U.S. Economic Outlook Mark Vitner, Managing Director & Senior Economist November 29, 2012

U.S. Economic Outlook

Mark Vitner, Managing Director & Senior EconomistNovember 29, 2012

Economic Outlook 2

-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

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

GDP - CAGR: Q3 @ 2.0%

GDP - Yr/Yr Percent Change: Q3 @ 2.3%

Forecast

Economic Growth

We are more than three years into the economic

recovery and there is still a considerable amount of uncertainty regarding

sovereign debt issues in Europe, the federal budget deficit and the willingness

of businesses and households to commit to major capital purchases.

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

Economic Outlook 3

0%

3%

6%

9%

12%

15%

18%

21%

0%

3%

6%

9%

12%

15%

18%

21%

1971 1976 1981 1986 1991 1996 2002 2007 2012

10-Year Treasury & Fed Funds TargetYield

10-Year Treasury Yield: Oct @ 1.75%

Fed Funds Target: Oct @ 0.25%

Financial Crises Are Becoming More Frequent

Treasury yields are currently near record low levels. We believe QE and policy uncertainty are the

primary drivers of ultra-low interest rates.

Source: IHS Global Insight and Wells Fargo Securities, LLC

Economic Outlook 44

The Timing of The First Fed Rate Hike

The timing for the Fed’s first tightening move has been pushed even further out. Long-term growth estimates have also been scaled back.

Source: Federal Reserve Board and Wells Fargo Securities, LLC

Individual FOMC Member ForecastsConsensus Fed Funds Rate Hike

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

2012 2013 2014 2015 2016

Appropriate Timing of Policy FirmingNumber of Participants

J une Release

September Release

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

J une Projection

September Projection

2012 2013 2014 2015 Longer Run

Economic Outlook 5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

2007 2008 2009 2010 2011 2012

Federal Reserve Balance Sheet Trillions

Other: Nov @ $214.5BForeign Swaps: Nov @ $12.5BPDCF & TAFCommercial Paper & Money MarketRepos & Dis. Window: Nov @ $0.1BAgencies & MBS: Nov @ $934.0BTreasuries: Nov @ $1,649.9B

Federal Reserve Balance Sheet

The massive expansion of the Fed’s balance sheet has lifted asset prices and has also given the economy a

boost. But all magic comes with a price!

Source: Federal Reserve Board and Wells Fargo Securities, LLC

Economic Outlook 6

Output Gap

The Great Recession has produced an enormous

output gap that will take years to close.

Source: Congressional Budget Office, U.S. Department of Commerce and Wells Fargo Securities, LLC

$10.5

$11.0

$11.5

$12.0

$12.5

$13.0

$13.5

$14.0

$14.5

$10.5

$11.0

$11.5

$12.0

$12.5

$13.0

$13.5

$14.0

$14.5

2000 2002 2004 2006 2008 2010 2012

Output Gap in the U.S. Trillions of Dollars, Potential vs. Actual GDP, Inflation Adjusted

Potential GDP: Q3 @ $14.5 Trillion

Actual GDP: Q3 @ $13.6 Trillion

Output Gap = $858 Billion

Economic Outlook 7

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

00 01 02 03 04 05 06 07 08 09 10 11 12

Federal Budget Surplus or Deficit12-Month Moving Sum in Billions of Dollars

Surplus or Deficit: Oct @ -$1,111 Billion

U.S. Budget Deficit

The federal budget deficit has come down somewhat

but remains at a historically high level.

Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC

Economic Outlook 8

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1994 1997 2000 2003 2006 2009 2012

Unemployment Rate - SA vs. NSAPercent

12-Month Rolling Average (NSA): Oct @ 8.2%

Unemployment Rate (SA): Oct @ 7.9%

Labor Market

Unemployment is gradually trending down, although much of the improvement

has come from unusual forces, including

extraordinary seasonal factors and sluggish labor

force growth.

