Economic Outlook Michael Wolf, Economist November 3, 2014.

Economic Outlook

Michael Wolf, EconomistNovember 3, 2014

Economics 22

-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

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

GDP - CAGR: Q3 @ 3.5%

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

Forecast

Gross Domestic Product

GDP got off to a rocky start at the beginning of the year but has since proved more

resilient

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

Government

Economics 4

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Government Purchases Bars = CAGR Line = Yr/Yr Percent Change

Government Purchases-CAGR: Q3 @ 4.6%

Government Purchases-Yr/Yr: Q3 @ 0.4%

Forecast

Government Purchases

The public sector is finally starting to bounce back after years of declines


Economics 5

-$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 13 14

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

Surplus or Deficit: Sep @ -$483 Billion

U.S. Budget Deficit

Deficit is shrinking, but not nearly fast enough

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

Economics 6

14%

16%

18%

20%

22%

24%

26%

14%

16%

18%

20%

22%

24%

26%

2013 2015 2017 2019 2021 2023

U.S. Budget GapCBO Baseline Scenario Projections, Percent of GDP

Outlays: 2024 @ 22.1%

Revenues: 2024 @ 18.3%

U.S. Budget Gap

The larger problem is that there is still no credible plan to move back into a

surplus

Source: Congressional Budget Office and Wells Fargo Securities, LLC

Economics 77

Federal Government Spending: Entitlements in the Driver’s Seat

Entitlement programs are the main drivers of growing

expenditures

Source: Congressional Budget Office and Wells Fargo Securities, LLC

$0.0T

$0.5T

$1.0T

$1.5T

$2.0T

$2.5T

$3.0T

$3.5T

$4.0T

$0.0T

$0.5T

$1.0T

$1.5T

$2.0T

$2.5T

$3.0T

$3.5T

$4.0T

2013 2015 2017 2019 2021 2023

U.S. Federal Government Mandatory OutlaysTrillions of U.S. Dollars, Projections Begin in 2014

Other Programs: 2024 @ $0.2TIncome Security: 2024 @ $0.3TSocial Security: 2024 @ $1.5THealthcare Programs: 2024 @ $1.6T

Business Investment

Economics 9

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Business Fixed InvestmentBars = CAGR Line = Yr/Yr Percent Change

Non-Res Fixed Invest - CAGR: Q3 @ 5.5%

Non-Res Fixed Invest - Yr/Yr Percent Change: Q3 @ 6.7%

Forecast

Business Investment

Business investment looks to be strengthening after a hiccup earlier in the year


Economics 10

-30%

-20%

-10%

0%

10%

20%

30%

40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

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

Commercial and Industrial LoansAt Commercial Banks in the United States

Year-over-Year Change: Sep @ 12.3%

3-Month Annualized Rate: Sep @ 10.9%

Business Lending

Commercial and industrial lending has surged over the

past quarter, helped by easier credit and increased

demand

Source: Federal Reserve Board and Wells Fargo Securities, LLC

Economics 11

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

ISM Manufacturing Composite IndexDiffusion Index

ISM Manufacturing Index: Sep @ 56.6

12-Month Moving Average: Sep @ 55.6

Manufacturing

Large, Global Businesses:Recent pickup in activity

Source: Institute for Supply Management and Wells Fargo Securities, LLC

Economics 12

-80

-60

-40

-20

0

20

40

60

80

4%

5%

6%

7%

8%

9%

10%

11%

12%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Industrial Supply & DemandPercent, Millions of Square Feet

Industrial Net Completions: Q3 @ 22.6M SF (Right Axis)

Industrial Net Absorption: Q3 @ 34.6M SF (Right Axis)

Industrial Vacancy Rate: Q3 @ 7.0% (Left Axis)

CRE: Industrial

A rise in manufacturing and energy production has fueled growth in the industrial real estate

market

Source: CoStar Portfolio Strategy, LLC and Wells Fargo Securities, LLC

Economics 13

10

12

14

16

18

20

20

40

60

80

100

120

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

Production & J obs in Manufacturing SectorIndex, 2007=100 on Left Axis, Right Axis in Millions

