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U.S. Economic Outlook

Mark Vitner, Managing Director & Senior Economist

November 16, 2017

Economic Outlook 2

Optimism About Policy Changes Meets the Reality of Policy Making

Economic Outlook

Fiscal Policy

Tax cuts and infrastructure spending will take longer to be enacted and will likely be smaller than had been initially hoped for. Changes are still likely, however, and the markets may be underestimating the odds of passage.

Monetary Policy

The Fed is expected to hike rates one more time in 2017. Monetary policy is focusing on normalizing interest rates and offsetting typical late cyclical imbalances. The post-financial crisis period appears to be ending.

Soft Data Strength

The persistent strength in the ‘soft data’ reflects improving job prospects, some lightening of regulations and greater breadth in the manufacturing recovery.

Virginia

Virginia’s economy has been negatively impacted by sequestration. Richmond and most college-driven markets have tended to hold up relatively well. Economic conditions are improving in some rural areas.

After getting off to a slow start, real GDP growth is likely to grow at a 2.5 percent pace or better over the next few quarters. Consumer spending, homebuilding and business fixed investment should all strengthen.

Economic Outlook 3 3

Economic Growth

Real GDP growth rebounded broadly in the second quarter, with a big boost from capex. Growth-oriented fiscal policies would boost long-term growth but have little near-term impact.

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

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 2018

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

GDP - CAGR: Q2 @ 3.1%

GDP - Yr/Yr Percent Change: Q2 @ 2.2%

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 2018

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

Real Priv Fin Sales to Dom. Purch. - CAGR: Q2 @ 3.2%

Real Priv Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q2 @ 2.9%

Forecast

3


Employment Situation: Labor Market Tightening

Hurricane Harvey and Hurricane Irma disrupted the employment data but appear to have had little lasting impact on the overall labor market. Hiring is improving across a broadening

assortment of industries and the unemployment rate continues to trend lower.

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 17

Nonfarm Employment ChangeChange in Employment, In Thousands

Monthly Change: Oct @ 261K

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: Oct @ 4.1%

Hourly Earnings - Yr/Yr % Change: Oct @ 2.3%

4

Economic Outlook 5

0%

1%

2%

3%

4%

5%

54%

56%

58%

60%

62%

64%

66%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Employment-Population Ratio vs. Hourly EarningsRatio and Year-over-Year Percent Change

Employment-Population Ratio: Oct @ 60.2%(Left Axis)

Hourly Earnings: Oct @ 2.4% (Right Axis)

Employment Population Ratio vs. Hourly Earnings

The employment-population ratio has been rebounding in

recent years, as the recovery has broadened and brought more workers and jobseekers back

into the labor market.

The existence of so many workers just outside the

traditional labor force has been one of the factors depressing

wage and salary growth.



Small Business Optimism

Small business optimism spiked following the presidential election. While hopes for tax relief were a big driver behind the initial spike, business owners have become much less worried

about the regulatory environment. Sales and earnings trends also look more positive.

Source: National Federation of Independent Business (NFIB) and Wells Fargo Securities

Small Business Concerns Small Business Optimism

80

85

90

95

100

105

110

80

85

90

95

100

105

110

88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

NFIB Small Business OptimismOverall Index 1986 = 100

Small Business Optimism: Sep @ 103.0

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Small Business Most Important ProblemsSingle Most Important Problem Facing Firms, SA 3-MMA

Taxes: Sep @ 20.7%

Regulations: Sep @ 16.0%

6

Economic Outlook 7

0

50

100

150

200

250

300

350

400

0

50

100

150

200

250

300

350

400

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

Major New Regulatory Changes By the OIRA, President's First Five Months of the Year

Clinton ObamaBush Trump

Major Regulatory Changes

The number of new regulations put in place in the first five

months of the Trump administration is the lowest

among the last four administrations

Source: Office of Information and Regulatory Affairs and Wells Fargo Securities

Economic Outlook 8

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

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

ISM Manufacturing Composite IndexDiffusion Index

ISM Manufacturing Index: Oct @ 58.7

12-Month Moving Average: Oct @ 56.8

ISM

The ISM Manufacturing index has risen sharply in 2017.

