ECONOMIC COMMENTARY  | PUBLISHED BYRAYMOND JAMES & ASSOCIATES

Scott J. Brown, Ph.D. | (727) 567-2603 | scott.j.brown@raymondjames.com AUGUST 14, 2020 | 3:32 PM EDT

Weekly Economic Monitor -- In ReviewIn Review – Brief summaries of key elements in the economic outlook.

The Big Picture: The overall economic outlook depends on the virus, efforts to contain it, and the degree of fiscal support. We’ve had a sharp-but-partial rebound in May and June, following a steep decline in March and April. The pace of improvement is expected to moderate. The impactof the pandemic has not been felt evenly. About 40% of those at the bottom 20% of income earners lost jobs in March and April, and a third to onehalf of those jobs have been recovered. Fiscal support has been a life line for unemployed workers. White collar workers have been more able towork from home. Mid- to upper-income spending has been curtailed by social distancing (the top 20% of income earners account for more thanhalf of personal income and more than half of consumer spending).

Gross Domestic Product: There is enough improvement in May and June to suggest a record pace of GDP growth in 3Q20. The monthly-to-quarterly arithmetic may seem quirky, but quarterly growth often depends on the months leading into it. For example, if we were to see no monthlygrowth in July, August, and September, real consumer spending would still rise at a 26.8% annual rate in 3Q20. That’s 70% of GDP. Note that theadvance estimate of 3Q20 GDP growth is set for October 29, just five days ahead of the November 3 election. Granted, a strong third quarter won’ttake us back to the 4Q19 level of GDP, but it will easily be a record increase in quarterly GDP, which Trump will carry into the election (althoughit’s likely that many will vote early). The pace of GDP growth is expected to slow to a more moderate pace in 4Q20 and in 2021.

The Job Market: The reported unemployment rate has come down, to 10.2% in July, but that’s misleading. We’ve had some classification issues(furloughed workers counted as “employed,” rather than as “unemployed on temporary layoff”), but that was not as much of a problem as in Apriland May. More importantly, the reported unemployment rate always understates the weakness in a downturn, as many unemployed workers giveup looking for a job and are no longer officially classified as “unemployed.” The labor force has declined over the last five months, but if it hadkept on trend after February, the unemployment rate would now be around 13%. After 20 consecutive weeks at over one million, initial claims forunemployment benefits dipped below that level last week. The reported figure is exaggerated by the seasonal adjustment, which is multiplicative(unadjusted claims are at their seasonal lows in August and September). Unadjusted claims totaled 832,000 in the week ending August 8 – trendingdown, but still extremely high by historical standards.

Consumer Spending: Retail sales continued to improve in July, and are now higher than they were in February (on a seasonally adjustedbasis). However, the mix of spending is different and these changes are likely to be long lasting. Sales at apparel stores, department stores, andrestaurants remain well below pre-pandemic levels. However, sales of motor vehicles, sporting goods, groceries, and home improvement goodshave increased. Bear in mind that much of the pandemic weakness has been in consumer services, where we won’t see a full recovery until thepandemic is behind us.

Inflation: The Consumer Price Index has picked up in June and July, but that largely reflects a bounce-back in areas that had been depressedby the pandemic (apparel, transportation services, gasoline). Similar patterns are seen in the Producer Price Index and in import prices. Beyondthe pandemic noise, there’s no sign of a higher underlying trend in inflation. The labor market is the widest channel for inflation pressures, andwage increases should be limited given the elevated unemployment rate. Large budget deficits and aggressive Fed policy are not going to beinflationary, and inflation is expected to track below the Fed’s target.

Federal Reserve Policy: A near-zero overnight lending rate and the expansion of the Fed’s balance sheet has no impact on the virus, but the Fed’sefforts have been focused on insuring adequate liquidity in the financial system.