Manufacturing Production: Sep @ 100.5 (Left Axis)Manufacturing Employment: Sep @ 12.2 Million (Right Axis)

NAFTA China J oins WTO

Manufacturing: Production and Jobs Gap

Rising manufacturing production has not led to

huge job gains

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

Consumption

Economics 1515

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Personal Consumption ExpendituresBars = CAGR Line = Yr/Yr Percent Change

PCE - CAGR: Q3 @ 1.8%PCE - Yr/Yr Percent Change: Q3 @ 2.3%

Forecast

Personal Consumption Expenditures

Consumption should rebound during the forecast period but growth is likely

to remain somewhat subdued


Economics 16

-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

Nonfarm Employment ChangeChange in Employment, In Thousands

Monthly Change: Sep @ 248K

Employment

Total employment finally breached its prerecession

peak…

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

Economics 17

110

113

116

119

122

125

128

125

128

131

134

137

140

143

2007 2008 2009 2010 2011 2012 2013 2014

U.S. Full-Time vs. Total EmploymentMillions

Total Employees: Sep @ 139.4 M (Left Axis)

Total Full-Time Employees: Sep @ 119.3 M (Right Axis)

Full Time: 2.6 M Below Prerecession Peak

Total: 1.1 M Above Prerecession Peak

Employment: Structural

…but we still have a ways to go before recovering all of the full-time jobs lost in the

most recent recession


Economics 18

2%

4%

6%

8%

10%

12%

14%

16%

18%

2%

4%

6%

8%

10%

12%

14%

16%

18%

94 96 98 00 02 04 06 08 10 12 14

Unemployment RatesSeasonally Adjusted

Unemployment Rate: Sep @ 5.9%

U-6 Unemployment Rate: Sep @ 11.8%

Unemployment

In addition, the unemployment rate

overstates the health of the labor market. Discouraged workers and an abundance of part-time work rein in

spending


Economics 19

1%

2%

3%

4%

1%

2%

3%

4%

2002 2004 2006 2008 2010 2012 2014

Employment Cost Index Year-over-Year Percent Change

Wages and Salaries: Q3 @ 2.1%

Total Compensation: Q3 @ 2.2%

Wages and Salaries

Wage growth is also starting to perk up but still

remains rather modest


Economics 20

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

60 65 70 75 80 85 90 95 00 05 10

Household Debt - Consumer & MortgageAs a Percent of Disposable Personal Income

Household Debt: Q2 @ 96.6%

Consumer Balance Sheet

Although consumer leverage remains elevated,

it is off its prerecession high


Economics 21

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

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

Household Debt Service RatioDebt Payments as a Percent of Disposable Personal Income

DSR: Q1 @ 9.9%

Debt Service Ratio

The debt serviced ratio has fallen to historical lows, but such strong declines have

not been felt uniformly

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

Economics 2222

Household Debt

Rising student loan debt is crowding out other borrowing, particularly for autos and credit cards


20132003

Mortgage, 70.2%

Student Loans, 3.1%

Auto Loans, 8.7%

Credit Card, 8.7%

HE Revolving, 3.7%

Other, 5.6%

Household Debt - 2003

Mortgage, 70.0%

Student Loans, 9.1%

Auto Loans, 7.5%

Credit Card, 6.0%

HE Revolving, 4.7%

Other, 2.7%

Household Debt - 2013

Economics 23

-2%

0%

2%

4%

6%

8%

-2%

0%

2%

4%

6%

8%

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

Health Care EmploymentYear-over-Year Percent Change

Ambulatory Health Care: Sep @ 3.1%

Hospitals: Sep @ 0.5%

Nursing Homes: Sep @ 0.9%

Health Care Employment

Health care employment has recently been under

pressure


Economics 24

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Medical Care Spending Share of Total Consumption

