2015 Economic Outlook
Anika R. Khan, Senior Economist
October 20, 2015
Five Key Themes
U.S. Economic
Growth
Slow
Global Growth
 Overall economic growth is improving at a steady pace. The
household sector is seeing strong gains and the housing market is
advancing. However, capital investment has been lackluster and
net exports will continue to be drag on real GDP growth
 Global real GDP growth is gradually increasing, but remains
below its long-run average. Although economic growth in the
U.S. is strengthening, activity in other advanced economies are
lagging in the recovery
 The U.S. dollar has strengthened significantly since last summer
Risks to U.S.
Outlook
Data-Dependent
Federal Reserve
due to the divergence in the outlook for monetary policy. As a
result, the U.S. manufacturing sector is showing weakness. The
renewed drop in the price of oil has also been a headwind and
unresolved fiscal issues will continue to add uncertainty
 The Fed is looking at an array of data and will need to continue
to see strengthening labor market conditions, inflation moving
toward its target and improvement in emerging economies
 China’s economic growth continues to slow bringing much of the
China
commodity export-dependent world down with it. The
manufacturing sector is weak and construction is also showing
marked declines. Foreign excess reserves have likely peaked
2
Economic Growth
We are now six years into the recovery and economic growth is increasing at a steady pace.
Despite a slow start to the year, activity is expected to improve in the coming quarters
Real GDP Forecast
Real Private Final Sales
U.S. Real GDP
Real Private Final Sales to Domestic Purchasers
Bars = CAGR
Line = Yr/Yr Percent Change
Bars = CAGR
10%
10%
8%
8%
6%
Line = Yr/Yr Percent Change
8%
GDP - CAGR: Q2 @ 3.9%
8%
GDP - Yr/Yr Percent Change: Q2 @ 2.7%
6%
6%
Forecast
6%
4%
4%
4%
2%
2%
2%
2%
0%
0%
0%
0%
-2%
-2%
-2%
-2%
-4%
-4%
-4%
-4%
-6%
-6%
-6%
-6%
-8%
-8%
-8%
-8%
-10%
-10%
-12%
2000
Forecast
4%
-10%
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economic Outlook
3
Real Priv Fin Sales to Dom. Purch. - CAGR: Q2 @ 3.9%
Real Priv Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q2 @ 3.5%
-10%
-12%
2002
2004
2006
2008
2010
2012
2014
2016
GDP Components
Businesses still have a considerable amount of cash on the sidelines. We expect some of this
money to be redirected into capital spending, but there are downside risks due to the recent
drop in oil prices
Business Fixed Investment
Cash on Sidelines
Capital Spending by Type
U.S. Nonfin. Corporate Cash Holdings
Total Assets Market Value, U.S. Nonfinancial Corporations
Year-over-Year Percent Change
30%
20%
30%
Intellectual Property: Q2 @ 7.3%
Equipment: Q2 @ 3.3%
Structures: Q2 @ 0.2%
5.5%
Cash Ratio: Q2 @ 4.4%
5.0%
20%
10%
4-Q Moving Average: Q2 @ 4.4%
5.0%
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
10%
0%
0%
-10%
-10%
-20%
-30%
2000
5.5%
-20%
-30%
2002
2004
2006
2008
2010
2012
2.0%
2014
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economic Outlook
2.0%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
4
Residential
Residential investment spending has made only a marginal contribution to real GDP growth.
