U.S. & Alabama Economic Outlook Mark Vitner, Managing Director & Senior Economist November 12, 2013.

U.S. & Alabama Economic Outlook

Mark Vitner, Managing Director & Senior EconomistNovember 12, 2013

Economic Outlook 2

Key Macroeconomic Trends

Uncertainty

Unprecedented changes in fiscal and monetary policy have cast a cloud of uncertainty over economic policy.

Below Trend Growth

Below trend real GDP growth bolsters the case for the “new normal”.

UnconventionalMonetary Policy

QE has boosted asset prices but not the underlying fundamentals.

Global Economy Recent data on the global economy are slightly

more positive but remain mixed.

Growth is Uneven Energy, technology, higher education & healthcare

have been notable bright spots in this otherwise disappointing economic recovery.

Economic Outlook 3

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008 2010 2012 2014

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

GDP - CAGR: Q3 @ 2.8%

GDP - Yr/Yr Percent Change: Q3 @ 1.6%

Forecast

U.S. GDP

We see economic growth gradually regaining

momentum as the housing recovery takes hold and the

drag from fiscal belt tightening gradually wanes

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

Economic Outlook 44

U.S. GDP

The combination of sluggish economic growth and low inflation means that revenue growth is unusually sluggish, which impacts certain parts of the economy

differently


Nominal GDPReal GDP

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

96 98 00 02 04 06 08 10 12

U.S. Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change

Real GDP: Q3 @ 2.8%

Real GDP: Q3 @ 1.6%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

96 98 00 02 04 06 08 10 12

U.S. Nominal GDPBars = Compound Annual Rate Line = Yr/Yr % Change

Nominal GDP: Q3 @ 4.8%

Nominal GDP: Q3 @ 3.1%

Economic Outlook 5

$10.5

$11.0

$11.5

$12.0

$12.5

$13.0

$13.5

$14.0

$14.5

$15.0

$10.5

$11.0

$11.5

$12.0

$12.5

$13.0

$13.5

$14.0

$14.5

$15.0

2000 2002 2004 2006 2008 2010 2012

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

Potential GDP: Q1 @ $14.6 Trillion

Actual GDP: Q1 @ $13.8 Trillion

Output Gap = $819 Billion

Output Gap

Questions about the output gap are driving the policy

debate.

The actual trajectory of GDP growth now looks more like

a trend then a temporary deviation from long run

potential growth.


Economic Outlook 6

57%

58%

59%

60%

61%

62%

63%

64%

65%3%

4%

5%

6%

7%

8%

9%

10%

11%

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

Unemployment v. Employment-Population Ratio16 Years and Over, Seasonally Adjusted

Unemployment Rate: Oct @ 7.3% (Left Axis)

Employment-Population: Oct @ 58.3% (Right Axis - Inverted)

Labor Market Dynamics

The employment-population rate hasn’t improved over

the past four years, despite the fall in the

unemployment rate, suggesting that many job seekers have simply given

up.

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

Economic Outlook 77

Small Business

With revenues growing slowly, small business owners have been reluctant to make significant investments in capital equipment or hire permanent workers.


HiringSmall Business Index

-40

-20

0

20

40

60

80

100

120

-40

-20

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Wells Fargo Small Business IndexOverall Situation

Overall Situation: Q3 @ 25

-30

-25

-20

-15

-10

-5

0

5

10

15

-30

-25

-20

-15

-10

-5

0

5

10

15

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Hiring GapPct. Pt. Difference Between "Increase" and "Decrease" Past 12 Mo.

Hiring Gap: Q3 @ -4

Economic Outlook

Percent change in real GDP by state 2011-2012

ID0.4

AR1.3

AL1.2

ME0.5

KS1.4

SD0.2

OH2.2

WI3.5

AZ2.6

NH0.5

MT2.1

MS2.4

OK2.1

NV1.5

IL1.9

GA2.1

FL2.4

CO2.1

CA3.5

NE1.5

MO2.0

UT3.4

NM0.2

WA3.6

IA2.4

MI2.2

LA1.5

VA1.1

TX4.8

PA1.7

IN3.3

NC2.7

MN3.5

KY1.4

VT1.2

TN3.3

OR3.9

NY1.3

WV3.3

ND13.4

SC2.7

WY3.3

AK1.1

CT-0.1

DE0.2

HI1.6

MA2.2

MD2.4

NJ1.3

RI1.4

DC0.7

U.S. = 2.5

3.3–13.4

-0.1–1.2

2.2–3.3

1.5–2.2

1.2–1.5

Economic Outlook 99

Housing Market Metrics

Despite some recent setbacks, we continue to look for a gradual recovery in homebuilding. Apartments are playing a larger role than in previous building

cycles.