Most forward-looking

components have accelerated, such as new orders and the

orders backlog, indicating that the improvement in

manufacturing activity should be long lasting.

September’s spike is a bit of an

anomaly, however, driven primarily by supply shortages related to Hurricane Harvey.

Source: ISM and Wells Fargo Securities

Economic Outlook 9

Inflation

After making steady progress toward the Fed’s 2 percent

inflation objective, most broad inflation measures have

remained below 2 percent since the last recession ended.

The recent moderation in core

inflation is unnerving some members of the FOMC,

suggesting the Fed may be even more cautious about raising

short-term rates.

We believe there are a mix of structural and cyclical forces restraining inflation that may

prove to be long lasting.

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

-2%

-1%

0%

1%

2%

3%

4%

5%

-2%

-1%

0%

1%

2%

3%

4%

5%

92 94 96 98 00 02 04 06 08 10 12 14 16 18

PCE Deflator vs. Core PCE DeflatorYear-over-Year Percent Change

PCE Deflator: Sep @ 1.6%

"Core" PCE Deflator: Sep @ 1.3%

FOMC's 2.0% Inflation Target

Economic Outlook 10

Interest Rates

While the era of ultra-low interest rates has ended, the

FOMC plans to be judicious in normalizing monetary policy,

utilizing a mix of language and policy actions.

The pace and magnitude of

interest rate increases are two important variables to watch.

With the post-Financial Crisis

period ending, the next Fed chair and Fed board will

determine what the new normal for interest rates and the inflation-unemployment

relationship will be.

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

September 2017 Median Response

June 2017 Median Response

December 2016 Median Response

December 2015 Median Response

Futures Market: October 23

2017 Longer Run2018 2019

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

Economic Outlook 11

200

600

1,000

1,400

1,800

2,200

2,600

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Federal Reserve Balance Sheet vs. S&P 500 Index Trillions, Index

Agencies & MBS: Oct @ $1,774.9B (Left Axis)Treasuries: Oct @ $2,465.4B (Left Axis)Other Securities: Oct @ $179.8B (Left Axis)S&P 500 Index: Oct @ 2,549.2 (Right Axis)

Fed Balance Sheet

Unwinding the balance sheet will have consequences.

While correlation is certainly

not the same thing as causation, the stock market has largely run up in line with the expansion of

the Fed’s balance sheet.

Source: Federal Reserve Board and Wells Fargo Securities

Economic Outlook 12

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

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

Consumer Confidence IndexConference Board

Confidence: Oct @ 125.9

12-Month Moving Average: Oct @ 118.0

Consumer Confidence

Consumer confidence is at post-recession highs on a 12-month

moving average basis.

The recent acceleration in consumer confidence has largely been driven by a growing share of consumers expressing more optimism about employment

and income prospects

Source: Conference Board and Wells Fargo Securities

Economic Outlook 13

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

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

Household Wealth vs. GDPIn Trillions of Dollars

Total Household Assets: Q2 @ $111.4T

Nominal GDP: Q2 @ $19.3T

Household Wealth

Household wealth is at an all time high. Higher income

households have benefitted the most from the extraordinary

gains in wealth, which is reflected in consumption.

Source: Federal Reserve Bank of New York and Wells Fargo Securities

Economic Outlook 14

-5%

0%

5%

10%

15%

20%

25%

30%

-5%

0%

5%

10%

15%

20%

25%

30%

Lowest

Quintile

Second

Quintile

Middle

Quintile

Fourth

Quintile

Highest

Quintile

Income Growth During Economic RecoveriesPercent Change 7 Years After Recession End, Before-Tax Income

Avg of Prior 2 Recoveries

2009-2016

Personal Income Gains: Disparity

Income growth has been slower for all income cohorts during

this expansion. Gains have been strongest at the upper and lower ends, reflecting rising wealth, an aging population and expanded

public assistance programs during the Great Recession.


Economic Outlook 15

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 20

Thousands

Housing StartsMillions of Units

Multifamily Starts

Multifamily Forecast

Single-Family Starts

Single-Family Forecast

Forecast

Single-Family Starts Are Gaining Momentum, as Apartments Begin to Moderate

After a very slow start, we see single-family homebuilding steadily gaining momentum

over the next few years.