However, growth in the household sector is gradually improving
Residential Investment Spending
Household Formations
Residential Investment Spending
Bar = Compound Annual Rate
Household Formations
Line = Percentage Points at Annual Rate
2.0%
40%
Residential Investment Spending: Q2 @ 9.37% (Right Axis)
Contribution to U.S. Real GDP: Q2 @ 0.30% (Left Axis)
1.5%
3.0
20%
0.5%
10%
0.0%
3.0
Survey Averages: 2014 @ 900K
1948 to 2014 Average
30%
1.0%
Average of CPS/ASEC and CPS/HVS, In Millions
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0%
-0.5%
-10%
-1.0%
-20%
-1.5%
-30%
0.0
-40%
-0.5
-2.0%
85
87
90
93
95
98
01
03
06
09
11
14
-0.5
60
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
5
64
68
72
76
80
84
88
92
96
00
04
08
12
Consumer Spending
Consumer spending is driving overall economic growth
Retail Sales
Real Consumer Spending
Retail Sales
Real Personal Consumption Expenditures
Bars = CAGR
8%
Line = Yr/Yr Percent Change
8%
6%
4%
Year-over-Year Percent Change, SA
Forecast
Nonstore Retailers
August 2015
6.9%
6%
Motor Veh. & Parts
4%
"Core" Retail Sales
4.3%
Health, Pers. Care
4.3%
2%
2%
0%
0%
-2%
-2%
Total Retail Sales
-4%
-4%
Building Materials
5.7%
Furniture
-6%
-8%
2000
Food, Beverages
Gas Stations
-8%
2002
2004
2006
2008
2010
2012
2014
3.3%
2.2%
0.9%
Electronics
-6%
PCE - CAGR: Q2 @ 3.6%
PCE - Yr/Yr Percent Change: Q2 @ 3.3%
3.7%
-20%
2016
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
6
-2.5%
-17.2%
-15%
-10%
-5%
0%
5%
10%
Household Finances
Although consumer leverage remains elevated relative to historical norms, it is well off its
prerecession high and debt service has returned to more sustainable levels
Debt Service
Debt to Income
Financial Obligations Ratio-Total
Household Debt - Consumer & Mortgage
As a Percent of Disposable Personal Income
130%
18.5%
130%
As a Percent of Disposable Personal Income
18.5%
Total: Q2 @ 15.4%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
18.0%
18.0%
17.5%
17.5%
17.0%
17.0%
16.5%
16.5%
16.0%
16.0%
15.5%
15.5%
15.0%
15.0%
Household Debt: Q2 @ 96.3%
40%
14.5%
40%
60
65
70
75
80
85
90
95
00
05
10
14.5%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
15
Source: Federal Reserve Board and Wells Fargo Securities, LLC
7
Consumer Credit
Consumer Credit
35%
Year-over-Year Percent Change, 3-Month Moving Average
35%
Nonrevolving Credit: Aug @ 7.9%
Revolving Credit: Aug @ 4.0%
30%
Revolving credit is beginning to
come back
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: Federal Reserve Board and Wells Fargo Securities, LLC
8
Percent change in real GDP by state 2013-2014
WA
3.0
MT
1.8
ID
2.7
OR
3.6
AZ
1.4
CO
4.7
PA
1.8
IA
0.4
KS
1.8
OK
2.8
NM
1.0
NY
2.5
MI
1.9
IL
1.2
TX
5.2
HI
0.8
WI
1.0
NE
0.7
UT
3.1
NV
1.0
VT
0.6 NH
2.3
MN
1.4
SD
0.6
WY
5.1
CA
2.8
ME
0.2
ND
6.3
OH
2.1
IN
0.4
MO
0.9
WV
5.1
NJ
0.4
CT
0.6
DE
1.2
MD
0.8
DC
1.6
SC
2.2
AR
0.8
MS
-1.2
AL
0.7
GA
2.3
FL
2.7
AK
-1.3
RI
1.2
NC
1.4
TN
1.7
LA
1.9
VA
0.02
KY
1.0
MA
2.3
U.S. = 2.2%
(-1.3)% - 0.7%
0.7% - 1.2%
1.2% - 1.8%
1.8% - 2.7%
2.7% - 6.3%
Economic Policy Uncertainty
Index of Economic Policy Uncertainty
250
Debt Ceiling Dispute;
European Debt Crisis
Black
Monday
200
Balanced
Budget
Act
The Index of Economic Policy
Uncertainty reached its highest
level on record during the debt
ceiling debate, but remains well
above its long-run trend
Obama
Election Banking
Crisis
Lehman
and TARP
9/11
Gulf War I
Clinton
Election
150
Gulf War
II
