M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2013
Q1 2013 Economic Outlook Survey Results
Economy Stumbles; Businesses Press On
The U.S. economy stalled in the fourth quarter of 2012, with real GDP advancing at an anemic 0.1% annualized rate in Q4. Coupled with the looming federal sequestration cuts, it is not surprising that confidence in the near-term naional outlook soured somewhat in our latest survey. However, as has become a pattern, respondents continue to buck the economic headwinds and anticipate further modest gains in business performance. By a 4-to-1 margin, mid-sized companies expect unit sales to increase, rather than decrease, over the first half of 2013. Commercial real estate firms expect rents to rise, rather than fall, by a 4-to-1 margin. Hiring plans are a wild cardwhile 31% of respondents plan to add workers during the first half of 2013, nearly as many (27%) say they plan to postpone hiring due to concerns over fiscal policy uncertainty. Fully one-third (33%) expect to delay or curtail capital spending for similar reasons. Still, despite heightened worries about Washington gridlock, the fact that so many firms remain cautiously optimistic about their own business prospects is encouraging. As the drag from sequestration cuts and higher payroll taxes eases later this year, business momentum should gradually accelerate.
Middle Market Highlights
Just 37% of Middle Market firms (sales $5-$500 million) expect U.S. economic growth to accelerate over the next six monthswell below the 52% reading a year ago. Meanwhile, one in five (22%) expect growth to slow, a jump from 6% in Q1 2012. In contrast, 50% expect their unit sales to improve over the next six months, while just 13% expect sales to decline (versus 46% and 16% in our July 2012 survey). Hiring plans remain positive, pointing to further labor market momentum. Nearly one third (31%) of respondents expect to add workers over the next six months (versus 27% in the July 2012 poll), while only 6% expect to reduce payroll (on par with the last survey).
Regional Differences
Roughly half of metro NYC (53%) and Mid-Atlantic (50%) firms expect their regional economies to outperform the U.S. during the first half of 2013versus just 29% of Upstate New York and 28% of Pennsylvania respondents.
Commercial Real Estate
40% say the U.S. economy has improved over the past six months, well above the 25% reading in July. Just 11% say the national economy has worsened. Expectations remain positive, with almost half (46%) expecting improvement vs. 16% seeing slower growth. Over half (55%) expect CRE fundamentals to improve through mid-year, up from 40% in July. Only 4% expect conditions to weaken, well below the 9% reading in the prior survey. 29% expect occupancy rates to increase over the next six months (27% in July 2012). 17% expect occupancy to fall (vs. 20% previously). Despite cautious views on occupancy, 46% expect rental rates to rise over the next six months, up from 40% in the July 2012 poll. Only 8% expect rents to fall (vs. 9% in the prior poll).
How do you expect the national economy to perform over the next six months? Middle Market Companies
70% 60% 50% 40%
Sequestration Concerns
The hiring pace would be much stronger if fiscal policy uncertainty were reduced. 27% of all respondents say they are delaying hiring due to uncertainty surrounding the debate on raising the federal debt ceiling and sequestration. One in three firms (32%) plan to postpone cap-ex spending for the same reasons.
Will uncertainty surrounding the debate on raising the federal debt ceiling and sequestration have any impact on your 2013 hiring or capital expenditure plans?
Middle Market and Commercial Real Estate Firms
Hiring Plans Capital Expenditure Plans
Postpone All Postpone Some Total Postpone Accelerate Some NET Postpone No Impact
8% 19% 27% 0% 27% 73%
6% 27% 33% 1% 32% 66%
54%
66%
52% 37% Improve 22%
Deteriorate
30% 20% 10% 0%
6%
Q12010
3%
Q12011
6%
Q12012 Q12013
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M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2013
How would you rate the current state of the U.S. economy compared to six months ago? Middle Market Companies
Entering 2013 on a Subdued Note
While still positive on net, optimism has waned signicantly since the 2011 high water mark
60% 50%
Did
uncertainty surrounding the so-called Fiscal Cliff negotiations have any impact on your 2012 hiring or capital expenditure plans?
