U.S. Economic Outlook 08 31 Greer Walker Real E… · Economic Outlook 2 Five Key Themes Economic...

U.S. Economic Outlook

Mark Vitner, Managing Director & Senior Economist

August 31, 2016

Economic Outlook 2

Five Key Themes

Economic Outlook

Weaker Global Growth

Brexit will weigh on global economic growth, pulling at industries closely tied to it. With demand growing more slowly, inflation will likely remain below 2 percent.

Monetary Policy

The Fed’s more hawkish recent tone is aimed at avoiding another taper tantrum. The economy is closer to full employment than widely thought and the Fed will need to hike rates in coming quarters.

The Housing Recovery

Easier monetary policy has paved the way for a more substantial housing recovery. Single-family construction is gaining steam, while low interest rates pull money into private equity and keep the apartment boom going.

The Mix of Growth is Shifting

The economy is better for consumers than producers. Regions exposed to agriculture, energy, mining and manufacturing continue to struggle with slower growth.

Weaker real GDP over the past three quarters exaggerates the extent of the slowdown in the U.S. economy. Growth is solid, albeit unspectacular.

Economic Outlook 3 3

Economic Growth

Reductions in inventory building and widening trade gap account for much of the shortfall in Real GDP growth over the past three quarters. Private final demand remains much stronger,

led by growth in consumer spending and home building.

Source: U.S. Department of Commerce and Wells Fargo Securities

Real Private Final Sales Real GDP Forecast

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008 2010 2012 2014 2016

U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change

GDP - CAGR: Q2 @ 1.1%

GDP - Yr/Yr Percent Change: Q2 @ 1.2%

Forecast

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Private Final Sales to Domestic PurchasersBars = CAGR Line = Yr/Yr Percent Change

Real Priv Fin Sales to Dom. Purch. - CAGR: Q2 @ 3.0%

Real Priv Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q2 @ 2.3%

Forecast

3


Employment Situation

The monthly payroll employment numbers have been unusually volatile in recent months, primarily reflecting unusual seasonal factors. The unemployment rate is now below 5 percent.

Labor markets are tight around the country and job openings remain near an all-time high.

Source: U.S. Department of Labor and Wells Fargo Securities

Unemployment Rate Nonfarm Employment

-1,000

-800

-600

-400

-200

0

200

400

600

-1,000

-800

-600

-400

-200

0

200

400

600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Nonfarm Employment ChangeChange in Employment, In Thousands

Monthly Change: Jul @ 255K

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

65 70 75 80 85 90 95 00 05 10 15

Unemployment and Wage RatesWages for Production & Nonsupervisory Workers, SA

Unemployment Rate: Jul @ 4.9%

Hourly Earnings - Yr/Yr % Change: Jul @ 2.6%

4

Economic Outlook 5

Consumer Confidence

Consumer confidence improved solidly in August and remains

near its high for this cycle

Source: The Conference Board and Wells Fargo Securities, LLC

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Consumer Confidence IndexConference Board

Confidence Yr/Yr % Chg: Aug @ -0.2%

Confidence: Aug @ 101.1

12-Month Moving Average: Aug @ 96.7

5

Economic Outlook 6

Gradual Recovery in Homebuilding

We continue to expect a gradual recovery in home building.

Single-family construction has

been slow to come back on track with long-held norms relative to

population and employment growth. We look for stronger

gains this year, but improvement will remain

exceptionally gradual.


0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Thousands

Housing StartsMillions of Units

Multifamily Starts

Multifamily Forecast

Single-Family Starts

Single-Family Forecast

Forecast

Economic Outlook 7

Interest Rates

The Fed has consistently delayed and scaled back their

timeline and the ultimate magnitude for normalizing the

federal funds rate.

Brexit has made policymakers even more cautious.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Appropriate Pace of Policy FirmingTarget Federal Funds Rate at Year-End

June 2016 Median ResponseMarch 2016 Median ResponseDecember 2015 Median ResponseDecember 2014 Median ResponseFutures Market: August 29

2016 Longer Run2017 2018

Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities

Economic Outlook 8

-1%

0%

1%

2%

3%

4%

5%

-1%

0%

1%

2%

3%

4%

5%

10 11 12 13 14 15 16

10-Year Government Bond YieldsPercent

Japan: Aug-25 @ -0.10%

United States: Aug-25 @ 1.58%

Germany: Aug-25 @ -0.14%

United Kingdom: Aug-25 @ 0.57%

Sovereign Yields

Government bond yields have declined across the globe

Source: Federal Reserve Board, IHS Global Insight and Wells Fargo Securities

Economic Outlook 9

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

1980 1985 1990 1995 2000 2005 2010 2015

Real Global GDP GrowthYear-over-Year Percent Change, PPP Weights

Period Average

WF

Forecast

Global Forecast

Global economic growth has remained sluggish for the past four years and is expected to remain below its long-term

average for the next few years.

