Wells_Fargo_CCS_Nov_2011 by fanzhongqing

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									Economic Outlook for 2012 and Beyond
Michael A. Brown, Economist
November 18, 2011
Overview




                            Businesses




         Consumers            Growth     Inflation




                            Employment


California Capital Summit       2
Where Are We Now?




                                                                                   Real GDP
                                                                Bars = CAGR          Line = Yr/Yr Percent Change
                                     10.0%                                                                                    10.0%
                                                                             GDPR - CAGR: Q3 @ 2.5%
                                       8.0%                                  GDPR - Yr/Yr Percent Change: Q3 @ 1.6%           8.0%

                                       6.0%                                                                                   6.0%

                                       4.0%                                                                                   4.0%
       We are two years into the                                                                                   Forecast

   economic recovery and there is      2.0%                                                                                   2.0%

    still a considerable amount of     0.0%                                                                                   0.0%
   uncertainty regarding sovereign
                                     -2.0%                                                                                    -2.0%
      debt issues in Europe, the
    federal budget deficit and the   -4.0%                                                                                    -4.0%

           U.S. housing sector       -6.0%                                                                                    -6.0%

                                     -8.0%                                                                                    -8.0%

                                     -10.0%                                                                                   -10.0%
                                           2000           2002         2004         2006         2008      2010    2012




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




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Capital Spending




                                                            Real Business Fixed Investment
                                                                 Bars = CAGR          Line = Yr/Yr Percent Change
                                      30.0%                                                                                    30.0%


                                      20.0%                                                                         Forecast   20.0%


                                      10.0%                                                                                    10.0%


                                       0.0%                                                                                    0.0%

       Growth in business fixed
                                      -10.0%                                                                                   -10.0%
    investment spending will likely
    remain solid through the end of   -20.0%                                                                                   -20.0%
               the year
                                      -30.0%                                                                                   -30.0%


                                      -40.0%                                                                                   -40.0%
                                                           Non-Res Fixed Invest - CAGR: Q3 @ 16.3%
                                                           Non-Res Fixed Invest - Yr/Yr Percent Change: Q3 @ 9.2%
                                      -50.0%                                                                                   -50.0%
                                            2000           2002         2004         2006        2008       2010    2012




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




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Housing Market




                                                                              Housing Starts
                                                                                    Millions of Units
                                      2.4                                                                              2.4


                                      2.1                                                                              2.1


                                      1.8                                                                              1.8


                                      1.5                                                                   Forecast   1.5

     Housing starts have bottomed     1.2                                                                              1.2
    and should begin to slowly pick
      up over the next few years      0.9                                                                              0.9


                                      0.6                                                                              0.6


                                      0.3                                                                              0.3


                                      0.0                                                                              0.0
                                            80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14




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




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Housing Market



       Delinquencies have begun to rise again, while inventories have come down somewhat from
                              their all-time peaks but remain elevated


                                 Delinquencies                                                                                        Inventory


                   Mortgages 90+ Days Delinquent - By State                                                        Inventory of Existing Homes for Sale
                                  Percent of Mortgages Outstanding
                                                                                                                    Existing Homes for Sale at End of Month, In Thousands
                                                                                                       5,000                                                                       5,000
      Michigan                                        5.5%

                                                                                                       4,500                                                                       4,500
       Georgia                                         5.5%

                                                                                                       4,000                                                                       4,000
       Arizona                                           5.9%

                                                                                                       3,500                                                                       3,500
        Florida                                           6.0%

                                                                                                       3,000                                                                       3,000
     California                                              6.2%

                                                                                                       2,500                                                                       2,500
       Nevada                                                                8.3%

                                                                                                       2,000                                                                       2,000
  United States                          3.6%                                                                                                   Total Inventory: Sep @ 3,480
                                                                     As of Q2 2011
                                                                                                       1,500                                                                       1,500
                  0%        2%            4%            6%              8%           10%                    1999    2001      2003       2005        2007       2009        2011




