Economic Update: Trends in Occupational Studies

Presented by:

Jonathan M. Gardey, MBA, CFA®, CFP®

President and CEO

Gardey Financial Advisors, Inc.

October 19, 2017

IntroductionJonathan (Jon) M. Gardey, MBA, CFP®, CFA®

Prior to joining Gardey Financial Advisors, Jon spent six years as an officer in the United States Navy. His Naval assignments involved increasing levels of responsibility and included service on an aircraft carrier in the Indian Ocean and drug interdiction work on a high-speed hydrofoil in the Caribbean—on which he was Chief Engineer.

Previous to his Naval service, Jon graduated from the University of Wisconsin and, after his tour of duty in the Navy, earned a Master of Business Administration degree in both Finance and in Money and Financial Markets from Columbia University in the City of New York.

Following graduation and four years of study, Jon was awarded the designation of Chartered Financial Analyst (CFA®). He then earned the designation as a Certified Financial Planner (CFP®) practitioner after successfully completing a series of five examinations. Jon holds the position of President of the Northeastern Michigan Estate Planning Council and is a member of both the CFA Institute and the CFA Society of Detroit. He serves on the Board of Directors of Covenant Healthcare System and on the Delta College Foundation Investment Advisory Committee. In addition, Jon is a member of the Board of Directors for Central Equity Investments Incorporated.

Jon has been a member of the staff of Gardey Financial Advisors for 22 years. He has served as the firm’s Director of Research, as the Chairman of the Investment Committee, as a member of the firm’s Leadership Committee, and as President and CEO. During all of this time, he has also served as a Financial Advisor for the company.

Gardey Financial Advisors

Founded in 1985

Supervised by the United States Securities & Exchange Commission

Over $177,000,000 in assets under management—the largest independent Registered Investment Advisor north of the Detroit area

Registrations include:

National Association of Personal Financial Advisors (NAPFA) –Kim M. Gardey, CFP®

Staff of six CERTIFIED FINANCIAL PLANNER® professionals

Recognitions:

Named a “Top Wealth Manager” by Bloomberg Wealth Manager Magazine(2005)

Named as one of “The Ten Most Dependable Wealth Managers of the Great Lakes” by Goldline Research Corporation (2008)

Agenda

1. Introduction

2. Michigan Employment

3. Michigan Economy

4. U.S. Employment

5. Housing

6. Savers and Consumers

7. Income

8. Inflation

9. Investment Discussion

10. Conclusion

11. Questions

Source: Michigan Treasury

Michigan and U.S. Monthly Unemployment Rates

August 2013 to August 20 17

10

8

United States 4.4%- 6

-

£ 4 "Michigan 3.9%

2

0

2013 2014 2015 2016 2017

Source: Michigan Dept. ofTechnology, Management & Budget and Bureau of Labor Statistics, U.S. Dept. of Labor

Source: Michigan Treasu

Source: Bureau of Labor Statistics (data)

Michigan Counties: Unemployment Rate (%)

August 2017

Alcona County Missaukee County6.5 Gratiot County 5.5 5.5

Hillsdale CountyAlger County 6.6 5.4 Monroe County 5.3

Allegan County Houghton County Montcalm County3.8 6 5

Alpena County 5.7 Huron County 5.1 Montmorency County 8.9

Ingham County Muskegon CountyAntrim County 5.6 4.9 5.8

Arenac County 7.1 Ionia County 4.3 Newaygo County 4.8

Oakland CountyBaraga County 7.1 Iosco County 6.9 3.5

Barry County 4.2 Iron County 5.6 Oceana County 5.8

Isabella CountyBay County 5.6 Ogemaw County4.9 6.8

Jackson CountyBenzie County 5.3 4.9 Ontonagon County 7.6

Kalamazoo County Osceola CountyBerrien County 5 4.4 5.6

Branch County Kalkaska County Oscoda County5 5.9 7.1

Calhoun County 5.1 Kent County 3.8 Otsego County 5.6

Cass County 4.7 Keweenaw County 7.6 Ottawa County 3.6

Charlevoix County Presque Isle CountyLake County4.6 7.7 7.3

Cheboygan County 4.5 Lapeer County 4.6 Roscommon County 7.8

Chippewa County Leelanau County6.7 Saginaw County 5.54.1

Clare County Saint Clair County5.16.4 Lenawee County 4.5

Clinton County Saint Joseph County4 Livingston County 3.2 4.4

Crawford County Sanilac County6.5 Luce County 5.8 5.7

Delta County Mackinac County Schoolcraft County5.7 3.2 7.3

Dickinson County Macomb County Shiawassee County4.2 5.14.7

Tuscola CountyEaton County 4.6 Manistee County 5.7 6.4

Emmet County 4.8 Marquette County 5.5 Van Buren County 5.4

Washtenaw CountyGenesee County 5.8 Mason County 5 3.9

Gladwin County 6.5 Mecosta County 5.9 Wayne County 5.5

Gogebic County Wexford County5.9 Menominee County 5 5.6

Grand Traverse County Midland County3.8 4.7

r

Source: Bureau of Labor Statistics (data)