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

Economic Outlook 9

-8%

-4%

0%

4%

8%

12%

16%

20%

-8%

-4%

0%

4%

8%

12%

16%

20%

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84

Employment CyclesPercent Change from Cycle Peak

1948-1949 Cycle

1981-1982 Cycle

1989-1991 Cycle

2001 Cycle

2007-To-Date

Forecast

Labor Market

Job losses exceeded every post-World War II

downturn, and the modest recovery to date has been extremely disappointing.


Economic Outlook 1010

Consumer Related

This year’s improved stock market has helped bolster consumer spending at a time when real incomes are barely growing, and consumer confidence remains

historically low.

Source: U.S. Department of Commerce, Conference Board and Wells Fargo Securities, LLC

Consumer ConfidenceHousehold Wealth

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

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

Household AssetsTrillions of Dollars

Financial Assets: Q2 @ $51.9 Trillion

Household Real Estate Holdings: Q2 @ $16.9 Trillion

Other Tangible Assets: Q2 @ $7.3 Trillion

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

0

30

60

90

120

150

180

210

93 95 97 99 01 03 05 07 09 11

Confidence vs. Retail Sales and IncomeConference Board Consumer Confidence, Yr/Yr % Chg. 3-MMA

Confidence Yr/Yr % Chg: Nov @ 33.6%

Confidence: Nov @ 73.7 (Left Axis)

Retail Sales Ex-Auto: Oct @ 3.9% (Right Axis)

Real Disposible Per Cap Inc.: Sep @ 1.1% (Right Axis)


Consumer Confidence

Economic growth is unlikely to accelerate in a meaningful way until consumers feel better about current economic conditions than they do about future economic

prospects.

Source: Conference Board and Wells Fargo Securities, LLC

Confidence GapConsumer Confidence

0

50

100

150

200

250

0

50

100

150

200

250

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

Conference Board Consumer ConfidencePresent Situation and Expectations Index

Present Situation Yr/Yr % Chg: Nov @ 47.5%Expectations Yr/Yr % Chg: Nov @ 28.2%Present Situation: Nov @ 56.6Expectations: Nov @ 85.1

-100

-75

-50

-25

0

25

50

75

100

-100

-75

-50

-25

0

25

50

75

100

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

Confidence Gap Present Situation Minus Expectations

Confidence Gap: Nov @ -28.6

Economic Outlook 12

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

Th

ousa

nds

Housing StartsMillions of Units

Multifamily Starts

Multifamily Forecast

Single-family Starts

Single-family Forecast

Forecast

Homebuilding

We believe housing starts have bottomed and will

increase modestly over the next few years.



Housing Starts

Apartment construction accounts for much of the recent improvement in homebuilding.

We believe multifamily housing will account for a larger proportion of future starts.


Multifamily Housing StartsSingle & Multifamily Housing Starts

0

60

120

180

240

300

360

420

480

540

600

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

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

Single & Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

Single-family Housing Starts: Oct @ 576K (Left Axis)

Multifamily Housing Starts: Oct @ 260K (Right Axis)

0

40

80

120

160

200

0

100

200

300

400

500

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

Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

5+ Units: Oct @ 249.7 (Left Axis)

2-4 Units: Oct @ 10.3 (Right Axis)

Economic Outlook 14

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Conventional 30-Year Mortgage RatePercent, FHLMC Fixed-Rate Mortgage

Conventional 30-Year Fixed Mortg. Rate: Oct @ 3.4%

U.S. Mortgage Rates

Mortgage rates are at historic lows and are likely

to remain low for some time.

Source: FHLMC and Wells Fargo Securities, LLC

Economic Outlook 15

-32%

-24%

-16%

-8%

0%

8%

16%

24%

-32%

-24%

-16%

-8%

0%

8%

16%

24%

96 98 00 02 04 06 08 10 12

Home PricesYear-over-Year Percentage Change

Median Sale Price: Oct @ $178,700Median Sales Price 3-M Mov. Avg.: Oct @ 9.1%FHFA (OFHEO) Purchase Only Index: Aug @ 4.7%S&P Case-Shiller Composite 10: Sep @ 2.1%

Home Prices

Home prices have firmed recently as foreclosures have become a smaller portion of overall sales.