Bush
Election
Russian
Crisis/LTCM
Fiscal Cliff
Debt Celing Dispute
250
Large
Interest
Rate Cuts ,
Stimulus
200
150
100
100
2010
Midterm
Elections
50
50
Baseline Overall Index: Sep @ 138.9
0
0
85
87
89
91
93
95
97
99
01
03
Source: Economic Policy Uncertainty and Wells Fargo Securities, LLC
Economic Outlook
10
05
07
09
11
13
15
U.S. Budget Gap
U.S. Budget Gap
CBO Baseline Scenario Projections, Percent of GDP
26%
26%
Forecast
The federal government faces
some significant fiscal
challenges—the current path is
not sustainable
24%
24%
22%
22%
Avg. Outlays
1965-2014
20%
20%
18%
18%
Avg. Revenues
1965-2014
16%
16%
Outlays: 2025 @ 22.0%
Revenues: 2025 @ 18.3%
14%
14%
1975
1980
1985
1990
1995
2000
2005
Source: Congressional Budget Office and Wells Fargo Securities, LLC
Economic Outlook
11
2010
2015
2020
2025
Treasury Fundamentals
Net Foreign Purchases of Treasuries vs. Net Issuance
12-M Moving Sum; 12-M Moving Average; Billions of Dollars
$1,000
$200
Net Foreign Purchases: Jul @ $101.8 Billion (Left Axis)
Net Treasury Issuance: Aug @ $50.1 Billion (Right Axis)
Net Treasury issuance and
international capital flows
remain the key drivers of price
dynamics in the market
$800
$160
$600
$120
$400
$80
$200
$40
$0
$0
-$200
-$40
98
00
02
04
06
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economic Outlook
12
08
10
12
14
Federal Fiscal Policy
The composition of federal spending has shifted dramatically.
The CBO projects that the debt-to-GDP ratio will reach nearly 80 percent by 2025.
Composition of Federal Spending
Federal Debt Continues to Rise
Federal Spending
U.S. Debt Held By The Public
Percent of Total
CBO Baseline Projections Begin in 2015, Percent of GDP
80%
Discretionary
1970
Mandatory
Net Interest
62%
31%
8%
Total Spending 1970: 19% of GDP
2014
33%
60%
6%
Total Spending 2014: 20% GDP
2050
19%
80%
Baseline Debt: 2025 @ 76.9%
62%
19%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
Total Spending 2050: 27% of GDP
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
20%
1974
100%
Source: Congressional Budget Office and Wells Fargo Securities, LLC
Economic Outlook
13
20%
1979
1984
1989
1994
1999
2004
2009
2014
2019
2024
Fiscal Policy Outlook
Key Issues
Oct. 29th - Funding for Highway Trust Fund expires
 How will the gap be filled?
November 5th - Re-establishment of debt ceiling
 How will Congress increase the borrowing limit?
What to watch for in the
114th Congress
December 11th - FY 2016 budget debate
 Current funding runs out
Corporate tax reform
 Both sides agree action is needed, but what will be done?
International trade agreements (TPP, TTIP)
 Don’t expect immediate action, but progress is being made
Economic Outlook
14
Five Key Themes
Lift-Off
 We continue to believe the Fed is on course to begin to raise shortterm interest rates later this year. Lift-off in December is still on
the table, but the risks have shifted
Yield Curve &
Term Premium
 Decomposing the yield curve into the risk-neutral yield and the
Fed Balance Sheet
Operations
 Fed balance sheet operations have had substantial effects on
Data Dependent
term premium, we find longer-dated U.S. Treasuries have been
lower, principally due to a lower term premium
longer-term Treasury Yields, by reducing the term premiums on
longer-dated Treasury securities
 The Fed is looking at an array of data and will need to continue
to see strengthening in global and labor market conditions.