    Source: Mortgage Bankers Association, National Association of Realtors and Wells Fargo Securities, LLC




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Housing Market




                                                                                Home Prices
                                                                      Year-over-Year Percentage Change
                                    24%                                                                                                          24%


                                    18%                                                                                                          18%


                                    12%                                                                                                          12%


                                     6%                                                                                                          6%
     Various mortgage foreclosure
      moratoriums and stimulus       0%                                                                                                          0%
      programs likely supported
         prices earlier, but are    -6%                                                                                                          -6%

            now giving way
                                    -12%                                                                                                         -12%
                                                    Median Sale Price: Sep @ $165,600
                                                    Median Sales Price 3-M Mov. Avg.: Sep @ -4.7%
                                    -18%                                                                                                         -18%
                                                    FHFA (OFHEO) Purchase Only Index: Aug @ -4.0%
                                                    S&P Case-Shiller Composite 10: Aug @ -3.5%
                                    -24%                                                                                                         -24%
                                           97           99            01           03           05            07           09           11




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




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The Consumer




                                                Real Personal Consumption Expenditures
                                                               Bars = CAGR          Line = Yr/Yr Percent Change
                                    8.0%                                                                                      8.0%


                                    6.0%                                                                                      6.0%


                                    4.0%                                                                           Forecast   4.0%


                                    2.0%                                                                                      2.0%


                                    0.0%                                                                                      0.0%
   Consumer spending will remain
    subdued until the end of 2013   -2.0%                                                                                     -2.0%


                                    -4.0%                                                                                     -4.0%


                                    -6.0%                PCE - CAGR: Q3 @ 2.4%                                                -6.0%
                                                         PCE - Yr/Yr Percent Change: Q3 @ 2.2%
                                    -8.0%                                                                                     -8.0%
                                         2000           2002         2004          2006         2008      2010    2012




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




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Labor Market




                                                                      Unemployment Rate
                                                                               Seasonally Adjusted
                                   12%                                                                                     12%




                                   10%                                                                                     10%




                                   8%                                                                                      8%


   The unemployment rate remains
          stubbornly high          6%                                                                                      6%




                                   4%                                                                                      4%


                                                     Unemployment Rate: Oct @ 9.0%
                                   2%                                                                                      2%
                                         60       65        70       75        80        85       90   95   00   05   10




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




California Capital Summit                               9
Labor Market




                                                     Unemployment Rate by Education Level
                                                                                       October 2011
                                       17%                                                                                          17%


                                       15%                                                                                          15%


                                       13%                                                                                          13%


                                       11%                                                                                          11%
      The unemployment rate for
       college-educated workers        9%                                                                                           9%
      remains low at 4.3 percent,
     while the unemployment rate       7%                                                                                           7%

   for workers with less than a high
                                       5%                                                                                           5%
    school diploma is 14.3 percent
                                       3%                                                                                           3%


                                       1%                                                                                           1%
                                                 No High School             High School             Some College   College Degree
                                                    Diploma                   Diploma




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




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The Employment Situation




                                                                           Employment Cycles
                                                                           Percent Change from Cycle Peak
                                       12.0%                                                                                                 12.0%
                                                            1948-1949 Cycle
                                       10.0%                1981-1982 Cycle                                                                  10.0%
                                                            1989-1991 Cycle
                                       8.0%                 2001 Cycle                                                                       8.0%
                                                            2007-To-Date
                                       6.0%                 Forecast                                                                         6.0%

                                       4.0%                                                                                                  4.0%

                                       2.0%                                                                                                  2.0%
     Employment will eventually
    regain its peak, but not quickly   0.0%                                                                                                  0.0%

                                       -2.0%                                                                                                 -2.0%

                                       -4.0%                                                                                                 -4.0%

                                       -6.0%                                                                                                 -6.0%

                                       -8.0%                                                                                                 -8.0%
                                                 0     4     8     12    16    20    24    28     32      36   40   44   48   52   56   60




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




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Where is the Job Growth?