Prices will likely fluctuate along a low trajectory until

more foreclosures clear through the pipeline.

Source: Federal Housing Finance Agency, National Association of Realtors, S&P Corp. and Wells Fargo Securities, LLC

Economic Outlook 16

0

10

20

30

40

50

60

70

80

90

0

10

20

30

40

50

60

70

80

90

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

NAHB/Wells Fargo Housing Market IndexDiffusion Index

NAHB Housing Market Index: Nov @ 46.0

NAHB/Wells Fargo Housing Market Index

Homebuilder sentiment has risen significantly over the past year, but it is still at a

relatively low level.

Source: National Association of Home Builders and Wells Fargo Securities, LLC

Economic Outlook 17

International Forecast

The European financial crisis is dragging global

economic growth lower, but we believe growth should

pick up by 2014.

Source: Congressional International Monetary Fund and Wells Fargo Securities, LLC

-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%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Real Global GDP Growth (Wells Fargo)Year-over-Year Percent Change, PPP Weights

Period Average

Virginia

Economic Outlook 19

95%

96%

97%

98%

99%

100%

101%

95%

96%

97%

98%

99%

100%

101%

69 73 77 81 85 89 93 97 01 05 09

Virginia Employment: Percent of Previous PeakPercent

Percent of Previous Peak: Oct @ 98.7%

Virginia Employment Picture

Virginia’s labor market has seen a relatively strong

recovery. Nonfarm payrolls are less than 1.5 percent below their prerecession

peak.


Economic Outlook 20

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

Information

Construction

Financial Activities

Other Services

Manufacturing

Leisure and Hospitality

Educ. & Health Svcs.

Trade, Trans. & Utilities

Prof. & Bus. Svcs.

Government

Total Nonfarm

Virginia Employment Growth by IndustryYear-over-Year Percent Change of 3-M Moving Average

Number of Employees

Less

More

October

Virginia Employment Picture

Education & health services, leisure &

hospitality and financial activities have led job

growth over the past year.


Economic Outlook 21

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0%

1%

2%

3%

4%

5%

6%

7%

8%

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

Virginia Unemployment Rate & Labor ForcePercent, Thousands of Workers, Seasonally Adjusted

Total Unemployed: Oct @ 249.6 (Right Axis)

Total Employed: Oct @ 4,097.6 (Right Axis)

Unemployment Rate: Oct @ 5.7% (Left Axis)

Virginia Unemployment Rate

The unemployment rate in Virginia has declined

modestly over the past two years and remains well

below the U.S. rate.


Economic Outlook 22

Metro-Level Employment

Virginia Beach

CharlottesvilleRoanoke

Washington D.C.

RichmondLynchburg

-2.0%

-1.0%

0.0%

1.0%

2.0%

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0%

3-M

onth

Movin

g A

vera

ge P

erc

ent

Change

Year-over-Year Percent Change

Virginia Employment Growth: October 2011Year-over-Year Percent Change, 3-Month Moving Average

Over 5,000,000

1,000,000-5,000,000

200,000-1,000,000

Under 200,000

Recovering Expanding

Contracting Decelerating


Economic Outlook 23

Metro-Level Employment

Virginia BeachCharlottesville

Roanoke

Washington D.C.

Richmond

Lynchburg

-2.0%

-1.0%

0.0%

1.0%

2.0%

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0%

3-M

onth

Movin

g A

vera

ge P

erc

ent

Change

Year-over-Year Percent Change

Virginia Employment Growth: October 2012Year-over-Year Percent Change, 3-Month Moving Average

Over 5,000,000

1,000,000-5,000,000

200,000-1,000,000

Under 200,000

Recovering Expanding

Contracting Decelerating


Economic Outlook 24

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Virginia Personal IncomeBars = Compound Annual Rate Line = Yr/Yr % Change

Annualized Rate: Q2 @ 4.3%

Year-over-Year: Q2 @ 3.4%

Personal Income

Personal income growth has picked back up in recent

quarters.