Safe-Haven Flows  The divergence between monetary policies of large economies
will continue to put upward pressure on the dollar with
& Policy Divergence
continued flows into U.S. assets and longer-term U.S. Treasuries
Economic Outlook
15
Past Tightening Cycles
Historic Fed Tightening Cycles
T ightening Cy cles Since 1983
There have been five
tightening cycles in the
past 25 years
Tightening
Last Cut
Length of
Cumulativ e
Cumulativ e Tightening
Terminal
Cy cle
to First Hike
Tightening Cy cle
Tightening
First Y ear
Fed Funds Rate
1 983 - 1 984
5.0 Months
1 6 Months
325 bps
200 bps
1 1 .7 5%
1 986 - 1 989
4.0 Months
28 Months
387 bps
1 00 bps
9.7 5%
1 994 - 1 995
1 7 Months
1 3 Months
300 bps
250 bps
6.00%
1 999 - 2000
7 Months
1 2 Months
1 7 5 bps
1 7 5 bps
6.50%
2004 - 2006
1 2 Months
25 Months
425 bps
200 bps
5.25%
Av erage
9 Months
1 8.8 Months
322.4 bps
1 85 bps
7 .85%
Historic Fed Tightening Cycles
Cumulative Tightening (bps) in Months
In the 2004 cycle, the Fed
stayed on hold for 12
months and hiked rates
425 bps from 1.00%
Cumulative Tightening (bps)
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
0
5
10
15
20
Length of Tightening Cycle (Months)
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economic Outlook
16
25
30
Lift-Off: Pace of Policy Firming
Appropriate Pace of Policy Firming
Target Federal Funds Rate at Year-End; Market Data as of Sept. 17
5.0%
4.5%
4.0%
The FOMC Committee
downshifted its expectations for
the Federal Funds rate path in
its recent meeting
4.5%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
-0.5%
2015
2016
2017
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economic Outlook
5.0%
September 2015 Median Response
June 2015 Median Response
Futures Market Expectations
17
2018
Longer Run
-0.5%
Fed Balance Sheet
Federal Reserve Balance Sheet vs. S&P 500 Index
Trillions, Index
$5.5
$5.0
$4.5
Although the Fed is largely
expected to begin increasing its
target short-term interest rate
this year, the Fed will remain
accommodative due to its
balance sheet holdings
2,200
Agencies & MBS: Sep @ $1,777.9B (Left Axis)
Treasuries: Sep @ $2,461.9B (Left Axis)
Other Securities: Sep @ $208.1B (Left Axis)
S&P 500 Index: Oct @ 1,960.5 (Right Axis)
1,800
$4.0
1,600
$3.5
1,400
$3.0
1,200
$2.5
1,000
$2.0
800
$1.5
600
$1.0
400
$0.5
200
$0.0
2007
0
2008
2009
2010
2011
2012
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economic Outlook
2,000
18
2013
2014
2015
Employment Situation
Slack in the labor market is steadily diminishing and wage growth is beginning to show some
signs of picking up
Unemployment Rate
Unemployment Rate
Unemployment Rates
ECI Wage Growth
Seasonally Adjusted
vs. Small Business Plans to Raise Compensation and Avg. Hourly Earnings
18%
18%
FOMC Central Tendency for Longer Run
Unemployment Rate: Sep @ 5.1%
U-6 Unemployment Rate: Sep @ 10.0%
16%
25%
Average Hourly Earnings (YoY): Q3 @ 2.2% (Right Axis)
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
96
98
00
02
04
06
08
10
12
5%
15%
4%
10%
3%
5%
2%
0%
14
1%
02