Middle Market and CRE Companies
Hiring Plans Capital Expenditure Plans
Postpone All
57% 39% 46% 36%
9% 15% 24% 1% 23% 76%
10% 23% 33% 2% 31% 66%
Postpone Some
Better
16%
40% 30% 20% 10% 0%
Total Postpone Accelerate Some
6%
3%
6%
Worse
NET Postpone
Q1 2013
Q1 2010
Q1 2011
Q1 2012
No Impact
How do you expect the economy in your metro area to perform relative to the U.S. over the first half of 2013?
Middle Market Companies
Substantially Better Moderately Better
What are your expectations for your own industry over the next six months? Middle Market Companies
Industry Expectations Improve Slightly
After dipping to post-recession lows in mid-2012, near-term expectations are again consistent with prior survey readings
70% 60% 50%
NYC & Mid-Atlantic condence suggest slightly stronger regional growth on the horizon
50%
53%
49%
53% 46%
58%
54% 44% 37% 34% 17% 10%
28%
27%
29%
45% 29%
5%
44%
40% 30% 20%
Improve
14%
11%
9%
10%
14%
11%
16%
10% 0%
Deteriorate
Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013
PA
% Saying Worse Than U.S.
Upstate NY
26%
Mid-Atlantic
8%
NYC
9%
15%
Adjusting for normal seasonal ups and downs in your business cycle, what do you expect to happen to the real volume (number of units) of goods and services that you will sell during the next six months?
Which of the following best describes your firms employment plans over the next six months?
Middle Market Companies
Sales Outlook Consistent with Past Surveys
Mid-sized rms continue to expect moderate sales growth during the rst half of 2013
70% 60% 50% 40% 30% 20% 10% 0%
Middle Market Companies
Hiring Plans Remain Positive
Despite worries about the U.S. economy, a net of 25% of mid-sized rms plan to add additional workers over the next six months
35% 30%
58%
56% 50%
60% 42%
58% 46% 50%
29% 21% 21% 11% 7% 20%
29% 24%
32% 27%
31%
Increase Sales Decrease Sales
25% 20% 15%
Hire Additional Workers Reduce Employment
16% 10%
13%
15% 8%
16% 10%
10% 5% 0%
13% 9% 5% 6%
13%
6%
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
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M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2013
Which of the following best describes your firms capital equipment spending plans over the next six months?
Middle Market Companies
Capex Plans Still Positive
Near-term investment spending should continue to rise, although at a slightly slower pace than in 2012
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Looking ahead six months, how do you expect your inventory levels to change? Middle Market Companies
Stable Inventory Management
Respondents have carefully managed inventory levels throughout the recovery
35%
46% 38% 26% 36% 38%
41%
40%
31%
37%
30% 25% 20% 15%
29% 23%
27% 20% 18% 14%
25% 19% 17%
Increase
11% 9%
21%
Increase
22% 19% 15% 15% 16%
10% 5% 0%
7%
7%
9%
12% 8%
Decrease
9%
Decrease
Q3 2012 Q1 2013
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
How would you rate the current state of the U.S. economy compared to six months ago? Commercial Real Estate Companies
Modest Economic Progress
While 4-in-10 rms said the national economy improved in the second half of 2012, nearly half (49%) saw no change
80% 70% 60% 50% 40% 30% 20% 10% 0%
How do you expect the national economy to perform over the next six months? Commercial Real Estate Companies
Slightly Firmer Near-Term Outlook
Condence bounced back from the prior survey reading, but trails comparable levels at the start of 2011 and 2012
90% 80% 70%
68% 50% 50% 40% 28% 17% 7% 10% 5% 20% 7% 19% 11% 25%
81% 67% 48% 44% 63% 38% 25% 12% 4% 17% 5% 12% 3% 20% 46%
44%
45%
60% 50% 40% 30% 20% 10% 0%
Better
Improve
17%
Worse
Q1 2013
Deteriorate
Q1 2013
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
What are your expectations for your own industry over the next six months? Commercial Real Estate Companies
Industry Outlook Strengthens
Expectations for CRE industry performance rose in January; very few respondents expect deterioration
80% 70% 60% 50% 40% 30% 20% 10% 0%
Looking ahead six months, how do you expect your occupancy rates to change from their current levels?