Source: International Monetary Fund and Wells Fargo Securities

Regional Outlook

Economic Outlook 11

Year-over-Year Employment Growth by State (June 2016)

A majority of Western states have seen stronger job growth relative to the

rest of the country

Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities

Economic Outlook

Southeast Employment Growth by MSA

Raleigh

Nashville

Birmingham

New Orleans

Orlando

Tampa

Charlotte

Greenville, SC

Memphis

Richmond

Charleston

Jackson

Chattanooga

Atlanta

Augusta

Huntsville

Asheville

Biloxi

Durham

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-1% 0% 1% 2% 3% 4% 5%

3-M

onth

Annualized P

erc

ent

Change

Year-over-Year Percent Change

Southeast Employment Growth by Metro3-Month Moving Averages, July 2016

Total Population

Less than 550K

550K - 950K

More than 1,000K

Recovering Expanding

Contracting Decelerating


Economic Outlook 13

0 10 20 30 40 50 60 70

Cape Coral, FL

Nashville, TN

North Port, FL

Portland, OR-WA

Las Vegas, NV

San Antonio, TX

Charlotte, NC-SC

Orlando, FL

Denver, CO

Austin, TX

Atlanta, GA

Tampa, FL

Phoenix, AZ

Dallas, TX

Houston, TX

Net Domestic Migration Top 15 MSAsNumber Added in Thousands, 2015

Domestic Migration

State-to-state migration trends tend to closely follow

employment conditions. The largest gains in domestic in-

migration have tended to be in the Southeast.

Source: International Monetary Fund and Wells Fargo Securities


Demographic Trends: Primary City vs. Suburban Growth

In line with broader national trends, many Southern metropolitan areas have seen stronger growth occurring in the region’s urban core cities relative to prior decades


Primary City vs. Suburb by Metro Area Primary City vs. Suburb United States

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Richmond, VA

Portland, OR-WA

Las Vegas, NV

San Francisco, CA

Miami, FL

Phoenix, AZ

Houston, TX

New Orleans, LA

Nashville, TN

Oklahoma City, OK

San Antonio, TX

Dallas, TX

Washington, DC

Seattle, WA

Atlanta, GA

Charlotte, NC-SC

Denver, CO

Raleigh, NC

Orlando, FL

Austin, TX

Population Growth: Primary City vs. Suburbs2011 - 2015 Average Annual Growth Rate, Percent

Primary City

Suburban

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1990 - 2000 2000 - 2010 2011 - 2015

US Population Growth: Primary City vs. SuburbsAnnual Average Growth, Percent

Primary City

Suburban

14

U.S. Commercial Real Estate

Economic Outlook 16

Construction Supply

Source: CoStar Realty Information, Inc., Reis, Inc., Smith Travel Research, Property and Portfolio Research and Wells Fargo Securities

Apartment

3- Yr.

Supply

Growth

Hotel Metro

3- Yr.

Supply

Growth

Warehouse

3- Yr.

Supply

Growth

Office

3- Yr.

Supply

Growth

Retail

3- Yr.

Supply

Growth

New York Metro 17.5% New York 15.9% Inland Empire 14.5% Oklahoma City 11.3% Charlotte 4.5%

Nashville 13.0% Cleveland 10.5% Atlanta 10.1% Nashville 8.3% Richmond 4.4%

Charlotte 10.6% Miami 10.3% Dallas - Fort Worth 9.2% Austin 8.1% Raleigh-Durham 3.7%

Charleston 10.5% Boston 9.8% Las Vegas 8.4% Dallas 7.9% Kansas City 3.6%

Seattle 10.2% Palm Beach County 9.1% Austin 8.4% Houston 6.2% Cincinnati 3.6%

Washington D.C 9.9% Austin 9.0% Phoenix 7.5% Charlotte 5.3% Austin 3.3%

Chattanooga 9.6% Houston 8.6% San Antonio 6.8% Kansas City 4.6% Winston-Salem 3.2%

