Economic Outlook. Tim Quinlan, Senior Economist. January, 2018
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1 Economic Outlook Tim Quinlan, Senior Economist January, 2018
2 Real GDP Forecast 1 8% 6% 2% U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDP - CAGR: 3.2% GDP - Yr/Yr Percent Change: 2.3% Forecast 1 8% 6% 2% Near-term outlook is for trendlike growth to continue -2% - -6% -8% % - -6% -8% -1 Source: U.S. Department of Commerce and Wells Fargo Securities Economics 2
3 GDP and Fed Funds Long-Run Expectations from the Fed Over the past several years, the Fed has dialed-back it own estimates of potential GDP growth as have private-sector economists and the Congressional Budget Office GDP Fed Funds Rate 3. Long-Run GDP Projections Summary of Economic Projections, Central Tendency Range Long-Run Fed Funds Projections Summary of Economic Projections, Central Tendency Range % 4.5% 2.5% 2.5% % 3.5% % 1.5% 2.5% 2.5% Midpoint of Central Tendency: 1.9% Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Midpoint of Central Tendency: 2.8% Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Source: Federal Reserve and Wells Fargo Securities Economics 3
4 Forecasting Outside the Consensus The Trump administration has repeatedly stated its goal of achieving real economic growth of 3-4 percent. In the president s FY 2018 budget, the administration assumed real GDP growth of 3 percent over the long-run. This is well above that of other forecasters. Why? 3% Real GDP Growth Estimates Year-over-Year Percent Change WF Economics Forecast Blue Chip Consensus CBO Forecast President's Budget 3% 2% 2% 1% 1% Source: Congressional Budget Office, Blue Chip, Office of Management and Budget and Wells Fargo Securities Economics 4
5 Why Is Potential Growth So Slow? The Congressional Budget Office produces the gold standard for potential GDP estimates. By its projections, the sustainable pace of growth is a bit shy of 2 percent. Why? Primarily because of slower growth in the working-age population, but also because of somewhat slower capital and productivity growth. Potential GDP Growth Has Fallen Both Aging and Productivity to Blame 6% Potential Real GDP Growth CBO Estimate 6% 6% Potential GDP Decomposed CBO Estimates of Contributions to GDP Growth 6% 5% 5% 5% Internet/Tech Revolution 5% 3% CBO Forecast 3% 3% 2% CBO Forecast 3% 2% 2% 2% 1% 1% 1% 1% Potential GDP: 1.9% % Women/Boomers Entering Labor Force TFP Capital Labor % Source: Congressional Budget Office and Wells Fargo Securities Economics 5
6 What Would It Take to Get to 3 Percent Growth? Let s say the CBO baseline proves to be too pessimistic. Given a potential GDP estimate of about 1.9 percent, how much faster would growth need to be in the three key inputs (labor, capital and total factor productivity) to reach 3 percent plus? The Elusive Three Percent Growth Target 3.5% 3.5% %??? 2.5% % 1. Total Factor Productivity Contribution 1.5% % Capital Contribution 0.5% Labor Contribution 0. CBO Projected Average Annual Growth: Source: Congressional Budget Office and Wells Fargo Securities 0. Economics 6
7 Battling the Demographic Headwinds To achieve sustained economic growth of 3 percent solely through faster labor growth, potential labor hours would need to expand at about 2.2 percent per year, holding the CBO s capital and TFP projections constant. This would require potential labor growth similar to the period when boomers/women entered the labor force in large numbers. Yet, the labor force is aging, with few signs of a reversal anytime soon. Labor Growth Has Seen a Secular Decline An Increasingly Aged Workforce % Drivers of Real GDP: Potential Labor Hours YoY Percent Change, 10-Year Moving Average % Civilian Labor Force: Aging Share of Civilian Labor Force 16 to 24: 13.2% 25 to 54: and over: 22.8% % Labor Growth Needed to Lift Economic Growth to 3% 1.5% % 0.5% 1 1 Potential Labor Growth: Source: Congressional Budget Office, U.S. Department of Labor and Wells Fargo Securities Economics 7