Commercial Real Estate Companies
Lease-up Outlook Improves Slightly
Expectations rebounded slightly in the latest survey, but continue to be relatively soft versus 2011 and early 2012 readings
50% 45%
74% 57% 60% 52% 46% 40% 33% 31% 11% 12% 5% 12% 5% 55%
44%
46%
41% 27%
40% 35% 30% 25% 20% 15% 10% 5% 0%
Increase
29% 16%
Improve
Deteriorate
4%
26% 22% 20% 23%
28% 15% 11% 6%
23%
20%
9%
Decrease
Q3 2012 Q1 2013
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
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M&T COMMERCIAL BANKING DIVISION
FEBRUARY 2013
Adjusting for normal seasonal ups and downs, what do you expect to happen to rental rates during the next six months?
Commercial Real Estate Companies
Rental Rate Expectations Remain Positive
Despite concerns about sluggish tenant demand, CRE investors expect rental rates to move higher
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
What are your expectations for cap rates over the next six months? Commercial Real Estate Companies
Cap Rates to Tick Upward
70%
46% 36% 26% 19% 10% 15% 13% 7%
41%
46% 38% 40%
60% 50% 40% 30%
58% 42%
Though expectations remain relatively stable, 1-in-4 respondents in Q1 expect cap rates to rise over the coming six months
Increase
Increase
28% 24% 16% 5% 6% 18% 20% 14% 13% 16% 18% 16% 13% 28%
7%
5%
9%
8%
20% 10% 0%
Decrease
Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013
Decrease
Q3 2012 Q1 2013
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
What are your expectations for the volume of commercial real estate transactions nationally over the next six months?
How do you feel about the availability of CRE financing from the following sources over the next six months?
Commercial Real Estate Companies
Transaction Activity Remains Steady
CRE respondents expect modest gains in sales transactions over the rst half of 2013
70% 60% 50% 40% 30% 20% 10% 0%
Commercial Real Estate Companies
CRE Credit Flow Continues to Improve
A majority of CRE investors have access to suf cient nancing, with a jump in capital market availability over the prior survey
Regional Lenders Capital Markets
70%
66% 40%
66% 56% 49% 44% 42%
70%
71%
63% 53% 53% 52% 44% 42% 41% 40% 40% 36% 32%
60% 58% 57% 53% 52%
Increase
40% 39%38% 34% 33% 33%
43% 45%
41% 33%
27% 7% 5%
Decrease
8% 4% 5% 10%
17% 17% 10%9% 6%7% 8%
23%
25%
18% 12% 8%6% 5%
26%
24%
5%
Q3 09 Q3 10 Q3 11 Q3 12 Q3 09 Q3 10 Q3 11 Q3 12 Q3 09 Q3 10
3%
Q3 09 Q3 10 Q3 11 Q3 12
8%
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 09
Q3 10
Q3 11
Q3 12
Q3 11
Q3 12
Q3 09
Q3 10
Q3 11
Q3 12
Very Insufficient
Insufficient
Sufficient
Very Insufficient
Insufficient
Sufficient
ABOUT M&T: M&T Bank Corporation (NYSE: MTB.com), founded in 1856, is one of the top 20 independent commercial bank holding companies in the nation, with $83 billion in assets, over 700 branch offices, and more than 14,000 employees throughout New York, Maryland, Pennsylvania, Washington, D.C., Virginia, West Virginia, New Jersey, Florida, Delaware and Toronto, Canada. SURVEY METHODOLOGY: An Internet survey was conducted by M&T during January and February 2013 among senior managers and owners of privately held businesses located throughout the Banks geographic footprint. A total of 431 responses were received, consisting of 334 middle market enterprises (annual sales $5 million to $1 billion) and 97 commercial real estate investors/lessors. M&T has conducted the survey since mid-2009 DISCLAIMER: This newsletter has been prepared by the Commercial Banking Division of M&T Bank and is not a product of any of M&Ts other affi liates, including any of its registered investment advisors. The views herein are provided for informational purposes only and may differ from those of other departments or divisions of M&T Bank and its affi liates. The information is not intended as specific advice or recommendations and should be viewed as merely representative of a broad range of possible outcomes.
For additional information about survey results, please contact: Gary Keith VP - Regional Economist Commercial Planning & Analysis (716) 848-4725 gkeith@mtb.com
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