Miami 8.7% Denver 8.6% Oklahoma City 6.3% Charleston 4.4% Baltimore 3.1%

Austin 8.6% Minneapolis 8.5% Nashville 6.1% Milwaukee 4.4% San Francisco 3.1%

Greenville 7.9% Nashville 8.4% Washington D.C 5.8% Denver 4.0% Northern New Jersey 3.0%

National 5.0% National 6.1% National 4.7% National 3.5% National 2.1%

Note: Supply growth is the cumulative supply expected to be added through 2018 as a percentage of current inventory.

-2%

0%

2%

4%

6%

8%

10%

-2%

0%

2%

4%

6%

8%

10%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Completions as a Percent of InventoryPercent

Apartment: 2016 (Projected) @ 2.0%

Office: 2016 (Projected) @ 1.0%

Retail: 2016 (Projected) @ 0.5%

Industrial: 2016 (Projected) @ 1.6%

Hotel: 2016 (Projected) @ 2.2%

Aggregate: 2016 (Projected) @ 1.5%

Avg. '85-'89=4.8%

Avg. '97-'01=2.6%

Avg. '04-'08=1.3%

Avg. '12-'16F=0.96%

Economic Outlook 17

50

70

90

110

130

150

170

190

210

230

50

70

90

110

130

150

170

190

210

230

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Commercial Property Prices vs. S&P 500Index, Q1 2001 = 100

Moody's/RCA Commercial Property Price Index: Q2 @ 207.2S&P 500: Q1 @ 162.1S&P/Case Shiller National Home Price Index: Q1 @ 161.8

Real Estate Prices

Commercial property prices continue to advance

Source: Moody’s, Standard and Poor’s and Wells Fargo Securities


Apartment

Demand for apartment units was closely in line with supply in the second quarter. Areas with strong employment growth have seen the greatest increases in apartment demand as well as

lower vacancy rates.

Source: Real Capital Analytics, REIS, Inc. and Wells Fargo Securities

Supply & Demand Prices

0%

2%

4%

6%

8%

10%

$0

$20

$40

$60

$80

$100

$120

$140

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Apartment Price vs. Vacancy RateDollars per Square Foot, Percent

Apartment Price: Q2 @ $125.32 per SF (Left Axis)

Apartment Vacancy Rate: Q2 @ 4.5% (Right Axis)

-75

-50

-25

0

25

50

75

100

2%

3%

4%

5%

6%

7%

8%

9%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Apartment Supply & DemandPercent, Thousands of Units

Apartment Net Completions: Q2 @ 49,132 Units (Right Axis)

Apartment Net Absorption: Q2 @ 36,003 Units (Right Axis)

Apartment Vacancy Rate: Q2 @ 4.5% (Left Axis)


Office

Major office markets such as New York City and San Francisco, with a large share of high-tech jobs, are seeing stronger demand.



4%

6%

8%

10%

12%

14%

16%

18%

$0

$50

$100

$150

$200

$250

$300

$350

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Office Price vs. Vacancy RateDollars per Square Foot, Percent

Office Price: Q2 @ $288.05 per SF (Left Axis)

Office Vacancy Rate: Q2 @ 16.0% (Right Axis)

-40

-30

-20

-10

0

10

20

30

0%

3%

6%

9%

12%

15%

18%

21%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Office Supply & DemandPercent, Millions of Square Feet

Office Net Completions: Q2 @ 8.6M SF (Right Axis)

Office Net Absorption: Q2 @ 6.9M SF (Right Axis)

Office Vacancy Rate: Q2 @ 16.0% (Left Axis)


Industrial

Demand continues to outpace supply in the industrial market. Although supply is beginning to increase, it remains low compared to historical norms. E-commerce continues to spur demand

as retailers are seeing a pick up in consumer spending.