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economic Outlook
ECI Wages & Salaries (YoY): Q2 @ 2.1% (Right Axis)
20%
2%
94
6%
NFIB Plans to Raise Compensation: Q3 @ 14.0% (Left Axis)
19
03
04
05
06
07
08
09
10
11
12
13
14
15
Inflation
PCE Deflator Forecast
Fed Central Tendency Forecast vs. Wells Fargo Forecast
4.5%
4.5%
Central Tendency Forecast Range
4.0%
Historical PCE Deflator
Wells Fargo Economics Forecast
3.5%
Members of the FOMC expect
inflation to rise over the course
of the year and approach its
long-run target this year as the
economy gradually strengthens
and inflation expectations
remain stable
Q4-over-Q4
Percent Change
FOMC
Sep. Forecast
3.0%
3.5%
3.0%
2.5%
2.5%
1.9%
1.9%
2.0%
1.5%
2.0%
1.5%
1.0%
0.8%
0.5%
1.0%
0.5%
0.0%
0.0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: U.S. Department of Commerce, Federal Reserve Board and Wells Fargo Securities, LLC
Economic Outlook
4.0%
20
Inflation Expectations
Survey-based inflation expectations remain stable, while market-based measures have fallen
Market-Based Inflation Expectations
Survey-Based Inflation Expectations
Med. Inflation Expectations 1-Yr vs 5 to 10-Yr
TIPS Inflation Compensation & WTI Oil Price
University of Michigan Consumer Sentiment
5-Year and 5-Years Forward
4.0%
7%
$160
7%
Median Inflation Expectations: Sep @ 2.8%
3.5%
$140
3.0%
$120
2.5%
$100
2.0%
$80
1.5%
$60
1.0%
$40
0.5%
$20
0.0%
6%
Median Inflation Expectation for 5-10 Years Average 1990 - 2007: 3.2%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
$0
5-Year Breakeven: Oct-09 @ 1.21% (Left Axis)
5-Year and 5-Years Forward: Oct-09 @ 1.74% (Left Axis)
WTI: Oct-09 @ $49.63 (Right Axis)
-0.5%
-1.0%
2008
Median Inflation Expect. For 5-10 Yrs: Sep @ 2.7%
6%
-$20
0%
-$40
2009
2010
2011
2012
2013
2014
Source: Bloomberg, LP, University of Michigan and Wells Fargo Securities, LLC
Economic Outlook
0%
00
2015
21
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
A Divergence in Central Bank Policy
Central Bank Total Assets
Index, Jan 2008 = 100
600
600
Fed: Sep @ 500.8
BoJ: Sep @ 334.3
500
Over the next year, central bank
policies will continue to diverge
500
ECB: Sep @ 196.4
400
400
300
300
200
200
100
100
0
0
08
09
10
11
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economic Outlook
22
12
13
14
15
Global Outlook
Global Real GDP Growth
Real Global GDP Growth
Year-over-Year Percent Change, PPP Weights
7.5%
7.5%
6.0%
6.0%
Period Average
Global real GDP growth has
grown slightly below its longrun average in recent years.
Although we look for global GDP
to increase somewhat next year,
we do not expect to see the
robust pace of growth seen in
the previous expansion
WF
Forecast
4.5%
4.5%
3.0%
3.0%
1.5%
1.5%
0.0%
0.0%
-1.5%
-1.5%
1980
1985
1990
1995
Source: IHS Global Insight and Wells Fargo Securities, LLC
24
2000
2005
2010
2015
Eurozone GDP Forecast
Eurozone Real GDP
Bars = Compound Annual Rate
Line = Yr/Yr % Change
8%
8%
Compound Annual Growth: Q2 @ 1.4%
Year-over-Year Percent Change: Q2 @ 1.5%
4%
The Eurozone has emerged from
its double-dip recession, but the
recovery will lag the U.S.
