 59,236 94.5%
Employers 30,522 548,985 100%
Nonemployers 102,310
Total 132,310
2014 BPT: 15,685 taxpayers
10 year range: 11,375 - 15,685

Budget Considerations
• Business Taxes
i. Rate reduction
ii. Up 15.5%
• HHS $27m behind and falling
• Taxes up $37m over budget
• New money means new ideas

Shockingly High
2015 2014
New England 16.62 15.43
New Hampshire 16.09 15.16
Vermont 14.34 14.63
Maine 12.96 12.60
USA 10.49 10.50
Tennessee 9.36 9.49
Texas #11 8.72 8.97

The NH Penalty: 46%
$500
$700
$900
$1,100
$1,300
$1,500
$1,700
2014201320122011201020092008200720062005200420032002
NH Pays $527m More Than if Ave
NH
AVE

Charlie Arlinghaus
Josiah Bartlett Center for Public Policy
arlinghaus@jbartlett.org

Mr. Jeff McDonald
Chief Investment Officer,
SVP for Enterprise
Investment Advisors
Market
Update: China,
Oil & The Fed

China is second largest economy in the world, with an expanding consumer class
and is also a large consumer of energy and raw materials.
China
© 2016 Enterprise Investment Advisors. All Rights Reserved. Do not reproduce.

China’s economic decline will impact the overall global economy but that impact will
vary from one country to another.
China

Today, Chinese economic growth has slowed from a historical 10% target to a
revised 6.5% and may be as low as 4%.
China

In response to the economic slowdown, the Chinese government has allowed its
currency to depreciate in order to make their exported goods more attractive to
consumers outside of China.
Manufacturing growth has slowed to the lowest level since 2009.
China

However, the depreciation of the Chinese Yuan sent a message to investors that
growth in China is slowing more than the government has reported.
China

The lack of confidence in the Chinese government to orchestrate a solid recovery
has diminished greatly (even after adding $30 billion to the market last month)
causing the Shanghai Chinese market to fall 15% year-to-date. Now down 20%, it
has entered a bear market for the 2nd time in 7 months.
China

Piling in: There are many new investors in China’s equity market.
The Chinese stock market has boomed as millions of citizens have taken up trading.
Volume on the Shanghai and Shenzhen markets through May in 2015 has nearly
equaled the trade volume in all of 2014.
China

But these new entrants are treating the equity market like a casino…
China

…and borrowing large sums of money to buy stock to make their fortunes.
China

China Syndrome: The Contagion Effect
Emerging market countries have been negatively impacted as investors fear a
contagion effect in those countries closely aligned with China, such as Singapore,
which could see its growth decrease by 1.4% for every 1% decrease in China’s
economy.

95
100
105
110
115 Thaibaht/USD
120
125
130
Jan'15
Source:Bloomberg
Jul'15 Jan'16
IndexJan14,2015=100(inverted) SpotExchangeRates
Malaysian ringgit/USD
South Korean won/USD
Taiwan dollar/USD
Since China is the largest Asian exporter, a cheaper Chinese currency initiates a
selloff in every other Asian export country’s currency.

-0.8%
-1.9%
-2.4%
-2.5%
-3.3%
-4.0%
-5.2%
-6.1%
-7.4%
-8.0% -7.0% -6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0%
South Africanrand
Russian rouble
Mexican peso
Turkishlira
South Koreanwon
Taiwanese dollar
Malaysian ringgit
Singapore dollar
Chineseyuan
YTD performance
against USD(1/15/16)
Asia is not alone: The Euro, Yen, Rand, Ruble and Peso are also weaker.
Source: NorthernTrust

Some developed international countries depend greatly on China for a large
percentage of their overall exports.

A slowdown in China will have a direct impact on the Eurozone region.

But the European Central Bank is committed to increasing growth and inflation in the
Eurozone which is why it will continue to add liquidity to the market and keep interest
low in order to make credit cheap and boost asset prices (sounds like what the Fed
did in the US in the last 7 years).

Commodity Rout: Oil
Oil has decreased dramatically due to the
decline in the global economy driven by
China’s economic slowdown.
Oil declines have been driven by over
supply issues caused by increased
production from new players such as US
shale producers.
Oil continued to slide and breached the $30 barrel level, not seen since 2004.
Currently, oil is at $29 a barrel, which is a 12-year low. This year alone oil has
lost 20% and is off 52% from its 2015 peak.
Why?
2 ReasonsDEMAND SUPPLY

In addition, Venezuela and Nigeria are adding to supply and now Iran is coming back
online after the ban on its oil exports were lifted.
Also, OPEC (The Organization of the Petroleum Exporting Countries), lead by the
Saudis, decided not cut production at its last meeting in order to eliminate
competition and protect its market share. As a result, there is a dramatic imbalance
between supply and demand.
Commodity Rout: Oil

Concerns with the decline in energy prices and its impact on highly levered energy
companies has fanned the bankruptcy fires and the losses in banks’ loan portfolios
(especially regional banks in energy producing areas), which could pressure bank
earnings.
Source: Northern Trust, Bloomberg, Barclays. Monthly data through 12/31/2015. Averages of data over period charted.
Commodity Rout: Oil