Economic Outlook 25

0

25

50

75

100

125

0

25

50

75

100

125

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

Virginia Population GrowthIn Thousands

Average 1980-2011: 87.1

Population Growth

Population growth in Virginia is maintaining its

historic pace.


Economic Outlook 26

China Economic Slowdown

Fiscal CliffUncertainty

Credit Availability & Financial Reform

European Debt Crisis

Deleveraging

Fiscal & Monetary Policy

GeopoliticalTensions

Energy/Commodity Price Swings

Issues to Watch

Economic Outlook 27

Our Forecast

Wells Fargo U.S. Economic Forecast

2010 2011 2012 2013

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

Real Gross Domestic Product 1 2.0 1.3 2.0 1.4 1.0 2.1 2.2 2.2 2.4 1.8 2.1 1.6

Personal Consumption 2.4 1.5 2.0 2.4 0.6 1.2 1.4 1.3 1.8 2.5 1.9 1.4

Inflation Indicators 2

PCE Deflator 2.4 1.6 1.5 1.8 1.5 1.7 1.6 1.5 1.9 2.4 1.8 1.6

Consumer Price Index 2.8 1.9 1.7 2.3 2.2 2.7 2.7 2.3 1.6 3.1 2.2 2.5

Industrial Production 1 5.9 2.6 - 0.4 0.5 0.7 3.5 4.1 4.1 5.4 4.1 3.6 1.8

Corporate Profits Before Taxes 2 10.3 6.7 5.7 5.3 4.8 5.2 5.7 6.3 26.8 7.3 6.9 5.5

Trade Weighted Dollar Index 3 72.7 74.5 72.7 73.0 74.0 75.0 76.0 77.0 75.4 70.9 73.2 75.5

Unemployment Rate 8.3 8.2 8.1 7.8 7.7 7.8 7.9 7.9 9.6 9.0 8.1 7.8

Housing Starts 4 0.71 0.74 0.79 0.84 0.90 0.96 1.02 1.08 0.59 0.61 0.77 0.99

Quarter- End Interest Rates 5

Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25Conventional Mortgage Rate 3.95 3.68 3.50 3.40 3.40 3.40 3.45 3.50 4.69 4.46 3.63 3.4410 Year Note 2.23 1.67 1.65 1.70 1.70 1.80 1.85 1.90 3.22 2.78 1.81 1.81

Forecast as of: November 8, 20121 Compound Annual Growth Rate Quarter-over-Quarter2 Year-over-Year Percentage Change3 Federal Reserve Major Currency I ndex, 1973=100 - Quarter End4 Millions of Units5 Annual Numbers Represent Averages

Actual Forecast

2013

Actual

2012

Forecast

Appendix

Economic Outlook 29

Recent Special Commentary

Wells Fargo Economics Group Publications

To view any of our past research please visit:

http://www.wellsfargo.com/economics

To join any of our research distribution lists please

visit:http://www.wellsfargo.com/

economicsemail

Date Title Authors

November- 19 The Economic Impact of the Fiscal Cliff: An Update Silvia, Brown & SwankoskiNovember- 16 California's Economic Recovery Rolled On In October VitnerNovember- 13 Income Tax Analysis: Who Pays? Silvia & BrownNovember- 09 Global Chartbook: November 2012 Bryson, Aleman & QuinlanNovember- 07 The Fiscal Cliff Debate In A Post- Election World Silvia & BrownNovember- 01 North Carolina Economic Outlook Vitner, Brown & Watt