Forecast
4%
0%
0%
-4%
-4%
-8%
-8%
-12%
2002
-12%
2004
2006
2008
2010
Source: IHS Global Insight and Wells Fargo Securities, LLC
25
2012
2014
2016
The Euro
U.S. Dollar/Euro Exchange Rate
Dollars/Euro
We expect the dollar to
strengthen against the euro on
stronger US growth and higher
interest rates
1.60
1.60
1.50
1.50
1.40
1.40
1.30
1.30
1.20
1.20
1.10
1.10
U.S. Dollars/Euro: Oct-02 @ 1.13
1.00
2006
1.00
2007
2008
2009
2010
2011
Source: IHS Global Insight and Wells Fargo Securities, LLC
26
2012
2013
2014
2015
China
Chinese GDP Forecast
Chinese Real GDP Forecast
Year-over-Year Percent Change
13%
Growth in China is not expected
to return to the double-digit rate
seen earlier in the decade
13%
12%
12%
11%
11%
10%
10%
9%
9%
Forecast
8%
8%
7%
7%
6%
6%
5%
5%
Year-over-Year Percent Change: Q2 @ 7.0%
4%
2000
4%
2002
2004
2006
2008
Source: IHS Global Insight and Wells Fargo Securities, LLC
28
2010
2012
2014
2016
China Manufacturing & Reserves
Manufacturing activity in China continues to weaken and is also starting to weigh on the
markets. China has begun whittling down its war chest of foreign exchange reserves
Manufacturing Activity vs. S&P 500
Foreign Exchange Reserves
Chinese Foreign Exchange Reserves
Caixin China Manufacturing PMI vs. S&P 500 Index
Seasonally Adjusted; Year-over-Year Percent Change
53
Trillions of USD
30%
$4.5
$4.5
Foreign Exchange Reserves: Sep @ $3.5 Trillion
52
25%
51
20%
50
15%
49
10%
48
5%
47
0%
Manufacturing PMI: Sep @ 47.2 (Left Axis)
$4.0
$4.0
$3.5
$3.5
$3.0
$3.0
$2.5
$2.5
$2.0
$2.0
$1.5
$1.5
$1.0
$1.0
$0.5
$0.5
S&P 500 Index Year-over-Year: Sep @ -1.6% (Right Axis)
46
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
-5%
Oct-15
$0.0
1996
Source: Bloomberg LP and Wells Fargo Securities, LLC
29
$0.0
1998
2000
2002
2004
2006
2008
2010
2012
2014
Chinese GDP vs Industrial Metals
Bloomberg Industrial Metals Index vs. Chinese GDP
Index, Year-over-Year Percent Change in Real GDP
270
15%
Industrial Metals Index: Q3* @ 108.4 (Left Axis)
Chinese Real GDP: Q2 @ 7.0% (Right Axis)
250
*Quarterly Average to Date
230
A weakening Chinese economy
has weighed heavily on prices,
specifically industrial metals
14%
13%
210
12%
190
11%
170
10%
150
9%
130
8%
110
7%
90
6%
70
5%
50
4%
94
95
97
98
00
01
03
04
06
07
Source: IHS Global Insight, Bloomberg LP and Wells Fargo Securities, LLC
30
09
10
12
13
15
China Household Assets
Financial Assets of Chinese Households
Trillions of Yuan
80
70
60
Equities play a limited role in
the allocation of Chinese
financial wealth
80
Other: 2013 @ 6.6T Yuan
Currency: 2013 @ 4.9T Yuan
Bonds: 2013 @ 0.9T Yuan
Stocks: 2013 @ 6.4T Yuan
Insurance: 2013 @ 9.0T Yuan
Bank Deposits: 2013 @ 47.8T Yuan
70
60
50
50
40
40
30
30
20
20
10
10
0
0
04
05
06
07
Source: CEIC and Wells Fargo Securities, LLC
31
08
09
10
11
12
13
Bank Exposure
U.S. Bank Exposure to China
Billions of Dollars
$120
$120
Total Exposure: Q1 @ $96.9 Billion
$100
American banks are not overly
exposed to China
$100
$80
$80
$60
$60
$40
$40
$20
$20
$0
$0
05
06
07
08
09
10
11
Source: Bank for International Settlements and Wells Fargo Securities, LLC
32
12
13
14
15
Chinese Trade
Chinese Trade
80%
Although Chinese trade has
clearly weakened over the past
few years, part of the recent
decline can be attributed to
price effects.