Source: Bureau of Labor Statistics

Unemployment rates by county, not seasonally adjusted, Michigan August 2017

r\

-WTVrrrrrfrfrfrfrfHwyyyyyyyyrrrrrrrrrtxrrrrrrrrrrrrrrrrrrrrNP F F Y Y YY Y YTUT Y Y YY YY YYY

BrrrrrrrrjaMMrrrrrrrr

yTyTyYYIrrrrrrjjr r rrflB

rrrrrfFFff

r r

r r

r r

r r rrrr

WyyTttytyTYYYYYYYYYTYYYYYYr f fr r r r ry yyyy y yyy y

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^^M^^nrYYYYYYYYYYYYTYYZ,m ^fcrrrrfrrrj^T

X.1Ur Vl^S

r r

r r

- r - r r

rr

unemployment rate(%)

I 10.0 to 60.0nTrrffirrrrr rrr

&' ?* r r r r r r t

sTYVYTY^r rrrr

gTYYYYYI S»v

7.0 to 9.9

6.0 to 6.9

5.0 to 5.9

4.0 to 4.9

3.0 to 3.9

0.0 to 2.9

rrr

rrrrrr

rrr rrrIjrJjr * >

p .

YY

rrrrrrriTwWwwwVmy rrrrrn

f^rrrrrrrKyyyyyyyyXj rrrrrrlU'YYYYYYti•fFfffffl.if r r r r r r t\

1I t - r r rrrI f rrrrrrFFFrFfFFlyvY'VYvyvY1YYYmjm

r

J'YYY1

i

I

Source: Bureau of Labor Statisticsr

Source: Michigan Labor Market Bureau

Total Nonfarm Employment for Michigan MSAs, August 2017

Source: Current Employment Statistics (CES), All data not seasonally adjusted

Current

Employment

% Change

Month

Previous

Year

% Change

Year

Previous

MonthArea

4,390,600 4,384,000 0.2% 1.7%Michigan 4,316,700

Detroit-Warren-Dearborn, Ml Metropolitan

Statistical Area2,019,700 2,013,000 0.3% 1,974,800 2.3%

Grand Rapids-Wyoming, MI Metropolitan

Statistical Area2.5%554,800 554,100 0.1% 541,200

Lansing-East Lansing, Ml Metropolitan

Statistical Area227,800 228,200 -0.2% 224,200 1.6%

Ann Arbor. Ml Metropolitan Statistical

Area217,900 217,000 0.4% 211,200 3.2%

Kalamazoo-Portage, Ml Metropolitan

Statistical Area147,900 147,500 0.3% 144,700 2.2%

Flint, Ml Metropolitan Statistical Area 139,700 140,200 -0.4% 139,200 0.4%

0 8%Saginaw, Ml Metropolitan Statistical Area 89,000 89,200 -0.2% 88,300

Muskegon, Ml Metropolitan Statistical

Area64,200 64,400 -0.3% 64,000 0.3%

Niles-Benton Harbor, Ml Metropolitan

Statistical Area64,100 63,800 0.5% 63,000 1.7%

Battle Creek, Ml Metropolitan Statistical

Area59,900 59,500 0.7% 59,100 1.4%

Jackson, Ml Metropolitan Statistical Area 58,300 58,500 -0.3% 57,300 1.7%

Monroe, Ml Metropolitan Statistical Area 42,200 42,100 0 2% 41,600 1.4%

Midland, Ml Metropolitan Statistical Area 37,400 38,000 -1.6% 37,600 -0.5%

Bay City, Ml Metropolitan Statistical Area 35,800 35,600 06% 36,300 -1.4%

VSource: Michigan Labor Market Bureaur

Source: Michigan Treasury

U.S. and Great Lakes States

August 2017 Unemployment Rates

16.0

14.0

12.0

10.011.0

Decline from Great Recession

Peak Unemployment Rate8.0

6.0

4.0Current Unemployment Rate

2.0

0.0

& kP ^of *V5 ^ \<> Wv

' ^4sa?