Source: Real Capital Analytics, CoStar Realty Information, Inc. and Wells Fargo Securities


4%

6%

8%

10%

12%

14%

16%

$30

$40

$50

$60

$70

$80

$90

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Industrial Price vs. Vacancy Rate Dollars per Square Foot, Percent

Industrial Price: Q2 @ $79.99 per SF (Left Axis)

Industrial Vacancy Rate: Q2 @ 5.5% (Right Axis)

-80

-60

-40

-20

0

20

40

60

80

4%

5%

6%

7%

8%

9%

10%

11%

12%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Industrial Supply & DemandPercent, Millions of Square Feet

Industrial Net Completions: Q2 @ 37.0M SF (Right Axis)

Industrial Net Absorption: Q2 @ 46.8M SF (Right Axis)

Industrial Vacancy Rate: Q2 @ 5.5% (Left Axis)


Retail

The retail market has been slow to recover. The retail vacancy rate has continued to hover in the 10-11 percent range for almost six years, showing few signs of pick up. Low retail demand is

largely due to the on-going shift from traditional brick-and-mortar stores to online retailers.



6%

7%

8%

9%

10%

11%

12%

$40

$80

$120

$160

$200

$240

$280

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Retail Price vs. Vacancy RateDollars per Square Foot, Percent

Retail Price: Q2 @ $235.43 per SF (Left Axis)

Retail Vacancy Rate: Q2 @ 9.9% (Right Axis)

-8

-4

0

4

8

12

16

20

0%

2%

4%

6%

8%

10%

12%

14%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Retail Supply & DemandPercent, Millions of Square Feet

Retail Net Completions: Q2 @ 1.4M SF (Right Axis)

Retail Net Absorption: Q2 @ 3.2M SF (Right Axis)

Retail Vacancy Rate: Q2 @ 9.9% (Left Axis)

Charlotte


Employment Situation: Charlotte MSA

Job growth in Charlotte continues to outpace both the state and the nation. Employment growth has been broad based, as a majority of the region’s industries have seen job gains over

the past year.


Employment by Industry Nonfarm Employment

-9%

-6%

-3%

0%

3%

6%

-9%

-6%

-3%

0%

3%

6%

91 93 95 97 99 01 03 05 07 09 11 13 15

Charlotte MSA Nonfarm Employment

Charlotte: Jul @ 2.3%

United States: Jul @ 1.7%

North Carolina: Jul @ 2.1%

Year-over-Year Percent Change of a 3-MMA

-1% 0% 1% 2% 3% 4% 5% 6% 7%

Information

Other Services

Manufacturing

Financial Activities

Educ. & Health Services

Leisure & Hospitality

Government

Prof. & Bus. Svcs.

Trade, Trans. & Utilities

Total Nonfarm

Charlotte MSA Employment Growth By Industry

Number of

Employees

Less

More

Year-over-Year Percent Change, 3-MMA

July 2016

23


Housing Market: Charlotte MSA

The housing market has ramped up over the past year, with both single and multifamily housing permits registering solid gains over the year. Charlotte’s stellar population growth

continues to be a boon for residential development.

Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities

Population Growth Housing Permits

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Thousands

Thousands

Charlotte MSA Housing Permits

Single-Family: Jun @ 18,324

Single-Family, 12-MMA: Jun @ 12,475

Multifamily, 12-MMA: Jun @ 5,569

Single-Family Average (1998-2003): 17,908

Thousands of Permits, Seasonally Adjusted Annual Rate

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Charlotte MSA Population Growth

Charlotte MSA: 2015 @ 47.2K

In Thousands

24

Economic Outlook 25

-50 0 50 100 150 200 250

Rocky Mount

Hickory

Goldsboro

Burlington

Jacksonville

Greenville

Fayetteville

Winston-Salem

Asheville

Wilmington

Greensboro

Durham-Chapel Hill

Raleigh

Charlotte

North Carolina Population Growth by MSATotal Population Gains From 2010 to 2015, In Thousands

North Carolina Population

Charlotte and Raleigh have seen a surge in population growth

over the past five years


Economic Outlook 26

-2.0

-1.0

0.0

1.0

2.0

3.0

2%

4%

6%

8%

10%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Charlotte Apartment Supply & DemandPercent, Thousands of Units

Apartment Completions: Q2 @ 1728 Units (Right Axis)

Apartment Net Absorption: Q2 @ 641 Units (Right Axis)

Apartment Vacancy Rate: Q2 @ 6.1% (Left Axis)

Charlotte – Apartment Supply & Demand

The apartment vacancy rate has seen an increase over the past year as completions spiked in

the second quarter.