8 Doing More with Less To achieve sustained potential GDP growth of 3 percent over the next decade through capital alone, potential capital growth would need to average about 5.5 percent, well above even the fastest historical potential growth rates. Capital spending in this cycle has been weak, though we expect some modest improvement. Sentiment, core orders have been better of late. Still big gap between where we are now and where we would need to be. Potential Capital Growth: Low Base Modest Business Investment Outlook 7% Drivers of Real GDP: Potential Capital Growth YoY Percent Change, 10-Year Moving Average 7% 3 Real Business Fixed Investment Bars = CAGR Line = Yr/Yr Percent Change 3 6% 6% 2 2 5% 5% 1 Forecast 1 Capital Growth Needed to Lift Economic Growth to 3% 3% 3% % 2% % 1% -3 Non-Res Fixed Invest - CAGR: 4.7% -3 Potential Capital Growth: 1.7% Non-Res Fixed Invest - Yr/Yr Percent Change: 4.6% Source: Congressional Budget Office, U.S. Department of Commerce and Wells Fargo Securities Economics 8
9 Capital Spending 4 3 Real Equipment Investment Bars = CAGR Line = Yr/Yr Percent Change Forecast 2 1 Cap-ex has been surprising on the upside, but as bounce effect fades, will the pace of growth moderate? Equipment Investment - CAGR: 10.8% Equipment Investment - Yr/Yr Percent Change: Source: U.S. Department of Commerce and Wells Fargo Securities Economics 9
10 The Energy Dynamic The rebound in energy prices and more specifically oil prices is starting to boost business investment. Business Investment Ex-Mining Energy Share of Investment Real Business Fixed Investment Year-over-Year Percent Change Fixed Investment Spending on Energy As Percent of Total BFI 16% BFI Ex-Mining: 2.6% 16% 8% Energy: 3.8% 8% 12% BFI: 4. 12% 7% 7% 8% 8% 6% 6% 5% 5% - - 3% 3% -8% -8% -12% -12% 2% 2% -16% -16% 1% 1% Source: U.S. Department of Commerce and Wells Fargo Securities Economics 10
11 Oil Prices and Rig Count 1,800 1,600 Baker-Hughes Rig Count vs. Oil Prices Oil Rotary Rigs; USD per Barrel Oil Rig Count: 747 (Left Axis) WTI: $60.46 (Right Axis) $180 $160 1,400 $140 1,200 $120 Even modest rebound in price has been supportive of improvement in rig count 1, $100 $80 $60 $ $ $0 Source: Baker Hughes Inc., Bloomberg LP and Wells Fargo Securities Economics 11
12 This is Now: Oil Prices $140 Brent Oil Front Contract Price Forecast Quarterly Average of Daily Close $140 $120 $120 $100 $100 $80 Forecast $80 Now we see prices range-bound $60 $60 $40 $40 $20 $20 Brent Oil Prices: $52.2 $0 $ Source: IHS Global Insight and Wells Fargo Securities Economics 12
13 This is Now: Oil Prices Outlook Today $120 $100 $80 West Texas Intermediate (WTI) Crude Oil Price dollars per barrel Historical spot price STEO price forecast NYMEX futures price 95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval $120 $100 $80 Confidence intervals have tightened as well $60 $60 $40 $40 $20 $20 $0 $0 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018 Jan 2019 Source: Energy Information Administration and Wells Fargo Securities Economics 13
14 Cap-ex outlook Finally Brightening? We are seeing acceleration in soft data, as the ISM new orders index has registered fastest pace of expansion since 2004 ISM is Riding High But Why the Gap With Hard Data? 65 ISM Manufacturing Composite Index Diffusion Index ISM New Orders & Manufacturers' New Orders Index, 3-Month Annual Rate ISM Manufacturing Index: Month Moving Average: ISM New Orders Index: 69.4 (Left Axis) -6 Manufacturers' New Orders: 14. (Right Axis) Source: U.S. Dept. of Commerce, ISM and Wells Fargo Securities Economics 14
15 Household Balance Sheets Consumer deleveraging may be nearing an end, but monthly debt and other financial obligation payments remain near historic lows Household Debt Financial Obligations Ratio 10 Household Debt - Consumer & Mortgage As a Percent of Disposable Personal Income Consumer Credit: 26.2% Home Mortgages: 69.5% % 18. Financial Obligations Ratio-Total As a Percent of Disposable Personal Income Total: 15.5% 18.5% % 17.5% % 16.5% % 15.5% % % Source: Federal Reserve Board and Wells Fargo Securities Economics 15