Share of Total Consumption: Aug @ 22.1%

Medical Care Spending

Medical care continues to account for an increasing

share of household spending


Economics 25

50

100

150

200

250

300

350

400

450

50

100

150

200

250

300

350

400

450

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

Consumer Price GrowthIndex 1982-84=100, Seasonally Adjusted

CPI : Medical Care: Sep @ 436.7

CPI : All I tems: Sep @ 237.6

Consumer Price Growth

The cost of medical care has surged over the past 30

years


Economics 26

0%

2%

4%

6%

8%

0%

2%

4%

6%

8%

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

Consumer Healthcare Expenditures As a Share of Total Spending

Medical Supplies: 2013 @ 0.3%Drugs: 2013 @ 0.9%Medical Services: 2013 @ 1.6%Health Insurance: 2013 @ 4.4%

Medical Care Spending

Consumers’ out of pocket health care expenditures

are picking up


Housing Market

Economics 28

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

04 05 06 07 08 09 10 11 12 13 14

Existing Home Sales Seasonally Adjusted Annual Rate, In Millions

Existing Home Sales: Sep @ 5.17M

Housing Market: Existing Home Sales

Existing home sales have started to rebound but

remain lower than a year ago


Economics 29

100

300

500

700

900

1,100

1,300

1,500

100

300

500

700

900

1,100

1,300

1,500

89 91 93 95 97 99 01 03 05 07 09 11 13

New Home SalesSeasonally Adjusted Annual Rate, In Thousands

New Home Sales: Sep @ 467,000

3-Month Moving Average: Sep @ 445,667

Housing Market: New Home Sales

New home sales have seen only modest improvement


Economics 30

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 2013 2014

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

Conventional 30-Year Fixed Mortg. Rate: Oct-22 @ 3.97%

Mortgage Rates

Although mortgage rates remain low by historical

standards, the rise over last year has had a negative effect on homebuying

Source: Freddie Mac and Wells Fargo Securities, LLC

Economics 31

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

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

Confidence: Plans to Buy a HomePercent of Consumers, Conference Board

Plans to Buy a Home Within Six Months: Oct @ 5.1%

12-Month Moving Average: Oct @ 5.4%

Home Purchase Expectations

But other indicators show that demand remains soft

Source: The Conference Board and Wells Fargo Securities, LLC

Economics 32

-32%

-24%

-16%

-8%

0%

8%

16%

24%

-32%

-24%

-16%

-8%

0%

8%

16%

24%

04 05 06 07 08 09 10 11 12 13 14

Home PricesYear-over-Year Percentage Change

Median Sale Price: Sep @ $210,300Median Sales Price 3-M Mov. Avg.: Sep @ 4.9%FHFA (OFHEO) Purchase Only Index: Aug @ 4.7%S&P Case-Shiller Composite 10: Aug @ 5.5%

Home Prices

Home price gains have moderated considerably

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

Economics 33

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

2009 2010 2011 2012 2013 2014

U.S. Distressed Home SalesPercent of Total Sales

Total Distressed: Sep @ 10.0%

Housing Market: Distressed Home Sales

Fewer distressed homes available at a discount also keep prices moving higher


Economics 3434

Housing Market Fundamentals Are Changing

Household formations remain well below their historical norms, and a larger proportion of new households are choosing to rent


Owners vs. RentersHousehold Formation

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

65 69 73 77 81 85 89 93 97 01 05 09 13

Household FormationMillions of Households Formed

Household Formation: 2013 @ 0.52 Million1965-2001 Average: 2013 @ 1.28 Million

* 1982 and 2001 replaced with previous and prior year average to account for series breaks

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

66 70 74 78 82 86 90 94 98 02 06 10

U.S. Homeowners vs. RentersAnnual Change in Occupied Units, In Thousands

Renters: 2013 @ 525.5 ThousandHomeowners: 2013 @ -27.8 Thousand

Series Break 1981

Economics 35

0

10

20

30

40

50

60

70

80

90

100

0

150

300

450

600

750

900

1,050

1,200

1,350

1,500

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

New Home Sales vs. Wells Fargo NAHB IndexThousands of Units, Index

New Home Sales: Sep @ 467,000 (Left Axis)

Wells Fargo NAHB Index: Oct @ 54.0 (Right Axis)