Source: Michigan Treasu

Source: U of M RSQE

Job Losses and Gains in Michigan by Year150,000

100,000

50,000

to 0_QO

^ (50,000)

O)-Q (100,000)

£3

z: (150,000)

(200,000)

(250,000)

(300,000)

1971- 1991- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018* 2019*

2000 2000

*Forecasted

Source: U of M RSQE

Source: Federal Reserve Bank of St. Louis

— Leading Index for Michigan

7.5

5.0

2.5

£ 0.0 \r-

I V_

-2.5

-5.0

-7.5

-10.0

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

£ill

Shadedareas indicate U.S. recessions Source: Federal Reserve Bank of Philadelphia fred.stlouisfed.org

Source: Federal Reserve Bank of St. Louis

Source: Comerica

Michigan Total Economic Activity Index(2008=100)

140

130

_ r120

110

100

90

80

70 \

Jan-09

i i i T 1I

Jan-10 Jan-1 1 Jan-1? Jan-13 Jan-14 Jan-1 5 Jan-1 6 Jan-1 7

Source: Co ricar

Source: Wall Street Journal

Comparative Midwest EconomicsReal average annual GDP growth in percent in the six

years before the 2008-2009 recession and six years

after a post-recession tax reform

All Industries 2002-2007 2011-2016

U.S. 2.7% 2.0%

Michigan

Great Lakes*

Illinois

Manufacturing

0.0 1.9

1.3 1.4

1.8 1.0

2002-2007 2011-2016

U.S. 0.9%4.4%

Michigan

Great Lakes'-

0.8 2.1

2.4 0.8

Illinois 2.7 -0.4

'-Illinois, Indiana, Ohio, Michigan, Wisconsin

Source: Bureau of Economic Analysis THE WALL STREET JOURNAL

Source: Wall Street Journal

Source: U of M RSQE

Michigan Inflation and Income Growth

2016-19

Percent6

4.95

#.| „

Ulil4

3.03

2 22

1

0

Detroit CPI Personal Income Real Disposable Income

2016 D2017 2018 D2019

RSQE: October 20 17

Source: U of M RSQE

Source: U of M RSQE

Chart 10

Light Vehicle SalesUnits (Millions)

TotalAutos nLt. Trucks20

17.516.9 16.9 16.9

—•

16

12 11.211.010.810.6

86.9

6.1 5.9 5.7

4

0

2016 2017 2018 2019

RSQE: September 201 7

Source: U of M RSQE

Source: Federal Reserve Bank of St. Louis

— Civilian Labor Force Participation Rate

68

67

66

65

Sep 201 7: 63.164

s 63aic_

62

61

60

59

58

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

I '"I -145a Bhi

fred.stlouisfed.orgShadedareas indicate U.S. recessions Source: U.S. Bureau of Labor Statistics

Source: Federal Reserve Bank of St. Louis

Source: Advisor Perspectives

dshort.com

of September 2017^P^RS^VlVES Labor Force Participation Rate

Growth Since 2000

Recessions Ages 16-24 Ages 25-34 Ages 35-44 —Ages 45-54 Ages 55-64 —Ages 65 and Over

60%

Since 2000Cohort LFPR

Ages 16-24 56.2 -15.0%

82.3 -3.2%Ages 25-3450%

Ages 34-44 82.6 -3.2%

80.5 -2.8%Ages 45- 54

64.8 9.3%Ages 55-64

19.6 56.8%^ Ages 65 &Over40%

30%

20%

10%

0%

-10%

Ages 16-54 seasonally adjusted, Ages 55 and over nonadjusted

-20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Advisor Perspectives

Source: Advisor Perspectives

dshort.com

October 2017

As of September

^PERSPECTIVES Age 65+ Cohort as a Percent of Employed

Monthly 12-Month Moving AverageRecessions

6.5%

r

6.0% 6;o%"

15.5%

5.2%

•*

I I••

5.0%

" I\

I *

t*

4.5%r \\ •*.

i

'^14.0%• i :

}. t;

*r

3.5%- .

*

* ,.j?

Aiw,—- r*' • i. . * •

.» • !S-k,——'4 , — . V-*-3.0%

r •

*jCO'

Shift starts

in 1999

2.5%2.6%

_

2.0%

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Advisor Perspectives

Source: Wall Street Journal

S&P/Case-Shiller U.S. national home price index

Recession200

190

180

170

160

150

140

130

'08 09 '10 '11 '15 '16 '17'12 '13 '142007

Source: S&P Dow Jones Indices via Federal Reserve

THE WALL STREET JOURNAL

Source: Wall Street Journalr

Source: Advisor Perspectives

dshort.com

October 2017

Data through August

®£^PEC^IVES Personal Savings Rate

• Personal Savings Rate 12-Month Moving AverageRecessionsLog Scale

32%

Latest monthly value = 3.6%

12-month moving average = 3.8%

16% -

£4

8% t • .