Moreover, the direct effects to
the U.S. appear to be minimal.
China accounts for just 7 percent
of U.S. exports and less than 1
percent of real GDP
Year-over-Year Percent Change, 3-Month Moving Average
80%
60%
60%
40%
40%
20%
20%
0%
0%
-20%
-20%
Exports: Sep @ -5.9%
Imports: Sep @ -14.1%
-40%
2000
-40%
2002
2004
2006
2008
Source: IHS Global Insight and Wells Fargo Securities, LLC
33
2010
2012
2014
Construction Started in China
Construction Started in China
Square Meters, Yr/Yr Pct. Change of YTD Total
Residential and nonresidential
construction have slowed
markedly
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
-10%
-10%
Construction Started: Q2 @ -17.2%
-20%
-20%
05
06
07
08
Source: CEIC and Wells Fargo Securities, LLC
34
09
10
11
12
13
14
15
U.S. Forecast
Wells Fargo U.S. Economic Forecast
Actual
Forecast
2015
Real Gross Domestic Product
Personal Consumption
Inflation Indicators
PCE Deflator
1
2015
Forecast
2016
2017
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
0.6
3.9
1.0
2.8
2.6
2.6
2.6
2.5
1.5
2.4
2.4
2.5
2.4
1.8
3.6
3.7
3.0
2.5
2.6
2.5
2.3
1.7
2.7
3.2
2.8
2.4
2
Consumer Price Index
Industrial Production
1
Corporate Profits Before Taxes
Trade Weighted Dollar Index
Unemployment Rate
Housing Starts
Actual
2013
2014
2016
2
3
4
Quarter-End Interest Rates 5
Federal Funds Target Rate
0.2
0.3
0.3
0.8
1.6
1.6
1.7
1.9
1.4
1.4
0.4
1.7
2.0
-0.1
0.0
0.2
0.8
2.1
1.9
2.0
2.1
1.5
1.6
0.3
2.0
2.2
-0.3
-2.6
1.9
1.4
2.7
2.5
3.0
3.5
1.9
3.7
1.4
2.1
3.3
4.6
0.6
5.9
6.6
6.2
6.9
5.4
6.1
2.0
1.7
4.4
6.1
5.5
92.1
89.9
92.3
91.8
92.8
94.0
95.3
96.5
75.9
78.5
91.5
94.6
98.1
5.6
5.4
5.2
5.0
4.9
4.8
4.7
4.6
7.4
6.2
5.3
4.7
4.5
1.00
1.14
1.25
1.35
0.98
1.16
1.17
1.22
1.24
1.24
1.25
1.26
0.92
0.25
0.25
0.25
0.50
0.50
0.75
1.00
1.25
0.25
0.25
0.31
0.88
1.81
Conventional Mortgage Rate
3.77
3.98
3.89
3.92
3.94
3.99
4.11
4.25
3.98
4.17
3.89
4.07
4.45
10 Year Note
1.94
2.35
2.06
2.08
2.10
2.15
2.25
2.37
2.35
2.54
2.11
2.22
2.52
Forecast as of: October 7, 2015
1
C ompound Annual Growth Rate Quarter-over-Quarter
2
Year-over-Year Percentage C hange
3
Federal Reserve Major C urrency Index, 1973=100 - Quarter End
4
Millions of Units
5
Annual Numbers Represent Averages
Economic Outlook
35
Appendix
Wells Fargo Economics Group Publications
A Sampling of Our Recent Special, Regional & Industry Commentary
Recent Special Commentary
Authors
Title
Date
U.S. Macro
To view any of our past research
please visit:
http://www.wellsfargo.com/
economics
September-24 Capitol Hill Update: Down-to-the-Wire Votes Expected
September-24 Job Openings vs. Turnover: Mixed Messages from JOLTS
Silvia & Brown
September-23 U.S. Manufacturing & USD: Setting the Record Straight
September-14 Equipment Spending: It's Not About Rates Anyway
Quinlan, House & Nelson
September-10 Will Higher Rates Impact Consumption?