Apartment construction is topping out but should remain near recent levels, as activity

shifts to lower areas passed over during the recent boom and lower cost suburban areas.


Economic Outlook 16

Home Sales Should Continue to Improve

Supply constraints and impact of hurricanes held back August sales a bit, and will continue to

do so through the rest of the year.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

04 05 06 07 08 09 10 11 12 13 14 15 16 17

Existing & New Single-Family Home SalesBoth Series In Millions of Units, Seasonally Adjusted Annual Rate

New Home Sales: Sep @ 0.7 Million (Left Axis)

SF Existing Home Sales: Sep @ 4.8 Million (Right Axis)

Source: National Association of Realtors, U.S. Department of Commerce and Wells Fargo Securities


Home Prices

National home prices have just recently made full recovery following the crash, primarily led by huge gains in Western, tech centric markets.

Source: S&P Case-Shiller, CoreLogic and Wells Fargo Securities

Regional Home Prices

100

120

140

160

180

200

220

240

100

120

140

160

180

200

220

240

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

S&P CoreLogic CS Home Price IndexIndex, January 2000=100

National HPI: Aug @ 195.1

Composite-20 City: Aug @ 202.9

Composite-10 City: Aug @ 216.5

-80% -60% -40% -20% 0% 20% 40% 60%

Denver

Dallas

Seattle

Portland

Boston

San Francisco

Charlotte

Atlanta

San Diego

Los Angeles

Minneapolis

Cleveland

Detroit

New York City

Washington, D.C.

Chicago

Tampa

Miami

Phoenix

Las Vegas

S&P CoreLogic Case-Shiller Home PricesPercent Change from Previous Peak, NSA

Change from Previous Peak

Drop from previous peak

August 2017

17

Economic Outlook 18

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Wells Fargo Rates ForecastThrough 2019

Q4 2019

Q4 2018

Q4 2017

Yield Curve

We project a flattening yield curve as we move towards 2019,

with the expectation of the FOMC continuing to raise short-term rates as capital flows keep

down the long end.


Wells Fargo Economics 19

0

500

1,000

1,500

2,000

2,500

3,000

$0B

$5,000B

$10,000B

$15,000B

$20,000B

$25,000B

$30,000B

2009 2010 2011 2012 2013 2014 2015 2016 2017

Central Bank Asset Holdings vs. S&P 500USD

ECB: Q3 @ $5,071.8 (Left Axis)Chinese Central Bank: Q3 @ $5,263.3BBank of Japan: Q3 @ $4,513.4B (Left Axis)Bank of England: Q3 @ $573.3B (Left Axis)Federal Reserve: Q3 @ $4455.7B (Left Axis)S&P 500: Q3 @ $2,467 (Right Axis)

Global Central Banks

As the global economy expands at a healthy pace, central banks around the world have begun to

shrink their balance sheets.

Source: Bloomberg LP and Wells Fargo Securities

Wells Fargo Economics 20

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

05 06 07 08 09 10 11 12 13 14 15 16 17

10-Year Government Bond YieldsPercent

Japan: Oct-19 @ 0.1%

United States: Oct-19 @ 2.3%

United Kingdom: Oct-19 @ 1.3%

China: Oct 19 @ 3.7%

Global Central Banks

Global yields remain low from a historical perspective. With all

45 of the economies that the OECD regularly tracks expected to grow over the next year, there

is some risk that interest rates will surprise us to the upside.

Source: Bloomberg LP and Wells Fargo Securities

Regional Commentary

Economic Outlook 22

Jacksonville

Orlando

Virginia Beach

Savannah

Charleston

Miami

Charlotte

Nashville

Atlanta

New York City

Richmond

Raleigh

Boston

Washington

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

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

3-M

onth

Annualized P

erc

ent

Change

Year-over-Year Percent Change

Eastern Seaboard Employment Growth3-Month Moving Averages, September 2017

Population

2.5 Million +

1 - 2.5 Million

Less than 1 Million

Recovering

Contracting

Recovering Expanding

Contracting Decelerating

Eastern Employment by MSA

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

Wells Fargo Economics

U.S. = 1.9%

1.6% - 2.5%

1.0% - 1.5 %

More than 2.5%

Less than 0.0%

Year-over-Year Percent Change in Real GDP by State (1Q 2017)

