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The Global Economic Outlook
Jay H. Bryson, Managing Director and Global Economist
February 11, 2016
Real GDP Forecast
U.S. Real GDP
Bars = CAGR
Line = Yr/Yr Percent Change
10%
10%
GDP - CAGR: Q4 @ 0.7%
8%
GDP - Yr/Yr Percent Change: Q4 @ 1.8%
6%
6%
Forecast
4%
Our forecast looks for real GDP
growth to remain generally solid
in coming quarters
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
2000
-10%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
8%
2
2012
2014
2016
Real Final Sales
Real Final Sales to Domestic Purchasers
Bars = CAGR
8%
Line = Yr/Yr Percent Change
8%
6%
6%
Forecast
4%
Growth in domestic spending
clearly has strengthened
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
Real Fin Sales to Dom. Purch. - CAGR: Q4 @ 1.6%
-8%
Real Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q4 @ 2.5%
-10%
2000
-10%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
3
2012
2014
2016
Sectoral Indices
ISM Manufacturing & Non-Manufacturing
Composite Index
65
Weakness in the economy is
largely concentrated in the
manufacturing sector
65
60
60
55
55
50
50
45
45
40
40
35
35
30
ISM Manufacturing Index SA: Jan @ 48.2
30
ISM Non-Manufacturing Index SA: Jan @ 53.5
25
25
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: Institute for Supply Management and Wells Fargo Securities, LLC
Economics
4
Government Purchases Forecast
Real Government Purchases
Bars = CAGR
Line = Yr/Yr Percent Change
12%
12%
9%
9%
6%
6%
Forecast
The headwinds on growth from
government spending have
largely dissipated
3%
3%
0%
0%
-3%
-3%
-6%
-6%
-9%
-9%
Government Purchases-CAGR: Q4 @ 0.7%
Government Purchases-Yr/Yr: Q4 @ 1.3%
-12%
2000
-12%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
5
2012
2014
2016
Business Fixed Investment Forecast
Real Business Fixed Investment
Bars = CAGR
Line = Yr/Yr Percent Change
30%
30%
20%
20%
10%
Business fixed investment
spending should continue to
grow at a solid pace, as it usually
does at this point in the cycle
Forecast
0%
10%
0%
-10%
-10%
-20%
-20%
-30%
-30%
Non-Res Fixed Invest - CAGR: Q4 @ -1.8%
Non-Res Fixed Invest - Yr/Yr Percent Change: Q4 @ 1.6%
-40%
2000
-40%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
6
2012
2014
2016
Real PCE Forecast
Real Personal Consumption Expenditures
Bars = CAGR
8%
Line = Yr/Yr Percent Change
8%
6%
6%
Forecast
4%
Growth in consumer spending
has ramped up in recent
quarters
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-8%
2000
-6%
PCE - CAGR: Q4 @ 2.2%
PCE - Yr/Yr Percent Change: Q4 @ 2.6%
-8%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
4%
7
2012
2014
2016
Employment Growth
Nonfarm Employment Growth
Yr/Yr Percent Change vs. 3-Month Annualized Rate
Robust employment growth is
helping to lift income growth
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
3-Month Annualized Rate: Dec @ 2.4%
Nonfarm Employment: Dec @ 1.9%
-8%
-8%
91
93
95
97
99
01
03
05
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
8
07
09
11
13
15
Real Disposable Income
Real Disposable Income vs. Real PCE
Both Series are 3-Month M.A., Year-over-Year Percent Change
Strong growth in disposable
income is helping to support
growth in consumer spending
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
Real Personal Consumption Expenditure: Dec @ 2.6%
Real Disposable Income, Yr/Yr % Change: Dec @ 3.4%
-6%
-6%
04
05
06
07
08
09
10
11
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
9
12
13
14
15
16
Consumer Balance Sheet
Household Debt - Consumer & Mortgage
As a Percent of Disposable Personal Income
130%
Consumer de-leveraging may be
nearing its final stages
130%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
Household Debt: Q3 @ 95.8%
40%
40%
60
65
70
75
80
85
90
95
00
05
Source: Federal Reserve Board, U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
10
10
15
Consumer Balance Sheet
Real Per Capita Household Net Worth
$250
$250
Real Per Capita Net Worth: Q3 @ $242,216
Real per capita net worth has
returned to its previous high.
Will the savings rate continue to
trend lower?