16 Consumer Confidence: Near a 16-Year High 160 Consumer Confidence Index Conference Board Consumer confidence has jumped post-election. Will more upbeat sentiment translate into an acceleration in personal consumption? Confidence Yr/Yr % Chg: 7.8% Confidence: Month Moving Average: Source: The Conference Board and Wells Fargo Securities Economics 16
17 Real PCE Forecast 8% Real Personal Consumption Expenditures Bars = CAGR Line = Yr/Yr Percent Change 8% 6% Forecast 6% Consumer spending growth is set to moderate but remain positive throughout the forecast horizon 2% -2% - 2% -2% - -6% PCE - CAGR: 2.2% PCE - Yr/Yr Percent Change: 2.6% -8% % -8% Source: U.S. Department of Commerce and Wells Fargo Securities Economics 17
18 Housing Multifamily Starts Multifamily Forecast Single-Family Starts Single-Family Forecast Housing Starts Millions of Units After a very slow start, we see single-family homebuilding steadily gaining momentum over the next few years Forecast Apartment construction is showing signs of topping out but should remain near recent levels Source: U.S. Department of Commerce and Wells Fargo Securities Economics 18
19 U.S. Homeownership Rate at Multi-Decade Low 7 69% U.S. Homeownership Rate Percent Homeownership Rate: 63.7% 7 69% 68% 68% The long slide in the homeownership rate may have finally ended. The recovery in homeownership is likely to be protracted due to a combination of cyclical and structural factors. 67% 66% 65% 6 63% 67% 66% 65% 6 63% 62% % Source: U.S. Department of Commerce and Wells Fargo Securities Economics 19
20 Fiscal Policy
21 Federal Fiscal Policy Outlook Key Tax Law Changes Individual Tax Code Changes The bill reduces the top income tax rate to 37 percent Eliminates the state and local tax (SALT) deduction but allows income and property tax deductions of up to $10K Pass-throughs would be allowed to deduct income up to 20 percent Increases the standard deduction and the child tax credit Caps mortgage interest deduction at $750,000 Keeps the estate tax but doubles the exemption Keeps the Alternative Minimum Tax (AMT) but lifts the threshold to $500K Maintains several deductions including medical expenses, student loans and private activity bonds (PABs) Repeals the Obamacare individual mandate Individual cuts will expire on December 31, 2025 Business Tax Code Changes Permanently reduces the corporate tax rate to 21% from the current 35% federal rate starting in 2018 The corporate AMT would be repealed The business interest expense deductions are capped at 30 percent of EBITDA for 4 years and 30 percent of EBIT thereafter The bill would allow for full and immediate expensing of business capital investments for a 5-year period Ends the current worldwide corporate tax system. Existing profits held abroad can be repatriated at 15.5 percent for cash and cash equivalents, 8 percent for reinvested foreign earnings Economics 21
22 Federal Fiscal Policy Outlook Key Issues to Watch in the Second Session of the 115 th Congress Infrastructure Spending There is currently no political appetite nor a funding mechanism to pass another infrastructure plan The fiscal policy checklist Immigration Reform Expect a fix for DACA early in the year which will likely be paired with border security measures Attempts to restrict immigration have faced court challenges Trade Policy Changes Congress has delegated many powers to the executive branch related to trade policy NAFTA is currently being renegotiated but we expect very few major changes to the agreement Tariffs or backing out of existing trade deals without replacements likely represents the greatest downside fiscal policy risk Economics 22