Housing Market: Home Sales

Despite slow growth in new home sales, homebuilders

remain a bit more optimistic

Source: U.S. Department of Commerce, National Association of Home Builders and Wells Fargo Securities, LLC

Economics 36

-75

-50

-25

0

25

50

75

100

2%

3%

4%

5%

6%

7%

8%

9%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Apartment Supply & DemandPercent, Thousands of Units

Apartment Net Completions: Q2 @ 34,431 Units (Right Axis)Apartment Net Absorption: Q2 @ 35,539 Units (Right Axis)Apartment Vacancy Rate: Q2 @ 4.1% (Left Axis)

Housing Market: Apartments

Some builders are likely benefitting from growth in

the multifamily market, where apartment demand and construction remains

strong

Source: Reis and Wells Fargo Securities, LLC

Economics 37

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

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

Existing Condominium Resales Seasonally Adjusted Annual Rate - In Millions

Condo Sales: Sep @ 610,000

Housing Market: Condos

Existing condo sales had also slipped recently but the

upward trajectory is clear


Economics 38

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

Thousa

nds

Housing StartsMillions of Units

Multifamily StartsMultifamily ForecastSingle-family StartsSingle-family Forecast

Forecast

Housing Market: Residential Construction

We expect residential construction to continue to

advance, though a full recovery in the housing market is a long way off


The Carolinas

Economics 40

-4%

-2%

0%

2%

4%

6%

8%

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13-4%

-2%

0%

2%

4%

6%

8%

North Carolina Gross State Product & U.S. GDPYear-over-Year Percent Change

U.S. GDP: 2013 @ 1.8%North Carolina GDP: 2013 @ 2.3%

North Carolina: GDP

Output in North Carolina bested the national average

in 2013…


Economics 41

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

South Carolina Gross State Product & U.S. GDPYear-over-Year Percent Change

U.S. GDP: 2013 @ 1.8%South Carolina GDP: 2013 @ 1.2%

South Carolina: GDP

…while growth in South Carolina continued to lag

behind.


Economics 42

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

00 02 04 06 08 10 12 14

Nonfarm EmploymentYear-over-Year Percent Change, 3-Month Moving Averages

United States: Sep @ 1.9%North Carolina: Sep @ 2.2%South Carolina: Sep @ 1.9%

Carolinas: Employment

In 2014, employment growth has closely tracked

that of the nation in the region, though the

Carolinas are digging themselves out of a larger

hole.


Economics 43

98

100

102

104

106

108

110

112

114

116

98

100

102

104

106

108

110

112

114

116

10 11 12 13 14

Nonfarm PayrollsIndex 100 = February 2010

Raleigh: Sep @ 115.0Charlotte: Sep @ 112.1Durham: Sep @ 108.5Greensboro: Sep @ 104.9Winston-Salem: Sep @ 105.8Asheville: Sep @ 109.0Wilmington: Sep @ 107.5Hickory: Sep @ 103.0Fayetteville: Sep @ 99.8

North Carolina: Regional Employment

Growth in North Carolina has been concentrated in

Raleigh and Charlotte, while other regions get left

behind.


Economics 4444

September 2014

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

Information

Other Services

Construction

Financial Activities

Leisure and Hospitality

Manufacturing

Prof. & Bus. Svcs.

Educ. & Health Services

Government

Trade, Trans. & Utilities

Total Nonfarm

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

Number of Employees

Less

More

North Carolina: Employment

Growth has been broad based in North Carolina,

with gains concentrated in professional & business

services and information. The public sector remains a net negative on the state.


Economics 4545

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

00 02 04 06 08 10 12 14

North Carolina Technical EmploymentYear-over-Year Percent Change

North Carolina: Sep @ 7.2%

United States: Sep @ 2.6%

North Carolina: High-Tech Employment

Technical employers are driving growth in the state,

which is far higher than what has been seen

nationwide.


Economics 4646

North Carolina: Housing

Home prices continue their upward march, nearly erasing all the losses felt during the downturn. Residential construction has stalled recently after a sizable

rebound earlier in the recovery.