WA

2.0

OR

1.8

CA

3.1

NV

3.7

AZ

3.0

UT

3.0 CO

2.4

NM

1.2

MT

0.0

ID

3.2

WY

-3.7

KS

0.6

NE

1.0

SD

1.9

ND

-0.1

MO

1.3

IA

0.8

MN

2.5

MI

2.9

IL

0.2

IN

1.9

OH 3.0

WI

2.1

PA

3.0

NY

-0.6

ME

0.9

VT

1.0

NH

2.1

MA

2.0

RI

3.1

NJ

1.3

CT

1.1

AK -1.8

HI

0.9 TX

2.2

OK

-0.2

KY

4.2

AR

0.3

LA

0.2

TN

2.2

MS

0.0

AL

1.7

GA

1.5

NC 2.0

SC 1.9

VA 1.4

WV 1.2

DE

2.3

MD

2.6

DC

1.3

0.0% - 0.9 %

Wells Fargo Economics 24 24

GDP

Economic growth has been concentrated in tech-driven metro areas.


Largest Contributions Fastest Growing

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

San Jose, CA

San Francisco, CA

Raleigh, NC

Austin, TX

Seattle, WA

Tampa, FL

Sacramento, CA

Las Vegas, NV

Atlanta, GA

Charlotte, NC

Nashville, TN

Jacksonville, FL

San Antonio, TX

Salt Lake City, UT

Dallas-Fort Worth, TX

Metro Area GDP Growth: Top 15Year-over-Year Percent Change in Real GDP, 2016

0% 1% 2% 3% 4% 5% 6% 7% 8%

Washington, DC

Phoenix

Charlotte

Nashville

Detroit

San Antonio

Denver

Philadelphia

Austin

Miami

Boston

Chicago

Atlanta

Seattle

Houston

San Jose

San Francisco

New York

Dallas

Los Angeles

Contribution to U.S. Real GDP Growth by MSATop 20 Metro Areas, Contribution to Growth From 2010 to 2016

25 25

Virginia Employment

Virginia has seen job growth improve in 2017 after ending 2016 on a lackluster note. Professional & business services as well as education & health services have experienced the

strongest gains by industry. The large drop in information jobs is due to fewer federal contracts.


Employment by Industry Nonfarm Employment

-6%

-4%

-2%

0%

2%

4%

6%

-6%

-4%

-2%

0%

2%

4%

6%

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

Virginia Nonfarm Employment3-Month Moving Averages

3-Month Annual Rate: Sep @ 1.8%Nonfarm: Yr/Yr Pct. Change: Sep @ 1.3%Household: Yr/Yr Pct. Change: Sep @ 2.6%

September

2017

-8% -6% -4% -2% 0% 2% 4%

Information

Construction

Other Services

Financial Activities

Manufacturing

Leisure and Hospitality

Educ. & Health Services

Trade, Trans. & Utilities

Prof. & Bus. Svcs.

Government

Total Nonfarm

Virginia Employment Growth By IndustryYear-over-Year Percent Change, 3-MMA

Number of

Employees

Less

More

25

Virginia Employment Growth by MSA

Virginia Beach

Charlottesville

Blacksburg

Lynchburg

Washington D.C.

Richmond

Roanoke Harrisonburg

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

3-M

onth

Annualized P

erc

ent Change

Year-over-Year Percent Change

Virginia Employment Growth: September 2017Year-over-Year Percent Change, 3-Month Moving Average

Population Size

Less than 500,000

500,000-2,000,000

More than 2,000,000

Recovering Expanding

Contracting Decelerating


27 27

Virginia Housing Market

Home prices in Virginia remain above the national average, largely propped up by the expensive Northern Virginia/Washington D.C. area. Single-family permits have been slow to

recover but are appear to be reviving. Apartment construction has pulled back.