23 Federal Fiscal Policy Outlook Potential Regulatory Changes General Regulatory Changes Many pending actions/regulations have already been halted through an executive order Changes to existing regulations will take time We expect some marginal changes to the regulatory environment Financial Regulatory Changes With new Federal Reserve Board members next year, look for more changes to financial regulations. Liquidity Coverage Ratio (LCR) changes are a likely place for regulatory modifications Allow U.S. Municipal Bonds to be counted towards fulfilling LCR requirements which would reduce demand for 10-year U.S. Treasuries Would change the profitability profile of lending channels, likely extending the credit cycle Economics 23
24 Major Regulatory Changes Major New Regulatory Changes Number of Rules Reviewed By the OIRA Each Year The number of new regulations put in place in the first year of the Trump administration is the lowest among the last four administrations Clinton Bush Obama Trump Source: Office of Information and Regulatory Affairs and Wells Fargo Securities Economics 24
25 Small Business Optimism Small business confidence is surging after the tax-cuts and business owners have become less worried about the regulatory environment Small Business Optimism Small Business Concerns 110 NFIB Small Business Optimism Overall Index 1986 = % Small Business Most Important Problems Single Most Important Problem Facing Firms, SA 3-MMA 35% % 25% % 15% Small Business Optimism: % Taxes: 21. 5% Regulations: Source: National Federation of Independent Business (NFIB) and Wells Fargo Securities Economics 25
26 Federal Fiscal Policy Outlook The composition of federal spending has shifted dramatically. The CBO projects that the debt-to-gdp ratio will surpass 91.2 percent by Composition of Federal Spending Federal Debt Continues to Rise Federal Spending Percent of Total Discretionary Mandatory Net Interest 10 U.S. Debt Held By The Public CBO Baseline Projections Begin in 2017, Percent of GDP Baseline Debt: 91.2% % 31% 8% 9 9 Total Spending 1970: 19% of GDP % 63% 6% 6 6 Total Spending 2017: 21% GDP % 61% 21% Total Spending 2047: 29% of GDP Source: Congressional Budget Office and Wells Fargo Securities Economics 26
27 Monetary Policy
28 Pace of Policy Firming % % 3. Appropriate Pace of Policy Firming Target Federal Funds Rate at Year-End December 2017 Median Response September 2017 Median Response December 2016 Median Response December 2015 Median Response Futures Market: January % % 3. Normalization is underway 2.5% % % 2.5% % % Longer Run 0. Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities Economics 28
29 Unemployment 12% U.S. Unemployment Rate Seasonally Adjusted FOMC Central Tendency for Longer Run 12% Unemployment Rate: 4.1% 1 1 The labor market is steadily firming, the unemployment rate is well-below the FOMC s central tendency target 8% 6% 8% 6% 2% % Source: U.S. Department of Labor, Federal Reserve Board and Wells Fargo Securities Economics 29
30 Labor Turnover Job openings also near a record high, while quits approach levels last seen in 2001 Openings Separations Job Openings Millions of Openings, Seasonally Adjusted Quits vs. Layoffs Millions of Workers, SA Total Job Openings: 6.00M Three-Month Moving Average: 6.09M Quits: 3.18M Layoffs: 1.63M Source: U.S. Department of Labor and Wells Fargo Securities Economics 30
31 Average Hourly Earnings 6% Average Hourly Earnings vs. Atlanta Fed Wage Growth Tracker; 3-MMA of YoY % Chg. 6% 5% 5% Wage growth has picked up modestly but remains limited by lower-skilled workers entering the workforce and Baby Boomers beginning to retire 3% 2% 1% Atlanta Fed Wage Growth Tracker: 3.2% Average Hourly Earnings (Prod. & Supervisory): 2.3% % 2% 1% Source: Federal Reserve Bank of Atlanta, U.S. Department of Labor and Wells Fargo Securities Economics 31