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

Residential ConstructionHome Prices

40

60

80

100

120

140

160

180

200

220

40

60

80

100

120

140

160

180

200

220

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

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

United States: Aug @ 175.0

North Carolina: Aug @ 138.7

0

20

40

60

80

100

120

0

20

40

60

80

100

120

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

Thou

sand

s

Thou

sand

s

North Carolina Housing PermitsThousands of Permits, Seasonally Adjusted Annual Rate

Single-Family: Sep @ 35,796Single-Family, 12-MMA: Sep @ 34,520Multifamily, 12-MMA: Sep @ 15,502

Single-Family Average (1998-2003): 62,968

Economics 4747

0

40

80

120

160

200

240

0

40

80

120

160

200

240

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

North Carolina Population GrowthIn Thousands

North Carolina: Demographics

Population growth remains above average, though it is concentrated in more of the

urban areas of the state.


Economics 4848

2%

4%

6%

8%

10%

12%

2%

4%

6%

8%

10%

12%

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

South Carolina vs. U.S. Unemployment RateSeasonally Adjusted

Unemployment Rate: Sep @ 6.6%

United States: Sep @ 5.9%

South Carolina: Employment

In South Carolina, the unemployment rate fell

dramatically and has since turned upward.


Economics 4949

55%

57%

59%

61%

63%

65%

67%

55%

57%

59%

61%

63%

65%

67%

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

Labor Force Participation Rate3-Month Moving Averages, Seasonally Adjusted

South Carolina: Aug @ 57.8%

United States: Aug @ 62.8%


Much of the dramatic fall in the unemployment rate is due to a falling labor force

participation rate.


Economics 50

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

10 11 12 13 14

Nonfarm PayrollsIndex 100 = December 2009

Charleston: Sep @ 112.9Columbia: Sep @ 108.0Greenville: Sep @ 111.6Spartanburg: Sep @ 112.0Florence: Sep @ 107.0Myrtle Beach: Sep @ 109.9

South Carolina: Regional Employment

Regional growth in South Carolina has been more

consistent, though Charleston, Spartanburg

and Greenville have posted the largest gains.


Economics 5151

September 2014

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

Information

Other Services

Construction

Financial Activities

Educ. & Health Services

Manufacturing

Leisure and Hospitality

Prof. & Bus. Svcs.

Government

Trade, Trans. & Utilities

Total Nonfarm

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

Number of Employees

Less

More


Employment gains have been relatively broad based

across industries, with financial activities

remaining the principal weight.


Economics 5252

-16%

-12%

-8%

-4%

0%

4%

8%

-16%

-12%

-8%

-4%

0%

4%

8%

91 93 95 97 99 01 03 05 07 09 11 13

South Carolina Nonfarm EmploymentYear-over-Year Percent Change

Manufacturing Employment: Sep @ 3.4%Non-Manufacturing: Sep @ 2.1%

South Carolina: Manufacturing

Manufacturing has been particularly strong, thanks in part to BMW, Boeing and

their suppliers.


Economics 5353

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

98 00 02 04 06 08 10 12 14

South Carolina Manufacturing ExportsMillions of Dollars

Manufacturing Exports: Q2 @ $7,669.6Year-over-Year Percent Change: Q2 @ 18.4%


More manufacturing has led to rising exports in the

state.


Economics 5454

40

60

80

100

120

140

160

40

60

80

100

120

140

160

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

South Carolina Nonfarm EmploymentIndex 1990 = 100

Manufacturing Employment: Sep @ 65.5

Non-Manufacturing Employment: Sep @ 144.5


But manufacturing employment is still a long

way from the levels seen in the 90’s.


Economics 5555

40

46

52

58

40

46

52

58

00 02 04 06 08 10 12 14

South Carolina EmploymentThousands, Not Seasonally Adjusted

Transportation and Warehousing: Sep @ 54.9

South Carolina: Manufacturing Related

In addition, related industries have picked up to

transport and store the goods made in South

Carolina.