Fiscal Support: Those hurt most by the downturn have been the least able to handle the loss of a job. Lower-income workers may make morethrough expanded unemployment benefits than they did working, but that’s not what’s preventing them from working – it’s the lack of jobs. Thereis plenty of anecdotal evidence of abuse. That happens in every downturn (for example, the surge in Social Security Disability in the recovery fromthe financial crisis), but support is critical for most lower-income workers. State and local budget pressures are building rapidly. Federal aid willbe critical in preventing massive losses in state and local government jobs (we’ve already lost 1.17 million jobs, more than half in education).President Trump’s recent executive orders and promise to do away with payroll taxes are head-scratchers. The power to spend lies with Congressand payroll taxes fund Social Security (there is no “general fund” to make up the difference).

INTERNATIONAL HEADQUARTERS: THE RAYMOND JAMES FINANCIAL CENTER | 880 CARILLON PARKWAY | ST. PETERSBURG FLORIDA 33716

Recent Economic Data

The Consumer Price Index rose 0.6% in July (+1.0% y/y), also up 0.6% excluding food and energy (+1.6% y/y). The larger-than-expected increase in July reflected further rebounds in prices that were depressed due to extreme social distancing (apparel, transportation services, hotels, and gasoline) and similar rebounds from pandemic price declines were seen in the Producer Price Index and the report on import prices. Beyond the pandemic effects, underlying trends in inflation have remained low.

Retail sales rose 1.2% in July (+2.7% y/y), a little less than expected, but figures for June were revised higher. Auto dealership sales slipped 1.2% (up 4.0% from February and +6.1% y/y). Ex-autos, sales rose 1.9% (also +1.9% y/y). Core sales, which exclude motor vehicles, building materials, and gasoline, rose 2.0% (up 2.1% from February and +2.9% y/y). Total retail sales appear to have largely recovered, but the mix has shifted. Sales at department stores, apparel stores, and restaurants remain well below where they were in February, while sales of groceries, motor vehicles, sporting goods, home improvement supplies are all higher).

Industrial production rose 3.0% in the initial estimate for July (-8.2% y/y). The output of utilities rose 3.3% on warm weather (+0.6% y/y). Mining output rose 0.8% (-17.0% y/y), with oil and gas well drilling down 8.0% (-71.5% y/y) and energy extraction up 0.9% (-9.5% y/y). Manufacturing output rose 3.4% (-7.5% y/y), led by a 28.3% rise in motor vehicle production (-1.4% y/y). Ex-vehicles, factory output rose 1.6% (-8.2% y/y). Aerospace rose 7.5% (-20.5% y/y). Other sectors were mostly higher, but still below pre-pandemic levels.

PAGE 2 OF 7

ECONOMIC COMMENTARY

Gauging the Recovery

Jobless claims fell to 963,000 in the week ending August 8, the first time below one million since mid-March. Seasonal adjustment is multiplicative and exaggerates the adjusted figure in August and September (when unadjusted claims are at their seasonal lows). Unadjusted claims fell to 832,000, still very high by historical standards. Continuing claims fell by 604,000 in the week ending August 1, to 15.486 million (that figure is for regular state unemployment insurance programs and does not include pandemic assistance and other programs). Total recipients, including all programs, were 28.258 million (not seasonally adjusted) for the week ending July 25 (down from 31.309 million in the previous week).

The New York Fed’s Weekly Economic Index rose to -5.47% for the week of August 8, up from -6.53% in the previous week and a low of -11.45% at the end of April. The WEI is scaled to four-quarter GDP growth (for example, if the WEI reads -2% and the current level of the WEI persists for an entire quarter, we would expect, on average, GDP that quarter to be 2% lower than a year previously).

The University of Michigan’s Consumer Sentiment Index was little changed at 72.8 in the mid-month assessment for August (the survey covered July 29 to August 12), vs. 72.5 in July and 78.1 in June. The report noted Two significant changes since April: consumers have become more pessimistic about the five-year economic outlook (-18 points) and more optimistic about buying conditions (+21).” The gridlock in Washington has undermined confidence in economic policies (the lowest since Trump first entered office) and “increased uncertainty and heightened the need for precautionary funds” as the school year gets underway.