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

Housing StartsExisting Home Sales

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Existing Home Sales By Region Seasonally Adjusted Annual Rate - In Thousands

South: Sep @ 2,100K

West: Sep @ 1,250K

Midwest: Sep @ 1,250K

Northeast: Sep @ 690K0.0

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 Starts

Multifamily Forecast

Single-family Starts

Single-family ForecastForecast

Alabama

Economic Outlook 11

92%

93%

94%

95%

96%

97%

98%

99%

100%

101%

92%

93%

94%

95%

96%

97%

98%

99%

100%

101%

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

Alabama Employment: Percent of Previous PeakPercent

Percent of Previous Peak: Aug @ 94.1%

Alabama Employment Picture

Nonfarm employment remains 5.9 percent below

its previous peak in Alabama


Economic Outlook 12

Alabama Nonfarm Employment Growth by Industry

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

Construction

Information

Prof. & Bus. Svcs.

Educ. & Health Svcs.

Leisure and Hospitality

Trade, Trans. & Utilites

Manufacturing

Government

Financial ActivitiesOther Services

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

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

3-M

onth

Ann

ualiz

ed P

erc

ent

Change

Year-over-Year Percent Change

Alabama Employment Growth by Industry3-Month Moving Averages, August 2013

Percent of Total Employees

10% to 20%5 % to 10%Less than 5%

Recovering Expanding

Contracting Decelerating

Economic Outlook 1313

Alabama – Labor Market

Employment growth has been modest, however, the unemployment rate continues to fall.

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

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

Alabama Nonfarm Employment3-Month Moving Averages

QCEW: Yr/Yr Pct. Change: Mar @ 1.1%Nonfarm: Yr/Yr Pct. Change: Aug @ 0.7%Household: Yr/Yr Pct. Change: Aug @ 1.1%


UnemploymentEmployment

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

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

Alabama vs. U.S. Unemployment RateSeasonally Adjusted

Unemployment Rate: Aug @ 6.3%United States: Aug @ 7.3%

Economic Outlook

54%

56%

58%

60%

62%

64%

66%

68%

54%

56%

58%

60%

62%

64%

66%

68%

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

Labor Force Participation Rate3-Month Moving Averages, Seasonally Adjusted

Alabama: Aug @ 57.3%

United States: Aug @ 63.4%

Alabama – Labor Market

Some of the improvement in the unemployment rate has come from people dropping

out of the workforce.



Alabama– Home Prices & Construction

Home prices in Alabama are rising, however it did not experience the rapid rise in prices over the past year seen in many areas of the nation.

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

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

Core Logic HPI : AL vs. USYear-over-Year Percent Change

United States: Aug @ 12.4%

Alabama: Aug @ 3.5%

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

Housing PermitsHome Prices

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

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

Thou

sand

s

Thou

sand

s

Alabama Housing PermitsThousands of Permits, Seasonally Adjusted Annual Rate

Single-Family: Aug @ 9,252Single-Family, 12-MMA: Aug @ 8,757Multifamily, 12-MMA: Aug @ 1,881

Single-Family Average (1998-2003): 17,013

Economic Outlook 16

Montgomery – Labor Market

Montgomery’s labor market continues to see improvement, although the metro’s largest source of employment, the government, continues to shed jobs.

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

Information

Financial Activities

Other Services

Leisure and Hospitality

Manufacturing

Educ. & Health Services

Prof. & Bus. Svcs.