Economics 5656

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

South Carolina State Personal IncomeBars = Compound Annual Rate Line = Yr/Yr % Change

South Carolina Personal Income: Q2 @ 6.1%

South Carolina Personal Income: Q2 @ 4.2%

South Carolina: Income

Income growth has been surprising strong in the last few quarters, outpacing the nation and North Carolina.


Economics 5757

South Carolina: Housing

Home prices are quickly gaining on their prerecession peak, while single-family construction approaches more normal levels.

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

Residential ConstructionHome Prices

40

60

80

100

120

140

160

180

200

220

240

40

60

80

100

120

140

160

180

200

220

240

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

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

United States: Aug @ 175.0

South Carolina: Aug @ 155.6

0

10

20

30

40

50

60

0

10

20

30

40

50

60

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

Thou

sand

s

Thou

sand

s

South Carolina Housing PermitsThousands of Permits, Annual Rate

Single-Family: Aug @ 22,776Single-Family, 12-MMA: Aug @ 20,816Multifamily, 12-MMA: Aug @ 5,388

Single-Family Average (1998-2003): 26,279

Economics 5858

0

20

40

60

80

100

0

20

40

60

80

100

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

South Carolina Population GrowthIn Thousands

South Carolina: Demographics

Population growth is picking back up, which

should help fuel gains in consumer-driven industries.


Economics 59

U.S. Forecast

Wells Fargo U.S. Economic Forecast

2012 2013 2014 2015 2016

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

Real Gross Domestic Product 1 - 2.1 4.6 3.5 2.3 2.5 2.7 2.8 3.0 2.3 2.2 2.2 2.8 3.0

Personal Consumption 1.2 2.5 1.8 2.4 2.5 2.6 2.5 2.6 1.8 2.4 2.2 2.4 2.6

Inflation Indicators 2

PCE Deflator 1.1 1.6 1.5 1.5 1.6 1.6 1.8 2.0 1.8 1.2 1.4 1.8 2.1

Consumer Price Index 1.4 2.1 1.8 1.9 1.9 1.7 2.0 2.2 2.1 1.5 1.8 2.0 2.4

Industrial Production 1 3.9 5.5 3.2 5.9 5.0 4.9 4.9 4.9 3.8 2.9 4.1 5.0 4.2

Corporate Profits Before Taxes 2 - 4.8 0.1 3.8 4.0 4.1 4.2 4.4 4.5 11.4 4.2 0.9 4.3 3.4

Trade Weighted Dollar Index 3 76.9 75.9 81.3 81.3 81.8 82.3 83.0 83.8 73.5 75.9 78.8 82.7 85.3

Unemployment Rate 6.7 6.2 6.1 5.9 5.8 5.7 5.6 5.5 8.1 7.4 6.2 5.7 5.4

Housing Starts 4 0.93 0.99 1.02 1.03 1.05 1.11 1.15 1.18 0.78 0.92 1.00 1.12 1.25

Quarter- End Interest Rates 5

Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.50 0.75 1.00 0.25 0.25 0.25 0.63 2.00Conventional Mortgage Rate 4.34 4.16 4.16 4.06 4.11 4.24 4.26 4.42 3.66 3.98 4.18 4.26 5.0010 Year Note 2.73 2.53 2.52 2.46 2.51 2.64 2.66 2.82 1.80 2.35 2.56 2.66 3.40

Forecast as of: October 31, 20141 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

Forecast

2014

Actual

2015

ForecastActual

Client/Prospect Name

Wells Fargo Securities, LLC Economics Group

60

John E. 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 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]

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

Senior Economists

Zachary Griffiths, Economic Analyst [email protected]

Mackenzie Miller, Economic Analyst [email protected]

Erik Nelson, Economic Analyst [email protected]

Alex Moehring, Economic Analyst [email protected]

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

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

Eric J. Viloria, Currency Strategist [email protected]

Sarah Watt House, Economist …………… …………[email protected]

Michael A. Brown, Economist ……………… … [email protected]

Michael T. Wolf, Economist ………………… … [email protected]

Economic Analysts

Administrative Assistants

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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.

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Economic Outlook Michael Wolf, Economist November 3, 2014.

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