Alemán & Brown
U.S. Regional
September-17 California Employment Conditions: August 2015
Vitner & Batcheller
September-18 Lower Oil Prices Are Clearly Weighing On Texas Job Growth
Vitner & Batcheller
September-18 Florida’s Economy Continues to See Solid Job Gains
Vitner & Batcheller
September-17 New Jersey Adds 13,600 Jobs in August
Vitner & Batcheller
September-17 Minnesota Added 7,300 Jobs in August
Vitner & Batcheller
House & Moehring
Quinlan, House & Nelson
Global Econom y
To join any of our research
distribution lists please visit:
http://www.wellsfargo.com/
economicsemail
Economic Outlook
October-07
TPP Agreement: More Than Initially Meets the Eye
Bryson & Nelson
October-07
Brazil: Been There, Done That
Alemán
October-05
Mexican Economy: The Boom That Never Was?
Alemán
September-29 Is the Eurozone Economy About to "Break Out"
September-21 Argentine Government Spending Boosts Growth in Q2 2015
October-07
Interest Rates/Credit Market
Fiscal Policy Likely to Induce Greater Rate Volatility
Bryson & Nelson
Alemán
Silvia, Vitner & Brown
September-30 Silos Fall in a Financial Windstorm: Realty TV for Investors
Silvia, Vitner & Brown
September-21 FOMC Decides: Markets Assess What's Next
Silvia, Vitner & Brown
September-16 Household Credit Healthy for Now
Silvia, Vitner & Brown
September-09 We Do Not Expect a Repeat of the Taper Tantrum
Silvia, Vitner & Brown
Real Estate
September-30 Housing Chartbook: September 2015
Vitner, Khan & Batcheller
September-30 Nonresidential Construction Recap: September
Khan
September-01 Housing Data Wrap-Up: August 2015
Vitner & Khan
August-31
Nonresidential Construction Recap: August
Khan
August-07
Commerial Real Estate Chartbook: Q2
Khan
37
Wells Fargo Securities, LLC Economics Group
Global Head of Research and Economics
Economists
Diane Schumaker-Krieg
………………… …[email protected]
Global Head of Research & Economics
Azhar Iqbal, Econometrician………………… ……………[email protected]
……
Tim Quinlan, Economist …………………… ……………. [email protected]
Eric J. Viloria, Currency Strategist
Chief Economist
Sarah House, Economist
John E. Silvia …
...................... …
[email protected]
.
Michael A. Brown, Economist ……………… …
Senior Economists
Mark Vitner, Senior Economist……………....………. .
…………… …………
[email protected]
[email protected]
[email protected]
Economic Analysts
Erik Nelson, Economic Analyst
[email protected]
[email protected]
Alex Moehring, Economic Analyst
[email protected]
Jay H. Bryson, Global Economist …………………....…… …[email protected]
Misa Batcheller, Economic Analyst
[email protected]
Sam Bullard, Senior Economist
Michael Pugliese, Economic Analyst
[email protected]
[email protected]
Administrative Assistants
Nick Bennenbroek, Currency Strategist ……[email protected]
Eugenio J. Alemán, Senior Economist… …………[email protected]
Donna LaFleur, Executive Assistant.
Anika R. Khan, Senior Economist …
Cyndi Burris, Senior Administrative Assistant
. [email protected]
[email protected]
[email protected]
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38