Trade, Trans. & Utilities

Government

Montgomery MSA Employment Growth By Industry

Number of Employees

Less

More

Year-over-Year Percent Change, 3-MMA

August 2013


Unemployment RateEmployment

0%

2%

4%

6%

8%

10%

12%

0%

2%

4%

6%

8%

10%

12%

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

Montgomery MSA Unemployment Rate

Unemployment Rate: Aug @ 6.4%12-Month Moving Average: Aug @ 7.0%

Seasonally Adjusted


Montgomery – Home Prices & Construction

Homebuilding in Montgomery has struggled to gain momentum.

40

60

80

100

120

140

160

180

200

40

60

80

100

120

140

160

180

200

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

CoreLogic Home Price Index: Montgomery, ALIndex, 2000=100, Not Seasonally Adjusted

Montgomery, AL: Aug @ 111.5

United States: Aug @ 165.6

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

Housing PermitsHome Prices

0

1

2

3

4

0

1

2

3

4

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

Thou

sand

s

Thou

sand

s

Montgomery MSA Housing Permits

Single-Family: Aug @ 492Single-Family, 12-MMA: Aug @ 547Multifamily, 12-MMA: Aug @ 132

Single-Family Average (1998-2003): 1,258

Thousands of Permits, Seasonally Adjusted Annual Rate


Montgomery – Market Fundamentals

Population growth remains tepid, and actually declined over the past year.

-2

-1

0

1

2

3

4

5

6

7

8

-2

-1

0

1

2

3

4

5

6

7

8

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

Montgomery MSA Population GrowthIn Thousands


GSPPopulation Growth

Nat. Res. & Mining

1%

Leis. & Hosp.3%

Other Svcs.3%

Construction5%

Educ. & Health9%

Prof. & Bus. Svcs.10%

Manufacturing13% Trade, Trans. &

Utilities13%

Financial Activities

17%

Government26%

Montgomery MSA GSP Composition2012

Economic Outlook 19

China Slowdown

Retiree & TouristTrends

Credit Availability & Financial Reform

Re-shoring of Manufacturing

Deleveraging

Monetary/FiscalPolicy Uncertainty

Immigration ReformEnergy/Commodity

Price Swings

Issues to Watch

Economic Outlook 20

Our Forecast

Wells Fargo U.S. Economic Forecast

2011 2012 2013 2014 2015

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

Real Gross Domestic Product 1 1.1 2.5 2.8 1.7 2.0 2.4 2.6 2.7 1.8 2.8 1.7 2.3 2.8

Personal Consumption 2.3 1.8 1.5 2.1 2.0 2.1 2.2 2.3 2.5 2.2 1.9 2.0 2.4

Inflation Indicators 2

PCE Deflator 1.4 1.1 1.1 1.1 1.3 1.9 1.9 2.1 2.4 1.8 1.2 1.8 2.2

Consumer Price Index 1.7 1.4 1.6 1.5 1.6 2.1 2.0 2.0 3.1 2.1 1.5 1.9 2.2

Industrial Production 1 4.1 1.1 2.3 5.2 4.2 4.3 4.4 4.5 3.4 3.6 2.5 4.0 4.7

Corporate Profits Before Taxes 2 2.1 4.5 6.3 5.0 4.1 5.4 6.2 5.3 7.9 7.0 4.5 5.3 5.9

Trade Weighted Dollar Index 3 76.2 77.5 75.2 75.3 76.0 76.3 76.8 77.3 70.9 73.5 76.1 76.6 77.9

Unemployment Rate 7.7 7.6 7.3 7.2 7.1 7.0 7.0 6.9 8.9 8.1 7.5 7.0 6.7

Housing Starts 4 0.96 0.87 0.89 0.94 1.03 1.13 1.18 1.20 0.61 0.78 0.93 1.10 1.25

Quarter- End Interest Rates 5

Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.44Conventional Mortgage Rate 3.57 4.07 4.49 4.30 4.40 4.50 4.60 4.70 4.46 3.66 4.11 4.55 4.9510 Year Note 1.87 2.52 2.64 2.60 2.70 2.80 2.90 3.00 2.78 1.80 2.41 2.85 3.25

Forecast as of: November 8, 20131 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