                                                                         United States Employment by Industry
                                                                        Year-over-Year Percent Change, 3-Month Moving Average

                                                     Information

                                                     Government

                                            Financial Activities

                                                 Other Services

                                      Trade, Trans. & Utilities

    The service sector continues to    Leisure and Hospitality
           lead job growth
                                               Goods Producing

                                         Educ. & Health Svcs.

                                             Prof. & Bus. Svcs.

                                                  Total Nonfarm                 October 2011


                                                                   -4.0%               -2.0%             0.0%   2.0%      4.0%




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




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Unemployment by County


                                                                    Unemployment Rate




      Unemployment Rate
      September 2007
              Greater than 12.5%         6.0% to 8.0%
              10.0% to 12.5%             Less than 6.0%
               8.0% to 10.0%




   Source: US Department of Labor and Wells Fargo Securities, LLC



California Capital Summit                                                  13
Unemployment by County

                    Large Portions of the United States Continue to Face Serious Unemployment Issues
                                                                       Unemployment Rate




      Unemployment Rate
      September 2011
             Greater than 12.5%         6.0% to 8.0%
             10.0% to 12.5%             Less than 6.0%
              8.0% to 10.0%


      Source: US Department of Labor and Wells Fargo Securities, LLC



California Capital Summit                                                     14
Inflation




                                                                             CPI vs. Core CPI
                                                                          Year-over-Year Percent Change
                                      6.0%                                                                                   6.0%


                                      5.0%                                                                                   5.0%


                                      4.0%                                                                                   4.0%


                                      3.0%                                                                                   3.0%


                                      2.0%                                                                                   2.0%

     Inflation is beginning to show
                                      1.0%                                                                                   1.0%
       some signs of leveling off
                                      0.0%                                                                                   0.0%


                                      -1.0%                                                                                  -1.0%


                                      -2.0%              CPI: Oct @ 3.5%                                                     -2.0%
                                                         Core CPI: Oct @ 2.1%
                                      -3.0%                                                                                  -3.0%
                                              92       94        96       98        00        02         04   06   08   10




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




California Capital Summit                                 15
What is Going on in D.C.?




                                                                            U.S. Budget Gap
                                                       CBO Alternative Fiscal Situation Projections, Percent of GDP
                                     34%                                                                                          34%

                                     32%                                                                                          32%

                                     30%                                                                                          30%

                                     28%                                                                                          28%

                                     26%                                                                                          26%

       Revenues need to rise and     24%                                                                                          24%
      spending needs to decline to
                                     22%                                                                                          22%
        achieve budget balance
                                     20%                                                                                          20%

                                     18%                                                                                          18%
                                                                                              Total Spending: 2021 @ 25.2%
                                     16%                                                                                          16%
                                                                                              Revenues: 2021 @ 18.4%
                                     14%                                                                                          14%
                                            10                  15                 20                 25        30           35




                                     Source: Congressional Budget Office and Wells Fargo Securities, LLC




California Capital Summit                                16
Headwinds to Economic Growth




                                     The Ongoing
                                  European Debt Crisis


                                                                The Housing Market
       Cutbacks at All                                          Remains Very Weak
     Levels of Government
                                        Headwinds to
                                       Economic Growth




                  Wage and Salary                        Inflation Pressures
                Growth Has Been Flat                       Remain an Issue