PAGE 3 OF 7

ECONOMIC COMMENTARY

General Outlook:

20.1 20.2 20.3 20.4 21.1 21.2 21.3 21.4

GDP q/q % -1.3 -9.5 5.6 1.1 1.0 0.9 0.8 0.7

GDP q/q, annual rate -5.0 -32.9 24.4 4.6 4.0 3.6 3.1 2.9

GDP y/y 0.3 -9.5 -5.1 -4.6 -2.4 8.8 3.8 3.4

Unemployment Rate, % 3.8 13.0 9.8 9.1 8.0 7.3 6.8 6.2

federal funds rate 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25

2-yr Treasury note 1.08 0.19 0.14 0.16 0.18 0.21 0.25 0.29

10-yr Treasury note 1.37 0.69 0.66 0.72 0.78 0.85 0.91 0.97

Source: Raymond James

Unemployment rate and interest rate forecasts are quarterly averages

GDP growth is expected to rise sharply in 3Q20, largely reflecting the initial rebound in economic activity in May and June (that’s the way the monthly-to-quarterly arithmetic works). Of course, the outlook depends on the virus, the efforts to contain it, and the amount of fiscal support going forward. Risks remain weighted to the downside. Fed policy should remain on hold.

PAGE 4 OF 7

ECONOMIC COMMENTARY

This Week – In his July 29 press conference, Chair Powell noted that officials resumed their review of the Fed’s monetary policy goals and strategies. The minutes of the FOMC meeting should include details of that discussion, and we may hear more from Powell later this month. The economic data is not expected to be market-moving, although investors will continue to focus on the weekly jobless claims figure, which should continue to trend lower (amplified by the seasonal adjustment). The Conference Board’s Index of Leading Economic Indicators should post another gain, led by a longer factory workweek and the decline in jobless claims.

This Week: forecast last last –1 comments

Monday 8/17 10:00 Homebuilder Sentiment Aug 74 72 58 optimistic

Tuesday 8/18 8:30 Building Permits, th. Jul 1310 1258 1216 still recovering % change +4.1 +3.5 +14.1 helped by low mortgage rates Housing Starts 1280 1186 1011 starts data are erratic % change +7.9 +17.3 +8.2 watch for possible revisions

Wednesday 8/19 2:00 FOMC Minutes Jul 29 some debate about L-T goals/strategies

Thursday 8/20 8:30 Jobless Claims, th. 8/15 880 963 1191 amplified by the seasonal adjustment 10:00 Leading Econ Indicators Jul +1.1% +2.0% +3.2% most components will add

Friday 8/21 10:00 Existing Home Sales, mln Jul 4.88 4.72 3.91 strong housing demand % change +3.4 +20.7 -9.7 but limited by supply constraints

Next Week:

Monday 8/24 8:30 Chi Fed Nat Activity Index Jul NF +4.11 +3.50 consistent with a further rebound three-month average NF -3.49 -6.36 should turn positive

Tuesday 8/25 10:00 New Home Sales, th. Jul 785 776 682 likely to trend a bit higher % change +1.2 +13.8 +19.4 but these data are erratic 10:00 CB Consumer Confidence Aug 93.0 92.6 98.3 seen little changed

Wednesday 8/26 8:30 Durable Goods Orders Jul +2.0% +7.6% +15.0% more aircraft order cancellations ex-transportation +2.7% +3.6% +3.4% still improving nondef cap gds ex-aircraft +2.1% +3.4% +1.5% but short of where we were in February

Thursday 8/27 8:30 Jobless Claims, th. 8/22 735 880 963 amplified by the seasonal adjustment 8:30 Real GDP (2

nd estimate) 2Q20 -31.9% -5.0% +2.4% -32.9% in the advance estimate

Priv. Dom. Final Purchases -32.7% -5.8% +1.5% -33.7% in the advance estimate 10:00 Pending Home Sales Index Jul +0.5% +16.6% +44.3% expecting a more modest gain