ForecastActual

2013

Actual Forecast

2014

Appendix

Economic Outlook 22

Recent Special Commentary

Wells Fargo Economics Group Publications

To view any of our past research please visit:

http://www.wellsfargo.com/economics

To join any of our research distribution lists please

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

economicsemail

Date Title Authors

November- 01 Housing Data Wrap- Up: October 2013 Vitner, Khan & Silverman

October- 31 Bank Lending: Uneven Improvement Silvia, Watt & ZacharyOctober- 28 Are Developing Economies Heading for a Crash? Bryson & MillerOctober- 28 Measuring the State of the U.S. Labor Market: A New Index Silvia, Iqbal & ZacharyOctober- 28 Are Developing Economies Heading for a Crash? Bryson & MillerOctober- 25 Labor Market Dynamics: More J ob Openings and Quits Silvia & ZacharyOctober- 25 Pennsyvania Economic Outlook: October 2013 Vitner & WolfOctober- 24 The "Unsustainable" Path of Federal Fiscal Policy: Part II I Silvia, Brown & ZacharyOctober- 21 Can America Achieve Stronger Export Growth? Bryson, Quinlan & GriffithsOctober- 21 Shutdown Showdown Finale: A Short- Term Bridge to the Next Crisis Silvia & BrownOctober- 18 Nashville's Economy Strikes the Right Chord Vitner & WolfOctober- 17 Portland's Economy Shows Consistent Strength Vitner & SilvermanOctober- 16 Short- Run Disruption, Long- Run Imbalance Silvia & BrownOctober- 16 Is There Pent- Up Demand for Consumer Durables? Bryson, Aleman & BrownOctober- 16 Household Debt Service Ratio: New Lows, Less Stress Silvia & Miller October- 14 Singapore GDP Stronger Than Expected in Q3 BrysonOctober- 09 The "Unsustainable" Path of Federal Fiscal Policy: Part II Silvia, Brown & ZacharyOctober- 07 The "Unsustainable" Path of Federal Fiscal Policy: Part I Silvia & BrownOctober- 03 Asheville's Recovery Remains Solidly on Track Vitner & WolfOctober- 03 How Does North Carolina Stack Up Today? Silvia, Brown & GriffithsOctober- 02 Abenomics Getting Warm Reception from J apanese Business QuinlanOctober- 02 Naples Four Years After the Recession Vitner & WolfOctober- 02 Housing Chartbook: September 2013 Vitner, Khan & SilvermanOctober- 02 Will British Consumers Continue to Spend? Bryson & MillerOctober- 01 Bank Lending: A Perspective on Credit Silvia & WattOctober- 01 Corporate Credit: Bond Finance and Power in Reserve Silvia & ZacharyOctober- 01 Shutdown Showdown: Deficit Remains the Issue Silvia & Brown

September- 27 Mexico: Tidbits of Better Times Ahead? AlemanSeptember- 27 Strong Growth in Argentina in Q2 2013 AlemanSeptember- 27 Sequestering Economic Growth? Silvia & BrownSeptember- 26 Why Has U.S. Labor Productivity Growth Slowed? Bryson & WattSeptember- 25 South Carolina 2013 Economic Outlook Vitner & Silverman September- 25 Interest Rate Update: Post the Big Non- Taper Silvia & Zachary September- 25 Consumer Credit: Critical Differences in Consumer Behavior Silvia & MillerSeptember- 24 Florida Consumer Sentiment Falls Back in September Vitner & Silverman September- 23 Does China Have a Debt Problem? BrysonSeptember- 20 California Adds 29,100 J obs, but Unemployment Rises Again Vitner & Silverman September- 20 Florida's J obless Rate Falls, but so Does the Labor Force Vitner & Silverman September- 20 British Economy Appears to Be Turning the Corner BrysonSeptember- 20 Texas Employment Takes a Step Back Vitner & Wolf

A Sampling of Our Recent Special, Regional & Industry Commentary

Economic Outlook

Wells Fargo Securities, LLC Economics Group

23

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]

Sara Silverman, Economic Analyst [email protected]

Mackenzie Miller, Economic Analyst [email protected]

Blaire Zachary, Economic Analyst [email protected]

Economists

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

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

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

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

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

Economic Analysts

Administrative Assistants

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, 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. 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 © 2013 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. 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, not will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the “Materials”) are provided for general informational purposes only.

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U.S. & Alabama Economic Outlook Mark Vitner, Managing Director & Senior Economist November 12, 2013.

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