California Capital Summit                    17
Appendix
Outlook Summary


                                          Wells Fargo U.S. Economic Outlook

                                                      Actual                  Forecast
                                             2008     2009     2010    2011     2012     2013
   Real Gross Domestic Product 1              -0.4   -3.6    3.0    1.8    2.0    1.8
     Personal Consumption                     -0.7   -2.0    2.0    2.3    1.6    1.3
     Business Fixed Investment                -0.7 -18.0     4.4    9.5   10.5    7.0
     Inventory Change                        -35.2 -145.0   58.8   23.4   18.8   45.4
     Government Purchases                      2.5    1.7    0.7   -1.9   -1.1   -0.4
     Residential Construction                -23.9 -22.3    -4.3   -1.7    3.9    6.9
     Net Exports                            -489.7 -358.8 -421.8 -418.2 -434.1 -460.0
   Consumer Price Index2                       3.8   -0.3    1.6    3.3    2.3    2.0
   Corporate Profits Before Taxes 2           -16.4      7.9    32.2      7.5     6.3      7.0
   10-Year Treasury Note                       3.66     3.26    3.22     2.72    2.50     2.80
                                0,
   Fo recast as o f: No vember 1 2011
      1
          C ompound Annual Growth Rate Quarter-over-Quarter
      2
          Year-over-Year Percentage C hange




    Source: Wells Fargo Securities, LLC




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Wells Fargo Economics Group Publications

                                        A Sampling of Our Recent Special, Regional & Industry Commentary
                                                                       Recent Special Commentary
                                           Date                                    Title                                        Authors
                                        November-07    North Carolina: A Story of Uneven Progress                    Silvia & Brown
                                        November-03    Is U.S. Manufacturing in Decline?                             Anderson, Brown & Swankoski
                                        November-02    ASEAN-5 Economies Fundamentally Sound                         Bryson
                                        November-02    Employment: Beyond the Sound Bites—Reading the Signals IV     Silvia & Watt
                                        November-01    Character of Recovery V: Sector and Employment Differences    Silvia & Iqbal
                                         October-25    Regional Chartbook: Quarter 4, 2011                           Vitner, Brown & Seydl
                                         October-11    Employment: Beyond the Sound Bites—Reading the Signals V      Silvia & Watt
                                         October-06    Real Home Prices: A Metro-Area Look                           Vitner & Seydl
                                         October-03    More QE from the BoE?                                         Bryson

   To view any of our past research     September-28
                                        September-27
                                                       Economic Dynamism in Southeast Asia
                                                       Ireland: Good News from the European Periphery?
                                                                                                                     Silvia
                                                                                                                     Bryson

             please visit:              September-27
                                        September-26
                                                       Independent Nations, Interdependent Economies
                                                       Employment: Beyond the Sound Bites—Reading the Signals IV
                                                                                                                     Silvia
                                                                                                                     Silvia & Watt
                                        September-21   "Operation Twist" Gets Underway                               Bryson
    http://www.wellsfargo.com/          September-20   Credit Quality Monitor: September 2011                        Anderson & Kashmarek
                                        September-16   Global Chartbook: September 2011
             economics                  September-15   Florida Economic Outlook: September 2011                      Vitner, Brown & Seydl
                                        September-09   The Direction of Treasury Rates: A Japanese Story?            Anderson, Bryson & Seydl
                                        September-08   Long-Term Unemployment: Costs & Consequences                  Silvia & Watt
                                        September-07   Housing Data Wrap-Up: September 2011                          Vitner, Khan & Seydl
                                        September-07   Brazil: GDP and Central Bank Autonomy                         Aleman
                                        September-06   Strength of Currency Weighs on Swiss GDP Growth               Bryson

      To join any of our research       September-02
                                        September-01
                                                       Is Another Recession Brewing in Germany?
                                                       Housing and Arizona, Rebuilding a Marketplace
                                                                                                                     Bryson & Kruse
                                                                                                                     Aleman & Kruse

     distribution lists please visit:    August-30
                                         August-26
                                                       The Evolution of Economic Relationships: The PMI and Growth
                                                       Tacking in Treacherous Water: No Full Sail for QE3
                                                                                                                     Silvia, Iqbal & Watt
                                                                                                                     Silvia
     http://www.wellsfargo.com/          August-26
                                         August-24
                                                       Brazilian Economy: Growing Pains
                                                       Will the Renminbi Eventually Rival the Dollar?
                                                                                                                     Aleman
                                                                                                                     Bryson