•5L. <

\Ln\

.1 •J. u*

J4% -

. .*.

.*

-

*2%

Historic lows during

the "easy money"

housing bubble

rzi%

I960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Advisor Perspectives

Source: Advisor Perspectives

dshort.com

October 2017® PERSPECTIVES University of Michigan Consumer Sentiment Index

GDP and Recessions

120-

October Preliminary Report

Current Level'Z. TOT71" '100

91.5

88.2

80

75.574.'

e:

60

4016

14

1210

GDP s6

4202

0

2

4

6

8

0 10

1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: Advisor Perspectives

Source: U of M RSQE

Chart 5

Growth Rate of Real GDP

Percent, AR4

Actual Forecast

3.13.0

2 82.4,

2.2,2.2

2.02 ,1 8

12

0.6,0.5

0 i i i i i i i i. i i i x x i

41234123412341234

'15 2016 2017 2018 2019

4th Quarter to 4th Quarter Growth Rate of Real GDP (%)

2.0 1.8 2.4 2.3 2.1

RSQE: September 2017

Source: U of M RSQE

Source: ZeroHedge, 720Global

Consumer Credit and Transfer Payments as % of Consumption50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%ro ro

§ 8ro *o

ro ro>—'

KD IX) KD

720GUyBAL IO<D CD CO CO CO CD CO

-u SJ3 00 CO CO CDen cn <n 5"O fO •o roro ro ro ro

Consumer Credit OTrans. Payments

Data Courtesy: St. Louis Federal Reserve (FRED)

Source: ZeroHedge, 720GlobalV

Source: Wall Street Journal

Wave of Young Consumers

Millennials have replaced baby boomers as the largest generation—with 26-year-olds as the largest

single age group—creating a wave of consumers for companies to target.

U.S. population by age, December 2016

5 million people 26-year-olds:4.75 million

4

3

2

1

MILLENNIALSi B1—

GENERATION X BABY BOOMERSo

10-year-olds 20 30 40 50 60 70 80 90 100+

Source: Deutsche Bank

fSource: Wall Street Journal

r

Source: Wall Street Journal

Uneven Gains

Inflation-adjusted earnings have risen faster since 2007 than in previous business cycles, but gains

mostly flowed to higher earners.

Real earnings growth, change from a year earlier

6%

4

Cycle trend2

o

-2

-4

I I I10s1990s

Hourly earnings in 2016 dollars by earnings quintile

1981 2000s

19792016

S50

40

30

20

10

0

Lower-middle Middle Upper-middleBottom Top

Labor Department via Hamilton Project

Source: Wall Street Journal

Source: ZeroHedge

Figure A. Income shares by income percentile, 1989-2016 surveys

Percent70 r- Top 1 percent

Next 9 percent

Bottom 90 percent60 -

50 -

40 -

30 -

20 -

10 -

1 1 110

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Source: ZeroHedge

Source: ZeroHedge

Change In 2007 - 2016 Mean Net Worth by Family ($ In '000s)

fSOO

S710

$"00

$600

$500

$400

$500

$200

$100 S66

$0

-S27-S32 -S37-$61-$100

Less than 20% 20%- 40% 40%-60% 60%- 80% 80%- 90% 90%- 100%

Percentile of Income So;/ret: Ftdtraf B^str/t. Ztro Htdgt

ASource: ZeroHedge

Source: Wall Street Journal

Taking Stock of Growing Net Worth

Net worth of U.S. households and nonprofits

$100 trillion Recession

80

60

| Stocks*

Other net worth40

II

20

0

'02 '04 '06 '08 '10 '12 '14 '162000

'Indirectly and directly held

Source: Federal Reserve

THE WALL STREET JOURNAL

Source: Wall Street Journal

Source: Advisor Perspectives

dshort.com

October 2017®PERSPECTIVES Fourteen Decades of Price Inflation

The Decline in Purchasing Power of the DollarLog scale

$4.00

Offical inflation based on the BLS Consumer Price Index

Inflation estimate before creation of the BLS- — -r — — -

Federal Reserve: 1914$2.00

Roosevelt abandons

the gold standard: 1933

~~7 —

$1.00

X$1 = $1

$0.50

$0.25 Nixon closes the

gold window: 1971

- -

$0.13

$1 = 5 centsBLS began changing methods

to calculate the CPI: 1982

XT$0.06— - -

$0.03

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Source: Advisor rspectivesP

Source: Advisor Perspectives

dshort.com

October 2017

Data through September

®PERSPECTIVES Consumer Price Index for Urban Consumers

Headline and Core Year-over-YearNot seasonally adjusted

16%

Recessions

Consumer Price Index (CPI)