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

Home Prices Housing Permits

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

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

Thousands

Thousands

Virginia Housing PermitsThousands of Permits, Seasonally Adjusted Annual Rate

Single-Family: Sep @ 22,440

Single-Family, 12-MMA: Sep @ 22,827

Multifamily, 12-MMA: Sep @ 7,097

Single-Family Average (1998-2003): 42,406

60

80

100

120

140

160

180

200

220

240

260

60

80

100

120

140

160

180

200

220

240

260

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

CoreLogic HPI: VA vs. U.S.Index, 2000=100, Not Seasonally Adjusted

United States: Aug @ 193.8

Virginia: Aug @ 212.8

27

28

Virginia Population Growth

Though historically a state that has grown faster than the U.S., Virginia has seen population growth slow relative to the

nation and has now posted three years of slower than average

population growth.

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Population GrowthYear-over-Year Percent Change

Virginia: 2016 @ 0.5%

United States: 2016 @ 0.7%

Source: Census Bureau and Wells Fargo Securities

Economic Outlook 29

U.S. Economic Forecast

Wells Fargo U.S. Economic Forecastq 3 2 01 7

2017

2015 2016 2017 2018 2019

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

Real Gross Domestic Product 1 1.2 3.1 2.1 2.5 2.3 2.5 2.6 2.6 2.4 2.6 2.5 2.7 2.9 1.5 2.1 2.4 2.5

Personal Consumption 1.9 3.3 2.0 2.5 2.5 2.6 2.6 2.6 2.3 2.5 2.4 2.4 3.6 2.7 2.6 2.5 2.5

Business Fixed Investment 7.1 6.7 5.2 6.2 4.8 4.1 4.0 3.7 3.6 3.5 3.5 3.6 2.3 -0.6 4.7 4.9 3.7

Equipment 4.4 8.8 6.9 8.7 5.4 4.3 4.2 3.7 3.7 3.3 3.5 3.7 3.5 -3.4 4.1 5.9 3.7

Intellectual Property Products 5.8 3.7 4.5 5.0 5.2 4.8 4.7 4.5 4.6 4.6 4.6 4.6 3.8 6.3 4.1 4.8 4.6

Structures 14.8 7.0 3.0 2.5 3.0 2.4 2.4 2.2 2.0 1.9 1.9 1.9 -1.8 -4.1 6.7 2.9 2.1

Residential Construction 11.1 -7.3 -6.0 -2.0 5.0 8.0 7.5 7.0 5.0 4.5 4.5 4.0 10.2 5.5 0.7 2.4 5.6

Government Purchases -0.6 -0.2 -0.8 0.4 0.2 0.8 0.8 0.8 0.7 0.7 0.7 0.7 1.4 0.8 -0.2 0.3 0.7

Net Exports 2 0.2 0.2 0.1 -0.3 -0.2 -0.2 -0.1 0.0 0.1 0.1 0.2 0.2 -0.7 -0.2 -0.2 -0.2 0.0

Inventories 2 -1.5 0.1 0.8 0.2 0.0 0.0 0.0 -0.1 0.0 0.0 -0.1 0.0 0.2 -0.4 -0.1 0.1 0.0

Nonfarm Payroll Change 3 166 187 91 175 170 160 160 155 150 150 145 145 226 187 155 161 148

Unemployment Rate 4.7 4.4 4.3 4.3 4.2 4.1 4.0 4.0 3.9 3.8 3.9 3.8 5.3 4.9 4.4 4.1 3.9

Consumer Price Index 4 2.6 1.9 2.0 1.9 1.6 2.2 2.3 1.9 2.0 2.1 2.2 2.2 0.1 1.3 2.1 2.0 2.1

Quarter-End Interest Rates 5

Federal Funds Target Rate 1.00 1.25 1.25 1.50 1.50 1.75 1.75 2.00 2.00 2.25 2.25 2.50 0.27 0.52 1.25 1.75 2.25

Conventional Mortgage Rate 4.20 3.90 3.81 3.89 3.95 4.02 4.05 4.10 4.12 4.16 4.17 4.24 3.85 3.65 3.95 4.03 4.17