            economicsemail               August-23
                                         August-23
                                                       State Coincident Indicators Highlight A Disturbing Trend
                                                       Are We Headed for Another Global Recession?
                                                                                                                     Vitner & Brown
                                                                                                                     Bryson, Quinlan & Kruse
                                         August-22     Philadelphia Fed Index: Can It Predict a Recession?           Silvia, Khan, Iqbal & Watt
                                         August-22     Gold Bubble Fears Overblown                                   Anderson & Kashmarek
                                         August-22     Mexican Economy Grows Despite Slowdown in Q2                  Aleman
                                         August-22     The Kids Are Alright                                          Silvia, Quinlan & Seydl
                                         August-19     Even Slower Growth with Significant Downside Risk             Silvia
                                         August-15     Why Is France in the Crosshairs?                              Bryson & Kruse
                                         August-11     Commercial Real Estate Chartbook: Quarter 2                   Vitner, Khan & Seydl
                                         August-11     Employment: Beyond the Sound Bites—Reading the Signals III    Silvia & Watt
                                         August-07     S&P Downgrade of Treasury /Fed Credit: Fiscal Imbalances      Silvia & Vitner
                                         August-05     What are the Risks of Recession?                              Vitner
                                         August-02     Economic Implications of the Debt Ceiling Compromise          Silvia, Vitner, Bullard & Brown
                                         August-02     Real GDP Per Capita Stalled Out In the First Half of 2011     Vitner & Seydl
                                         August-01     Employment: Beyond the Sound Bites—Reading the Signals II     Silvia & Watt




California Capital Summit                                20
Wells Fargo Securities, LLC Economics Group

  a
                                                                                                              Senior Economists
                                                                               John Silvia, Chief Economist                              john.silvia@wellsfargo.com
                        Global Head of                                         Mark Vitner, Senior Economist                           mark.vitner@wellsfargo.com
               Research and Economics:                                         Jay Bryson, Global Economist                              jay.bryson@wellsfargo.com
                                                                               Scott Anderson, Senior Economist                   scott.a.anderson@wellsfargo.com
                Diane Schumaker-Krieg
                                                                               Eugenio Aleman, Senior Economist                  eugenio.j.aleman@wellsfargo.com
                                                                               Sam Bullard, Senior Economist                           sam.bullard@wellsfargo.com
                      Chief Economist:
                                                                                                                  Economists
                           John Silvia
                                                                               Anika Khan, Economist                                  anika.khan@wellsfargo.com
                       301 S. College Street
                                                                               Azhar Iqbal, Econometrician                            azhar.iqbal@wellsfargo.com
                                                                               Ed Kashmarek, Economist                             ed.kashmarek@wellsfargo.com
                          MAC D1053-077
                                                                               Tim Quinlan, Economist                                tim.quinlan@wellsfargo.com
                           Charlotte, NC
                                                                               Michael Brown, Economist                          michael.a.brown@wellsfargo.com
                                28288
                                                                                                              Economic Analysts

                                                                               Joe Seydl, Economic Analyst                           joseph.seydl@wellsfargo.com
                                                                               Sarah Watt, Economic Analyst                            sarah.watt@wellsfargo.com
                                                                               Kaylyn Swankoski, Economic Analyst               kaylyn.swankoski@wellsfargo.com

                                                                                                            Executive Assistants
                                                                               Peg Gavin (Charlotte), Executive Assistant               peg.gavin@wellsfargo.com
                                                                               Carol Nightengale (Minneapolis), Executive Assistant         carol.nightengale@wellsfargo.com

  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, Wells Fargo
  Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. 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 © 2011 Wells Fargo
  Securities, LLC.

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


California Capital Summit                                                              21

								
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