Source: Reis, Inc. and Wells Fargo Securities, LLC

Economic Outlook 27

-1.0

-0.5

0.0

0.5

1.0

1.5

4%

8%

12%

16%

20%

24%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Charlotte Office Supply & DemandPercent, Millions of SF

Office Completions: Q2 @ 0 SF (Right Axis)

Office Net Absorption: Q2 @ 73,000 SF (Right Axis)

Office Vacancy Rate: Q2 @ 15.6% (Left Axis)

Charlotte – Office Supply & Demand

Office vacancy rates have fallen modestly over the past year


Economic Outlook 28

-300

-200

-100

0

100

200

300

400

0%

2%

4%

6%

8%

10%

12%

14%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Charlotte Retail Supply & DemandPercent, Thousands of Units

Retail Completions: Q2 @ 7,000 SF (Right Axis)

Retail Net Absorption: Q2 @ -10,000 SF (Right Axis)

Retail Vacancy Rate: Q2 @ 9.6% (Left Axis)

Charlotte – Retail Supply & Demand

Net absorption dipped in the second quarter, however, retial

demand has been relatively healthy over the past year.


Economic Outlook 29

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Charlotte Warehouse Supply & DemandPercent, Thousands of Square Feet

Warehouse Net Absorption: Q2 @ 1,108,054 SF (Right Axis)

Warehouse Completions: Q2 @ 613,792 SF (Right Axis)

Warehouse Vacancy Rate: Q2 @ 5.4% (Left Axis)

Charlotte – Warehouse Supply & Demand

Warehouse vacancy rates continue to decline, falling to 5.4

percent in the second quarter.

Source: CoStar Realty Information, Inc. and Wells Fargo Securities

Economic Outlook 30

Five Critical Key Takeaways

Economic Outlook

North Carolina is Outpacing the

Nation

North Carolina is seeing stronger job and income growth than the nation. Population is also much stronger, particularly areas surrounding Charlotte and Raleigh.

Growth is More Urban Oriented

Employment growth and population growth have been more oriented toward urban areas this decade, reflecting demographic and technological shifts.

Interest Rates Are Set to Rise Off Historic Lows

The Fed is poised to raise interest rates but will ultimately raise them less than the FOMC had previously anticipated. Rates will remain low for quite some time.

The Election Outcome

The November election will not likely change the economy’s underlying growth trajectory but should bring about a resolution to HB2.

The economy should weather slower global growth. Exports will decelerate but we expect real GDP to rise about 1.4 percent in 2016 and x.x percent in 2017.

Economic Outlook 31

U.S. Forecast

Wells Fargo U.S. Economic Forecast

2013 2014 2015 2016 2017

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Real Gross Domestic Product 1 2.0 2.6 2.0 0.9 0.8 1.1 2.5 2.1 1.7 2.4 2.6 1.4 2.0

Personal Consumption 2.4 2.9 2.7 2.3 1.6 4.4 3.1 2.0 1.5 2.9 3.2 2.7 2.5

Inflation Indicators 2

PCE Deflator 0.3 0.3 0.3 0.4 0.9 0.9 1.0 1.4 1.3 1.5 0.3 1.1 1.9

Consumer Price Index -0.1 0.0 0.1 0.4 1.1 1.1 1.1 1.4 1.5 1.6 0.1 1.2 2.2

Industrial Production 1 -1.9 -2.7 1.5 -3.3 -1.7 -0.8 4.5 2.9 1.9 2.9 0.3 -0.5 2.6

Corporate Profits Before Taxes 2 7.5 -2.8 -4.5 -11.2 -6.6 -4.9 1.8 1.8 1.7 5.9 -3.0 -2.1 1.6

Trade Weighted Dollar Index 3 92.1 90.0 92.3 94.5 89.8 90.6 91.5 93.3 75.9 78.4 91.1 91.3 96.5

Unemployment Rate 5.6 5.4 5.2 5.0 4.9 4.9 4.8 4.7 7.4 6.2 5.3 4.8 4.6

Housing Starts 4 0.99 1.16 1.16 1.13 1.15 1.16 1.22 1.24 0.92 1.00 1.11 1.21 1.26

Quarter-End Interest Rates 5

Federal Funds Target Rate 0.25 0.25 0.25 0.50 0.50 0.50 0.50 0.75 0.25 0.25 0.27 0.56 1.00