32 Inflation 5% PCE Deflator vs. Core PCE Deflator Year-over-Year Percent Change 5% 3% 3% Inflation has moved higher but remains below the Fed s 2 percent target 2% 1% 2% 1% -1% PCE Deflator: 1.8% "Core" PCE Deflator: 1.5% -2% % -2% Source: U.S. Department of Commerce and Wells Fargo Securities Economics 32
33 It s easier to get into something than to get out of it Donald Rumsfeld Prior to the 2008, Fed s holdings were about $900 of mostly Treasuries. Balance sheet briefly held a diverse selection of financial instruments, such as commercial paper and currency swaps, to help mitigate the liquidity challenges in the financial system. Current size is roughly $4.5 trillion, comprised mostly of Treasuries and mortgage-backed securities (MBS). $5.0 $4.5 $4.0 $3.5 $3.0 Federal Reserve Balance Sheet Trillions Other: $176.0B Foreign Swaps: $3.6B Repos & Dis. Window: $0.2B Agencies & MBS: $1,774.9B Treasuries: $2,465.4B $5.0 $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $ Source: Federal Reserve System and Wells Fargo Securities $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 Economics 33
34 The Fed and the Treasury Market 25% Fed's Share of the Treasury Market Fed Treasury Holdings/Marketable Treasuries Outstanding 25% 2 2 The Fed holds a historically high share of the Treasury market but perhaps not as high as one might think 15% 1 15% 1 5% Fed's Share of the Treasury Market: 17.5% Fed's Average Share : % Source: U.S. Department of the Treasury, Federal Reserve Board and Wells Fargo Securities Economics 34
35 Where Fiscal and Monetary Policy Are Intertwined Like it or not, Fed s large holdings currently help reduce the budget deficit. With rising deficits and trouble finding the funding for policy proposals, reduced remittances to the Treasury cannot be ignored. Fed earnings remitted to the Treasury in the past year add up to roughly $80 billion. Without it, last year s fiscal budget deficit would have been 16 percent larger. U.S. Federal Budget Fed Earnings Remitted $400 $200 $0 U.S. Federal Budget Balance Billions of Dollars $400 $200 $0 $140 $120 Fed Earnings Remitted to the Treasury Billions of Dollars, 12-Month Moving Sum Earnings Remitted: $80.8 Billion $140 $120 -$200 -$200 $100 $100 -$400 -$400 -$600 -$600 $80 $80 -$800 -$800 $60 $60 -$1,000 -$1,000 -$1,200 -$1,200 $40 $40 -$1,400 -$1,600 -$1,800 Federal Budget Balance: FY -$665.7B CBO Forecast: FY -$1,462.6B $1,400 -$1,600 -$1,800 $20 $ $20 $0 Source: U.S. Department of the Treasury, Congressional Budget Office and Wells Fargo Securities Economics 35
36 U.S. Forecast Wells Fargo U.S. Economic Forecast Actual Forecast Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Actual Forecast Real Gross Domestic Product Personal Consumption Inflation Indicators 2 PCE Deflator Consumer Price Index Industrial Production Corporate Profits Before Taxes Trade Weighted Dollar Index Unemployment Rate Housing Starts Quarter-End Interest Rates 5 Federal Funds Target Rate Conventional Mortgage Rate Year Note Forecast as of: December 21, Compound Annual Growth Rate Quarter-over-Quarter 2 Year-over-Year Percentage Change 3 Federal Reserve Major Currency Index, 1973=100 - Quarter End 4 Millions of Units 5 Annual Numbers Represent Averages Economics 36
37 International Developments
38 U.K. GDP Growth 6% 3% U.K. Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change Forecast 6% 3% Implications of Brexit have not been as bad as feared -3% -3% -6% -6% -9% -12% Compound Annual Rate: 1.6% Year-over-Year Percent Change: 1.5% % -12% Source: IHS Global Insight and Wells Fargo Securities Economics 38
39 Eurozone Real GDP 8% Eurozone Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change Compound Annual Growth: 2. Year-over-Year Percent Change: 2.6% Forecast 8% 3+ Years of Uninterrupted Growth % -8% -12% % Source: IHS Global Insight and Wells Fargo Securities Economics 39
40 Eurozone PMIs 65 Eurozone Purchasing Managers' Indices Index The Eurozone purchasing managers indices are pointing to continued recovery E.Z. Manufacturing: 60.1 E.Z. Services: Source: Bloomberg LP and Wells Fargo Securities Economics 40