Positives and negatives for lower oil prices:
POSTIVES
+ US consumers benefit directly because
oil is priced in dollars and our dollar has
strengthened which means the lower
gas prices has added approximately
$700 billion in consumer’s pockets.
+ Other benefits from lower gas prices
have been reported recently in stronger
restaurant and beverage sales and
home improvement revenue i.e. Home
Depot, Lowe’s, etc.
NEGATIVES
− Since oil is priced in dollars, the effect of
a stronger dollar has made oil/gas more
expensive in those countries that have
been reducing the value of their
currency in order to remain export
competitive.
− In this case, energy and gas prices
acted like a tax increase at a time when
consumers need a tax cut.
Commodity Rout: Oil

Consumer balance sheet is in better shape today: Consumer debt loads as
percentage of income are 30% lower today than they were in 2007.
Domestic Front

Consumer confidence and disposable income is still high:
Domestic Front

Business confidence is still strong:
Domestic Front

Market Update:
The Fed
Domestic Front

The Fed raised the Fed Funds rate for the first time in 10 years, causing some
concern because it makes the dollar stronger which makes our exports more
expensive versus our trading partners.
Positives of higher rates:
 Helps individuals dependent on fixed-income and adjusts risk-taking.
 Higher short-term rates help bank net interest margins = ability to expand credit.
 Higher interest rates = US dollar denominated assets more attractive = pushing
longer-term interest rates lower.
The Domestic Front: The Fed

US bank balance sheets are stronger than ever. They have double the reserve
ratios to protect against crisis situations like 2008.
Opportunity???
Bank earnings have been good…Citigroup posted best annual profit in a decade,
yet, financial shares index is down 13% year-to-date.
The Domestic Front

The slowdown in the global economy is impacting the US economy but not as much as
other countries.
Why?
US only exports about 15% of the goods produced but the stronger dollar has impacted
the manufacturing sector.
.
The Domestic Front

The US is mostly a service economy, not impacted by the strength of the dollar.
The Domestic Front

It’s NOT all a bed of roses…

US companies still face some headwinds in earnings growth.
Fourth quarter earnings declined from 1% to (3.7%) which explains why we saw
flattish equity returns last year.
Earning growth estimates for 2016 have been ratcheted down from 10.3% to 7.6%
due to the global slowdown.
.
Earnings

Currently, fear is driving stock prices lower…..CBOE (Chicago Board Options Exchange)
volatility index often referred to as the fear gauge is above the its 10 year average.
As a result, fear has pushed all major US stock indexes into correction territory,
which is reflecting declines of more than 10% from recent peaks.
Fear

Positives for continued growth in US:
Positives

UnemploymentRate
Employment has remained strong…recent NFP was over $292k, which was above the
average estimate.
Positives for Growth

Wage growth is still weaker than desired but was still positive at +2.5% year-over-
year.
Already mentioned “cheap” oil/gas = savings for consumption. Remember consumer
is 70% of GDP in U.S.

Strong corporate balance sheets and huge cash levels to the tune of estimated $1.7
trillion.
Plenty of firepower to buy equities.
Source:Bloomberg
Over $700 Billion in
Personal Savings
Over $2.7 Trillion in
Money Markets

Source: Northern Trust, Bloomberg. Weekly data through 1/1/2016 (*current).
Longer-term interest rates will probably remain range bound between 2% - 2.5%.
Probably will stay at the lower end of the range due to the following:
 Expectations of inflation remaining low for the foreseeable future.
 Safe haven status of US treasury bonds during market turmoil/volatility.
 Higher yields compared to global trading partners make US bonds more attractive
and the demand pushes prices higher and bond yields lower.
10-YEAR
SOVEREIGNS
CURRENT*
YIELD
12/31/14
YIELD
YTD CHANGE
(BPS)
CURRENTSPREAD
TO U.S.(BPS)
1YRFORWARD
YIELD
5YRFORWARD
YIELD
United States 2.27 2.17 10 - 2.50 2.88
United Kingdom 1.96 1.76 20 -31 2.20 2.76
Japan 0.27 0.33 -6 -200 0.37 0.94
Canada 1.39 1.79 -39 -88 1.57 2.35
Germany 0.63 0.54 9 -164 0.78 1.43
France 0.99 0.83 16 -128 1.19 2.03
Italy 1.60 1.89 -29 -67 1.85 2.74
Spain 1.77 1.61 16 -50 2.07 3.20
Switzerland -0.06 0.32 -38 -233 0.05 0.58

Although we have seen a huge improvement in real estate prices we have not benefited
directly from an increase in new construction.
Every 250,000 homes built translates to approximately 1 million jobs created;
we think that housing starts could end up at 2 million annually.
Source:
NorthernTrust

As the employment picture has continued to improve, we will see more demand (albeit
slow) for housing and lower mortgage rates will aide first time home buyers and those
looking to move up.
There is proof that young people are leaving the nest:

…and forming new households.

• Lastly, although the Fed has increased the
Fed Funds rate, it remains
• accommodative in its monetary policy.
• It remains fully aware of the global macroeconomic
• picture and its impact on the US economy.

Thank you!
Jeffrey McDonald
Chief Investment Officer
Jeffrey.McDonald@ebtc.com

Thank you for attending our
Economic Outlook Luncheon!

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