Friday 8/28 8:30 Personal Income Jul +1.2% -1.1% -4.4% job market improving Personal Spending +1.3% +5.6% +8.5% improving, but more slowly PCE Price Index ex-f&e +0.4% +0.2% +0.2% the core CPI rose 0.620% year-over-year +1.2% +0.9% +1.0% still a low trend 8:30 Advance Econ Indicators Jul early look at 3Q trade and inventories wholesale inventories NF -1.4% -1.2% may start to turn up retail inventories NF -2.6% -6.2% some rebuilding in autos merch. trade balance, $bln NF -71.0 -75.4 trade activity rebounding 9:45 Chicago Business Barometer Aug 53.5 51.9 36.6 further improvement 10:00 UM Consumer Sentiment Aug 72.4 72.5 78.1 72.8 at mid-month tbd Powell speech KC Fed conference streamed to the public

Coming Events and Data Releases

September 1 ISM Manufacturing Index (August)

September 4 Employment Report (August)

September 7 Labor Day Holiday (markets closed)

September 16 FOMC Policy Decision

October 29 Real GDP (3Q20, advance estimate)

November 3 Election Day

M20-3203578

PAGE 5 OF 7

ECONOMIC COMMENTARY

IMPORTANT INVESTOR DISCLOSURESThis material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change.Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-partysources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description ofthe securities, markets, or developments referred to in this material and does not include all available data necessary for making an investmentdecision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involvesrisk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts providedherein will prove to be correct.

Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their productsand services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limiteddiversification.

Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their marketsare likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse,authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-partywebsite or the collection or use of information regarding any websites users and/or members.

This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by RaymondJames, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploitthe information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent ofRaymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are theproperty of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States andother countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyrightclaimed in incorporated U.S. government works.

Index Definitions

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE)and the NASDAQ.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.

The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.

The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developedmarket equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.

The MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index's three largestindustries are materials, energy, and banks.

The Russell 2000 index is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000Index, which is made up of 3,000 of the largest U.S. stocks.

The NYSE Alerian MLP is the leading gauge of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted,capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities,is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX).

The Barclays Intermediate Government/Credit Bond index measures the performance of U.S. Dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.

The Euro Stoxx 50 Index is a market capitalization weighted stock index of 50 large, blue-chip European companies operating within Eurozonenations. Components are selected from the Euro STOXX Index which includes large-, mid- and small-cap stocks in the Eurozone.

The China CSI 300 is a capitalization-weighted stock market index designed to replicate the performance of top 300 stocks traded in the Shanghaiand Shenzhen stock exchanges. It had a sub-indexes CSI 100 Index and CSI 200 Index.

The S&P 500 Futures is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domesticeconomy through changes in the aggregate market value of 500 stocks representing all major industries.

The DJIA Futures is a stock market index futures contract traded on the Chicago Mercantile Exchange`s Globex electronic trading platform. Dow

PAGE 6 OF 7

ECONOMIC COMMENTARY

Futures is based off the Dow 30 stock index.

The Nasdaq 100 Futures is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and internationalcompanies listed on the NASDAQ.

Europe: DAX (Deutscher Aktienindex (German stock index)) is a blue chip stock market index consisting of the 30 major German companies tradingon the Frankfurt Stock Exchange.

Asia: Nikkei is short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted indexcomposed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, whichwill affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Futureinvestment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

International Disclosures

For�clients�in�the�United�Kingdom:

For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates isintended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as describedin the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations,etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotionmay lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be reliedupon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers andis not intended for use by clients.

For�clients�in�France:

This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, beingpersons who are Eligible Counterparties or Professional Clients as described in "Code Monetaire et Financier" and Reglement General de l'Autoritedes marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be reliedupon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentielet de Resolution and the Autorite des Marches Financiers.

For�institutional�clients�in�the�European�Economic�rea�(EE�)�outside�of�the�United�Kingdom:

This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully besubmitted.

For�Canadian�clients:

This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document.In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.

Broker Dealer Disclosures

Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and maylose value

Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC.Raymond James® is a registered trademark of Raymond James Financial, Inc.

PAGE 7 OF 7

ECONOMIC COMMENTARY