41 ECB Balance Sheet ECB Balance Sheet Trillions of Euros ECB Balance Sheet: 4.46T The ECB s QE program should remain operational Source: IHS Global Insight and Wells Fargo Securities Economics 41
42 China Real GDP 16% Chinese Real GDP Forecast Year-over-Year Percent Change 16% % 12% Growth in China has stabilized, but we do not expect it to return to the double-digit growth rates seen in the past 1 8% 6% WF Fcst. 1 8% 6% 2% 2% Year-over-Year Percent Change: 6.8% Source: Bloomberg LP and Wells Fargo Securities Economics 42
43 Chinese Debt: NFCs and SOEs U.S. vs. China Debt Outstanding by Sector Percent of GDP Central Government Non-Financial Corporate Household Debt problems in China are concentrated in the business sector United States China Source: Bloomberg LP and Wells Fargo Securities Economics 43
44 Japanese GDP 12% Japanese Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change 12% 8% 8% Mixed track record for Abenomics - -8% -12% - -8% -12% -16% -16% -2 Compound Annual Growth: 2.5% Year-over-Year Percent Change: 2.1% Source: Bank of Japan, IHS Global Insight and Wells Fargo Securities Economics 44
45 Global GDP Growth 7.5% Real Global GDP Growth Year-over-Year Percent Change, PPP Weights 7.5% 2016 will likely mark the weakest year for global economy since 2009, but we see gradual improvement in coming years % 3. Period Average WF Forecast % 3. OECD s updated forecast: 3.5% in % in % % % % Source: International Monetary Fund and Wells Fargo Securities Economics 45
46 Global Exports 25% 2 15% 1 5% Global Export Volumes Year-over-Year Percent Change 25% 2 15% 1 5% Global trade has slowed over the past year -5% -1-15% -2 Real Exports: 5.7% Average 1992-Present: 5.1% -25% % -1-15% -2-25% Source: IHS Global Insight and Wells Fargo Securities Economics 46
47 Global Forecast (Year-over-Year Percent Change) Wells Fargo International Economic Forecast GDP CPI Global (PPP Weights) 3.5% % 3.5% 3.5% Global (Market Exchange Rates) 3.3% 3.3% 3.2% 3.1% 3.5% 3.5% Growth in the global economy likely will grind closer to long term trend Advanced Economies % 1.8% 1.9% 2. United States 2.3% 2.7% 2.5% 2.1% 2.2% 2.1% Eurozone % 1.9% 1.5% 1.6% 1.8% United Kingdom 1.5% % 2.7% 2.3% 2. Japan 1.5% 1.1% % 1.1% Korea 3.3% % % 2.1% Canada 2.9% % 1.6% Developing Economies 1 4.7% 4.5% 4.5% % China 6.6% % 2.2% 2.2% India 2 7.1% 6.7% 7.1% 3.3% % Mexico % 2.9% 5.9% % Brazil % % 3.8% 4. Russia 1.8% 2.1% 2.2% 3.7% % Forecast as of: December 14, Aggregated Using PPP Weights ²Forecast Refers to Fiscal Year Source: International Monetary Fund and Wells Fargo Securities Economics 47
48 Wells Fargo Securities Economics Group John E. Silvia Global Head of Research, Economics & Strategy Diane Global Head of Research, Economics & Strategy Mark Vitner, Senior Economist Jay H. Bryson, Global Economist Sam Bullard, Senior Economist Nick Bennenbroek, Currency Strategist Eugenio J. Alemán, Senior Economist Azhar Iqbal, Econometrician Tim Quinlan, Senior Economist Eric J. Viloria, Currency Strategist Chief Economist Senior Economists Economists Sarah House, Economist Michael A. Brown, Economist Jamie Feik, Economist Erik Nelson, Currency Strategist Economic Analysts Michael Pugliese, Economic Analyst Harry Pershing, Economic Analyst Hank Carmichael, Economic Analyst Ariana Vaisey, Economic Analyst Abigail Kinnaman, Economic Analyst Shannon Seery, Economic Analyst Administrative Assistants Donna LaFleur, Executive Assistant Dawne Howes, Administrative Assistant 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 2018 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 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. Economics 48
49 2018 Southwest Economic Outlook Economics 2016 Wells Fargo Bank, N.A. All rights reserved. For public use.
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