Conventional Mortgage Rate 3.77 3.98 3.89 3.96 3.69 3.57 3.54 3.56 3.98 4.17 3.85 3.59 3.64

10 Year Note 1.94 2.35 2.06 2.27 1.78 1.49 1.49 1.53 2.35 2.54 2.14 1.57 1.65

Forecast as of: August 26, 20161 Compound Annual Growth Rate Quarter-over-Quarter2 Year-over-Year Percentage Change3 Federal Reserve Major Currency Index, 1973=100 - Quarter End4 Millions of Units5 Annual Numbers Represent Averages

2015 2016

ForecastActualForecastActual

Source: IHS Global Insight and Wells Fargo Securities

Appendix

Economic Outlook 33

Economic Outlook Group Publications

To view any of our past research please visit:

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economicsemail

A Sampling of Our Recent Special, Regional & Industry Commentary

Selected Recent Economic Reports

Date Title Authors

U.S. Macro

August-18 Will U.S. Export Growth Stregthen Anew Bryson & Pershing

August-17 Dragging Anchor Quinlan & House

August-16 Don Quixote and the Pursuit of Rising Inflation Silvia, Bullard & Iqbal

August-15 Working Hard or Hardly Working? Quinlan & House

August-15 2016 Long-Term Budget Outlook: An Uncertain Path Forward Silvia, Brown & Pugliese

U.S. Regional

August-18 New York Employment Conditions: July 2016 Vitner, Feik & Batcheller

August-18 Minnesota Employment Conditions:; July 2016 Vitner, Feik & Batcheller

August-12 Georgia Economic Outlook: August 2016 Vitner & Feik

August-03 Local area Employment & unemployment Vitner & Batcheller

August-01 Commercial real estate in the Carolinas Vitner & Batcheller

Global Econom y

August-15 Scant Growth in Japan in Q2 Quinlan

August-11 Mexican Energy Reform: Still Little to Show Alemán

August-11 Q2 GDP Data Suggest Russian Economy is Bottoming Bryson

August-05 Bank of England Eases Policy Further Bryson

August-02 Latin America and Brexit: What say you? Alemán

Interest Rates/Credit Market

August-17 Normal as an Evolving Target Silvia

August-10 Managing Expectations to Avoid Another Tantrum Silvia & Vitner

August-03 Net treasury issuance update for H2 2016 and beyond Silvia & Brown

July-27 Fiscal Policy: Optimism and Market Imperfections Silvia

July-13 Financial Evolution: More Government, More Something Else Alemán

Real Estate

August-11 Commercial Real Estate Chartbook: Q2 Khan, Causey & Tysinger

July-06 International Home Buying: 2016 Vitner, Khan & Batcheller

June-28 Brexit Vote Could Pump More Dollars into U.S. CRE Khan

June-01 Housing Chartbook: June 2016 Vitner, Khan & Batcheller

May-20 Commercial Real Estate Chartbook: Q1 Khan & Causey

Economic Outlook

Wells Fargo Securities Economics Group

34

John E. Silvia [email protected]

Global Head of Research and Economics Diane Schumaker-Krieg ………………… ………[email protected]

Global Head of Research & Economics

Chief Economist

Mark Vitner, Senior Economist [email protected]

Jay H. Bryson, Global Economist …[email protected]

Sam Bullard, Senior Economist [email protected]

Nick Bennenbroek, Currency Strategist [email protected]

Anika R. Khan, Senior Economist [email protected]

Eugenio J. Alemán, Senior Economist [email protected]

Azhar Iqbal, Econometrician [email protected]

Tim Quinlan, Senior Economist [email protected]

Senior Economists Erik Nelson, Currency Analyst [email protected]

Misa Batcheller, Economic Analyst [email protected]

Michael Pugliese, Economic Analyst [email protected]

Julianne Causey, Economic Analyst [email protected]

E. Harry Pershing, Economic Analyst [email protected]

May Tysinger, Economic Analyst [email protected]

Economists

Eric J. Viloria, Currency Strategist [email protected]

Sarah House, Economist [email protected]

Michael A. Brown, Economist [email protected]

Jamie Feik, Economist [email protected]

Economic Analysts

Administrative Assistants

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2016 Wells Fargo Securities, LLC.

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For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority’s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only.

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