2 Year Note 1.27 1.38 1.47 1.72 1.83 1.93 2.00 2.15 2.23 2.33 2.38 2.50 0.69 0.83 1.46 1.98 2.36

10 Year Note 2.40 2.31 2.33 2.49 2.57 2.66 2.71 2.78 2.82 2.88 2.91 3.00 2.14 1.84 2.38 2.68 2.90

Forecast as of: October 11, 20171 Compound Annual Growth Rate Quarter-over-Quarter 2 Percentage Point Contribution to GDP 3 Average Monthly Change4 Year-over-Year Percentage Change 5 Annual Numbers Represent Averages

ForecastActual

2017 2018 2019

ForecastActual

Source: IHS Global Insight and Wells Fargo Securities

Appendix

Economic Outlook 31

Economic Outlook Group Publications

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A Sampling of Our Recent Special, Regional & Industry Commentary

Date Title Authors

U.S. MacroOctober-24 525,600 Metrics: How Do You Measure a Year in Income Growth House, Pugliese & Vaisey

October-23 Capitol Hill Update: Estimating the Debt Ceiling "X Date" Brown, Pugliese & Seery

October-17 Should We Worry About Slow Growth in Capacity Utilization? Silvia, Quinlan & Kinnaman

October-11 Q4 Treasury Issuance Outlook Brown & Pugliese

October-03 Labor Force Participation for Men and Women Diverge Again House & Vaisey

U.S. RegionalOctober-20 Irma Hit Florida Nonfarm Employment in September Vitner, Feik & Carmichael

October-20 California Employment Conditions: September 2017 Vitner, Feik & Carmichael

October-20 Texas Payrolls 'Only' Declined by 7.300 Jobs in September Vitner, Feik & Carmichael

October-20 Employment Rises Modestly in North Carolina Vitner, Feik & Carmichael

October-19 New Jersey National Payroll Slip in September Vitner, Feik & Carmichael

Global EconomyOctober-26 Argentina Moves Forward Alemán

October-25 GDP Growth in the United Kingdom Moves Sideways in Q3 Bryson & Pugliese

October-20 Which Way Will the Global Economy Go in 2018? Bryson

October-19 Economic Growth in China Remains Largely Unchanged in Q3 Bryson & Pugliese

October-13 Singapore GDP Accelerates in Q3 Bryson & Pugliese

Interest Rates/Credit Market

October-25 Is Consumer Credit a Concern with Rates on the Rise? Silvia & Pershing

October-11 Interest Rates, Treasury Finance and the Dollar Crossroads Silvia & Pugliese

October-04 Capital Flows, Interest Rates and Asset Prices Silvia & Pugliese

October-03 Is There an "Invisible Hand" Behind the 2 Percent Inflation Target Rate? Silvia, Iqbal & Pershing

September-20 Profits: Overlooked Contribution to Growth and Lower Rates Silvia

Real EstateOctober-10 Housing Chartbook: October 2017 Vitner & Carmichael

September-12 A Primer on the NAHB Index Vitner & Carmichael

August-31 Growing the Gridiron: The Stadium Boom Khan, Carmichael & Vaisey

August-28 Hotel Revenues: How Much Room to Run? Khan & Vaisey

August-14 CRE Deal Volume Shows Late-Cycle Behavior: Q2 Chartbook Khan, Carmichael & Vaisey

Recent Special Commentary

Economic Outlook

Wells Fargo Securities Economics Group

32

John E. Silvia [email protected]

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

Global Head of Research, Economics & Strategy

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]

Eugenio J. Alemán, Senior Economist [email protected]

Azhar Iqbal, Econometrician [email protected]

Tim Quinlan, Senior Economist [email protected]

Eric J. Viloria, Currency Strategist [email protected]

Senior Economists

Economists

Sarah House, Economist [email protected]

Michael A. Brown, Economist [email protected]

Jamie Feik, Economist [email protected]

Erik Nelson, Currency Strategist [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 Clearing Services, 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 © 2017 Wells Fargo Securities, LLC.

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 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.

Donna LaFleur, Executive Assistant [email protected]

Dawne Howes, Administrative Assistant [email protected]

Michael Pugliese, Economic Analyst [email protected]

E. Harry Pershing, Economic Analyst [email protected]

Hank Carmichael, Economic Analyst [email protected]

Ariana Vaisey, Economic Analyst [email protected]

Abigail Kinnaman, Economic Analyst [email protected]

Shannon Seery, Economic Analyst [email protected]

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