2013 global economic outlook:

Are promising growth

trends sustainable? Timothy Hopper, Ph.D.,

Chief Economist, TIAA-CREF

January 24, 2013

2

U.S. stock market performance in 2012

-2.75%

total return

+12.59%

total return +6.35%

total return

-0.38% total return

*It is not possible to invest in an index. Performance of indices does not reflect investment fees or transaction costs.

*

3

Surprise-side economics

*The index reflects a weighted average of the difference between economic data and economists' consensus expectations. Index

values indicate whether economic data are higher or lower than forecasts.

*

4

Political uncertainty costs economic growth

1The index measures policy uncertainty by calculating the number of newspaper references (weighted 50%), and expiring tax-code

provisions and statistical measures of disagreement among forecasters about inflation and government spending (weighted 50%).

1

5

The long-term debt problem

U.S. versus other major

world economies

Country Gross debt

as % of GDP

Japan 236.6

Italy 126.3

U.S. 107.2

France 87.5

Canada 90.0

U.K. 88.7

Germany 83.0

India 67.6

Brazil 64.1

China 22.2

Source: International Monetary Fund,

2012 estimates

Source: Budget of the U.S. Government, Fiscal Year 2012, Historical Tables, Table 7.1.

6

The economy is getting better…

you just have to look for it

Fog of uncertainty in U.S. is starting to thin

List of positive factors expanding:

– Housing growth is accelerating

– Auto sales highest since 2007, retail sales up

– Monthly job growth has stabilized

– Inflation remains low and stable under 2%, gasoline prices dropping

– Equity markets rose in January on positive economic data and

corporate earnings reports

List of negative factors shrinking:

– Manufacturing activity expanding, but only slowly

– Consumer confidence faltered in Q4 on fiscal cliff concerns

– Businesses uncertain about impact of deficit and taxes

7

The economy should be growing closer to 5%...

8

Growth broken down into its components

-10

-8

-6

-4

-2

0

2

4

6

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Personal consumption

expenditures

Gross private domestic

investment

Net exports of goods

and services

Government consumption

expenditures and gross

investment

Real GDP sum of

above

9

Job growth is stabilizing

10

The consumer is back

11

However, the fiscal cliff might change that

12

Housing normally adds 1% to the bottom line

13

Home prices are rebounding

14

Auto sales have recovered

15

Capital goods spending is holding up…barely

16

Manufacturing seeks to regain momentum

< 50 =

CONTRACTION

> 50 =

EXPANSION

17

Recovery outside the U.S. is mixed

Europe economy remains weak –

with early signs of optimism

– Germany GDP dropped 0.5% in Q4

– Manufacturing activity contracted in Germany and

rest of Eurozone

– Signs of stabilization with central bank commitment to

Euro

– Some progress on debt and fiscal challenges in

Spain, Italy, and Greece

– Slight improvement in region’s leading economic

indicator

China’s growth rate rebounds, political

transition complete

– GDP grew 7.9% in Q4 – first increase in growth rate

in seven quarters

– Industrial production rose 10.3% in December

– Shanghai stock market index up sharply in

mid-January

18

Leading index has declined in Europe

19

Mild recession, but no turnaround anytime soon

20

Weak manufacturing sector…

Source: Markit

< 50 =

CONTRACTION

> 50 =

EXPANSION

21

…but yields are stable

5.31%

4.53%

1.99%

1.32%

22

China is once again accelerating

23

Manufacturing back in expansionary territory

< 50 =

CONTRACTION

> 50 =

EXPANSION

24

Recent rebound in Chinese stock prices

a hopeful sign

25

Looking at the year ahead

The end of QE in 2013

How to get rid of a trillion dollar balance sheet

Inflation isn’t in the cards just yet

When will rates rise?

Give us some numbers

26

Treasury rates head lower

27

Don’t expect this graph to change too soon

28

Inflation is not (yet) a problem

29

Oil prices have topped out for the cycle

$91.82

30

0

1

2

3

4

5

3mo 6mo 1yr 2yr 3yr 5yr 10yr 30yr

12/31/2012 12/31/2010 12/31/2009

Look for market rates to change this year

31

2013 economic outlook

Moderate pace of recovery likely to continue

– US GDP forecast of 2.5%, including fiscal drag

– Potential for Fed to announce end of QE this year

with rate increases in 2014

– Inflation will remain below 2.5% in 2013

Financial markets outlook

– Earnings continue to improve and will drive

indexes this year.

– Further, rising yield curve will push money into

equities over bonds. Could see 20% returns in

domestic equities.

– EM markets had a good 2012 and should have a

better 2013.

Risks remain in Washington

Equity volatility will continue

32

Important information

This material is prepared by TIAA-CREF Asset Management and represents the views of Timothy

Hopper as of January 2013. These views may change in response to changing economic and market

conditions. The material is for informational purposes only and should not be regarded as a

recommendation or an offer to buy or sell any product or service to which this information may relate.

Certain products and services may not be available to all entities or persons.

Past performance is not an indicator of future results.

TIAA-CREF Asset Management provides investment advice and portfolio management services to

the TIAA-CREF group of companies through the following entities: Teachers Advisors, Inc., TIAA-

CREF Investment Management, LLC, and Teachers Insurance and Annuity Association® (TIAA®).

Teachers Advisors, Inc., is a registered investment adviser and wholly owned subsidiary of Teachers

Insurance and Annuity Association (TIAA).

TIAA-CREF products may be subject to market and other risk factors. See the applicable product

literature, or visit tiaa-cref.org for details.

© 2013 Teachers Insurance and Annuity Association-College Retirement Equities Fund,

(TIAA-CREF), 730 Third Ave., New York, NY 10017

C8549