$220
$220
$190
$190
$160
$160
$130
$130
$100
$100
$70
$40
1959
$70
$40
1965
1972
1979
1986
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
11
1992
1999
2006
2013
Thousands
Thousands of 2009 Dollars
Real Net Exports
Net Exports
Percentage Point Contibution to Real GDP
3.0
3.0
Net Exports: Q4 @ -0.5 Pct. Points
Net exports likely will exert a
modest drag on growth going
forward
2.0
2.0
1.0
1.0
Forecast
0.0
0.0
-1.0
-1.0
-2.0
2000
-2.0
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
12
2012
2014
2016
Eurozone GDP
Eurozone Real GDP
Bars = Compound Annual Rate
Line = Yr/Yr % Change
8%
8%
Compound Annual Growth: Q3 @ 1.2%
Year-over-Year Percent Change: Q3 @ 1.6%
4%
The recovery in the Eurozone
should continue, albeit at a
modest pace
Forecast
0%
0%
-4%
-4%
-8%
-8%
-12%
2002
-12%
2004
2006
2008
2010
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
4%
13
2012
2014
2016
China GDP
Chinese Real GDP Forecast
Year-over-Year Percent Change
16%
16%
14%
14%
12%
12%
10%
The Chinese economy likely will
continue to slow, but we do not
believe it will completely fall
apart either
Forecast
10%
8%
8%
6%
6%
4%
4%
2%
2%
Year-over-Year Percent Change: Q4 @ 6.8%
0%
2000
2002
2004
2006
2008
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
14
2010
2012
2014
2016
0%
2018
Global GDP Growth
Real Global GDP Growth
Year-over-Year Percent Change, PPP Weights
7.5%
7.5%
6.0%
6.0%
Period Average
WF
Forecast
4.5%
We forecast that global GDP
growth will remain below its
long-run average in 2016
3.0%
3.0%
1.5%
1.5%
0.0%
0.0%
-1.5%
-1.5%
1980
1985
1990
1995
2000
Source: International Monetary Fund and Wells Fargo Securities, LLC
Economics
4.5%
15
2005
2010
2015
Oil Prices
Crude Oil
NYMEX Front-Month Contract, Dollars per Barrel
$160
Slow global growth and excess
supply likely will keep oil prices
depressed for some time
$160
$140
$140
$120
$120
$100
$100
$80
$80
$60
$60
$40
$40
$20
$20
Crude Oil (WTI): Jan-29 @ $33.62
$0
$0
00
02
04
06
08
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
16
10
12
14
16
Global Industrial Production
Global Economic Indicators
Year-over-Year Percent Change
It would take a sharp downturn
in the rest of the world to have a
meaningful effect on U.S.
economic growth
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
Global Industrial Production: Q4 @ 1.3%
U.S. GDP: Q4 @ 1.8%
-15%
-15%
92
94
96
98
00
02
04
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
17
06
08
10
12
14
16
Value Added
Value-Added Embodied in Foreign FDD
Percent of Total Value-Added
35%
35%
2011
30.6%
30%
30%
25%
23.1%
20%
The United States derives only
10 percent of its value added
from final spending in the rest
of the world
24.4%
25%
20%
17.6%
15%
15%
12.6%
10.8%
10%
10%
5%
5%
0%
0%
U.S.
Japan
China
United
Kingdom
Canada
Germany
Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC
Economics
18
Import Prices
U.S. Inflation Indicators
Year-over-Year Percent Change
CPI inflation is not highly
correlated with changes in
prices of imports from China
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
Nonfuel Import Prices: Dec @ -3.4%
Import Prices from China: Dec @ -1.7%
Core CPI: Dec @ 2.1%
-6%
-8%
03
05
07
09
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
19
11
-6%
-8%
13
15
U.S. Unemployment Rate
Unemployment Rates
Seasonally Adjusted
18%
18%
Unemployment Rate: Dec @ 5.0%
U-6 Unemployment Rate: Dec @ 9.9%
16%
There is less slack in the labor
market today
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
94
96
98
00
02
04
06
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
20
08
10
12
14
16
PCE Inflation
PCE Deflator vs. Core PCE Deflator
Year-over-Year Percent Change
5%
The drop in oil prices should
cause the overall rate of inflation
to recede, but “core” inflation
likely will remain steady
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
PCE Deflator: Dec @ 0.6%
"Core" PCE Deflator: Dec @ 1.4%
-2%
-2%
92
94
96
98
00
02
04
06
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
21
08
10
12
14
16
U.S. Interest Rates
10-Yr Treasury and Federal Funds Target Rate
Percent
10%
10%
10-Year Treasury Yield: Jan @ 1.93%
9%
Short-term interest rates are
headed higher, albeit at a slow
pace
9%
Fed Funds Target: Jan @ 0.50%
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
90
92
94
96
98
00
02
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics
22
04
06
08
10
12
14
16
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Economists
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Chief Economist
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Mark Vitner, Senior Economist……………....………. .
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Client/Prospect Name
23