CPI less Food and Energy14%

"12%

10%

8%

6%

4%

I2%

0%

-2%

^»%

1955 1960 1965 1970 1975 1995 2000 2005 2010 2015 20201980 1985 1990

ISource: Advisor rspectivesP

Source: Allgen Financial

The Federal Reserve balance sheetUSD trillions

Oct. 2014:

End of OE3;

balance sheet

stands at $4 5T

$5 -i Forecasted reduction'

IJan. 2014:

Tapering of

purchases begins

Balance sheet reduction scenario

(current balance sheet = S4 460 trillion)

+•

-J

1Beginning

balance ($ trillion)

End balance

($ tnllion)Other

Jun. 2011:

End of OE2:

balance sheet

stands at $2 8T

k.$4

kS2 465 $t 170Treasuries

SI 770 SO 929MBSSep. 2012: ,

Nov. 2010: OE3 begins^OE2 begins

MBS

IJun. 2010:

End of QE1;

balance sheet

stands at $2. 1 T

$3 -

IDec. 2008:

QE1 begins

$2

Treasuries$1 -

$0

•03 '04 '05 '06 '07 '08 '09 '10 '11 •12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Source: Allg Financial

Source: Wall Street Journal

Monthly returns of U.S. stocks in October of each year*

Since 1980, nearly two of everythree Octobers have been positive

15%

10

5

1I llilu 1lllll Urn 1

IT-5

-10

Stock marketwas closed inOctober 1914

-15I I t I I t f 1 t 1 1 1 l l l l l l l l l l l l l l i i i i i i i i i | i i i i i i i i i I r i i i t t i i i | i i i i i i i t i

II i i i i i i i i t i i i i i i I 1 1 1 I I I i t t i t r

1900 1910 11920 1930 1940 11950 [i960

October 1987: -23%

Stock plummeted worldwide on "Black Monday,"

Oct. 19, with the DowJones Industrial Average

falling more than 20%.

1970 11980 1 1990 2000 12010

October 1929: -20%The historic crash

climaxed on "BlackTuesday," Oct. 29, andwas a prec ursor to the

Great Depression.

IJ October 2008:

-18%

'Average of monthly returns, including dividends, on broadest available index of U.S. stocks.

Source: Prof G. William Schwert, University of Rochester

Source: Wall Street Journal

Source: Advisor Perspectives

dshort.com

Data through

September 29, 2017

®PERSPECTIVES Three "Real" Indexes: Percent Change from Their 2000 Peaks

Recessions Real Dow Real S&P 500 Real Nasdaq

70%

Inflation-adjusted price based on the ConsumerPrice Index

60%

50%

40%

33.9%30%

20%

15.5%

10%

0%

-9.9%10%

20%

30%

40%

50%

60%

70%

80%

90%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Advisor Perspectives

Source: GMO Commentary

GMO 7-Year Asset Class Real Return Forecasts*Norfi America Europe I AsU-Fucifk

/Is of September 30, 201 7

STOCKS BONDS

10% -|

8% -6.5% Long-term

Historical U.S.

Equity ReturnID

6% -re

a;

>-

r> 4% -QJ 2.4%

O2% -c

0.4%5 0.1%OJ

0% -- T T

"5 0.0%-0.4% -0.7% -1.0%-2% -

-1.4%

-2.6%-2.9%5 -4% -

-4.1%

-6% -

-S% JU.S. U.S. High Intl

Small Quality Large

Iritl Intl Emerging

Bonds Debt

Hedged

U.S. Emerging U.S. U.S. U.S.

Small Bonds Inflation

Linked

Bonds

CashLarge

Source: GMO

"The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward-looking statements based upon the reasonable beliefs ofGMO and are not a guarantee of future performance. Forward-looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which changeover time. Actual results may differ materially from those anticipated inforward-looking statements. U.S. inflation is assumed to mean revert to long-term inflation of 2.2% over 15 years.

Proprietary information - not for distribution Copyright © 2017 by GMO LLC All rights reserved.

Source: GMO Commentary

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