October- 29 Housing Data Wrap- Up: October 2012 Vitner & KhanOctober- 24 2012 Holiday Sales Outlook Aleman, Iqubal & BrownOctober- 18 U.S. Fiscal Primer II I: Federal Revenues Silvia, Bryson & BrownOctober- 18 Retirement in America: Extending the Finish Line Bryson, Iqbal & WattOctober- 12 The Great Unemplyoment Rate Debate Silvia, Watt & SwankoskiOctober- 08 The Unemployment Rate: Seasonality and Sampling Silvia, Iqbal & WattOctober- 02 Housing Chartbook: September 2012 Vitner, Khan & Silverman

September- 25 Local Budgets Under Pressure: A Fiscal Outlook Silvia & BrownSeptember- 17 Global Chartbook: September 2012 Bryson, Aleman & QuinlanSeptember- 10 U.S. Fiscal Primer II: Federal Government Spending Silvia, Bryson & BrownSeptember- 06 Commercial Real Estate Chartbook: Quarter 2 Vitner & KhanSeptember- 05 Brazilian Economy Slows Down; Better Times Ahead Aleman

August- 22 Mexico: Thanks to Auto Demand AlemanAugust- 15 California's Economy: Gaining Momentum Vitner & WattAugust- 14 Real GDP in Eurozone Slumped in Q2 BrysonAugust- 09 Rocky Mountain Summit: J uly 2012 SilviaAugust- 06 Orders and Production: No Time for Complacency Silvia, Quinlan & WattAugust- 01 U.S. Fiscal Primer I: The Deficit and Debt Silvia, Bryson & Brown

J uly- 19 U.S. States Grapple with Europe's Woes Vitner & BrownJ uly- 13 The Lowdown on Consumer Spending Vitner & QuinlanJ uly- 11 Employment: Beyond the Sound Bites—Reading the Signals IX Silvia & WattJ uly- 10 Employment: Beyond the Sound Bites—Reading the Signals VIII Silvia & WattJ uly- 09 Employment: Beyond the Sound Bites—Reading the Signals VII Silvia & WattJ uly- 05 Housing Data Wrap- Up: J une 2012 Vitner & KhanJ uly- 02 Do Too Many Dollars Make Us an Inflation Nation? Bullard & Quinlan

J une- 29 2012 State Budget Outlook Silvia & BrownJ une- 22 Student Loans: The Best of Intentions Silvia, Seydl & WattJ une- 20 FOMC: Keep On Twisting Until Europe's Fever Breaks VitnerJ une- 20 The Fiscal Cliff: Likelihood and Economic Impact Silvia, Brown & WattJ une- 20 Credit Quality Monitor: J une 2012 Anderson & KashmarkekJ une- 19 The Fed: Same Goal, Different Method Silvia & Khan

A Sampling of Our Recent Special, Regional & Industry Commentary

Economic Outlook

Wells Fargo Securities, LLC Economics Group

30

John Silvia … ...................... . … [email protected]

Global Head of Research and Economics

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

Chief Economist

Mark Vitner, Senior Economist……………....………. . .

[email protected]

Jay Bryson, Global Economist

…………………....………[email protected]

Eugenio Aleman, Senior Economist

……………[email protected]

Sam Bullard, Senior Economist

…………………………[email protected]

Anika Khan, Senior Economist .… . [email protected]

Senior EconomistsSarah Watt, Economic Analyst

…………………………… [email protected]

Kaylyn Swankoski, Economic Analyst [email protected]

Zachary Griffiths, Economic Analyst [email protected]

Sara Silverman, Economic Analyst [email protected]

Economists

Azhar Iqbal, Econometrician………………………………[email protected]

Tim Quinlan, Economist …………………………………[email protected]

Michael A. Brown, 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, and Wells Fargo Securities International Limited. 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.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Important Information for Non-U.S. Recipients

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 Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not 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.

Peg Gavin, Executive Assistant.

[email protected]

Cyndi Flowe, Administrative Assistant [email protected]

Documents

U.S. Economic Outlook Mark Vitner, Managing Director & Senior Economist November 29, 2012