Economic Outlook. August 30, 2011

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1 Economic Outlook August 30, 2011

2 Economic Growth 10.0% 8.0% Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDPR - CAGR: 1.0% GDPR - Yr/Yr Percent Change: 1.5% 10.0% 8.0% 6.0% 6.0% We are two years into the economic recovery and there is still a considerable amount of uncertainty regarding sovereign debt issues in Europe, the federal budget deficit and the U.S. housing sector 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Forecast 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -8.0% -10.0% % Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 2

3 Economic Growth 15% 12% Real GDP Growth Year-over-Year Percent Change, Quarterly, SA Year-over-Year Percent Change: 1.55% 15% 12% The year-over-year percent change in real GDP dipped below the two percent mark in the second quarter, which is a worrisome sign that has often preceded recessions in the past 9% 9% 6% 6% 3% 3% 2% 2% 0% 0% -3% -3% -6% % Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 3

4 Industrial Production & Exports A pickup in international trade is boosting industrial production and exports; however, it s not likely to create a whole lot of jobs as growth is concentrated in capital intensive industries Industrial Production Exports 105 Industrial Production Index, 2007= $40 Capital Goods Ex. Motor Vehicles & Aircraft Billions of Dollars $40 Exports: $37.1 Billion $35 $ $30 $ $25 $ Industrial Production: $20 $ Source: U.S. Department of Commerce, Federal Reserve Board and Wells Fargo Securities, LLC Economic Outlook 4

5 Labor Market Job losses exceeded every post-world War II downturn and the modest recovery to date has been extremely disappointing 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Cycle Cycle Cycle 2001 Cycle 2007-To-Date Forecast Employment Cycles Percent Change from Cycle Peak 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -4.0% -6.0% -6.0% -8.0% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 5

6 Employment Costs 5% 4% Employment Cost Index Year-over-Year Percent Change Wages and Salaries: 1.6% Benefits: 3.6% Total Compensation: 2.2% 5% 4% Compensation costs remain contained, but the cost of providing healthcare retirement benefits is accelerating 3% 2% 1% 3% 2% 1% 0% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 6

7 Inflation 4.0% "Core" CPI vs. "Core" PCE Year-over-Year Percent Change 4.0% 3.5% 3.5% 3.0% 3.0% Core inflation is running slightly below the lower bound of the Fed s comfort zone 2.5% 2.0% 1.5% 2.5% 2.0% 1.5% 1.0% 0.5% Core PCE: 1.3% Core CPI: 1.8% % 0.5% Source: Federal Reserve Board, Moody s and Wells Fargo Securities, LLC Economic Outlook 7

8 Homebuilding 2.4 Housing Starts Millions of Units We believe housing starts have bottomed and will increase modestly through 2012 and return to a normal level by Forecast Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 8

9 Florida

10 Florida Employment 102% Florida Employment: Percent of Previous Peak Percent 102% 100% 100% 98% 98% After su ering its worst recession in decades, Florida has seen a very anemic recovery 96% 94% 92% 96% 94% 92% 90% 90% Percent of Previous Peak: 89.5% 88% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 10

11 Florida Employment by Industry Florida Employment Growth by Industry Year-over-Year Percent Change of 3-M Moving Average Tourism and healthcare are leading the recovery, but job gains are slowly beginning to broaden Total Nonfarm Trade, Trans. & Utilities Government Educ. & Health Svcs. Prof. & Bus. Svcs. Leisure and Hospitality Financial Activities Construction Other Services Manufacturing Information More Number of Employees Less July % -4% -2% 0% 2% 4% 6% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 11

12 Metro-level Employment (Year Ago) 1.25% Florida Employment Growth: July 2010 Year-over-Year Percent Change, 3-Month Moving Average Recovering Expanding 3-Month Moving Average Percent Change 1.00% 0.75% 0.50% 0.25% 0.00% Ocala Orlando Palm Bay Naples Port St. Lucie Cape Coral Sarasota Tampa Fort Lauderdale Miami Panama City Pensacola Jacksonville West Palm Beach Gainesville Tallahassee Punta Gorda -0.25% Sebastian -0.50% Contracting -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Year-over-Year Percent Change Decelerating Economic Outlook 12

13 Metro-level Employment (March 2011) 1.5% Recovering Florida Employment Growth: July 2011 Year-over-Year Percent Change, 3-Month Moving Average Expanding 3-Month Moving Average Percent Change 1.0% 0.5% 0.0% -0.5% -1.0% Palm Bay Punta Gorda Ocala Sarasota Gainesville Port St. Lucie Sebastian Panama City Tallahassee Fort Cape Coral Lauderdale Daytona Jacksonville Tampa West Palm Beach Pensacola Orlando Miami -1.5% Contracting -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 13 Year-over-Year Percent Change Decelerating

14 Florida Unemployment Rate by County Unemployment Rate by County Florida Unemployment Rate June 2011 Greater than 13.1% 12.2% to 13.1% 11.2% to 12.2% 9.9% to 11.2% Less than 9.9% Source: US Department of Labor and Wells Fargo Securities, LLC Economic Outlook 14

15 Florida Home Prices and Construction Home prices have seen a slight pickup in recent months, but there remains a large backlog of foreclosures waiting to be sold. New home construction has bottomed Home Prices Permit Issuance CoreLogic Home Price Index: FL vs. US Index, 2000=100, Not Seasonally Adjusted Florida: United States: Florida Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family: 34,848 Single-Family, 12-Month Moving Avg.: 29,109 Multi-Family, 12-Month Moving Avg.: 9, Single-Family Average (1998 to 2003): 116, Source: U.S. Department of Commerce, CoreLogic and Wells Fargo Securities, LLC Economic Outlook 15

16 Jacksonville, FL Employment Growth & Unemployment Rate Job gains have finally picked up in construction, though most gains are still being made in education & healthcare services. The unemployment rate is high, but heading lower Employment Unemployment Rate 9% Jacksonville MSA Nonfarm Private Employment 3-Month Moving Averages 9% 12% Jacksonville MSA Unemployment Rate Seasonally Adjusted Unemployment Rate: 9.7% 12% 6% 6% 12-Month Moving Average: 10.9% 10% 10% 3% 3% 0% 0% 8% 8% -3% -3% 6% 6% -6% -6% -9% -12% 3-Month Annual Rate: 5.2% Year-over-Year Percent Change: 1.3% Household Employment: Yr/Yr Percent Change: 1.4% % -12% 4% 2% % 2% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 16

17 Jacksonville, FL Home Prices & Construction Activity Home prices for non-distressed properties have likely bottomed, but construction activity remains very weak Home Prices Housing Permits CoreLogic Home Price Index: Jacksonville, FL Index, 2000=100, Not Seasonally Adjusted Jacksonville, FL: United States: Jacksonville MSA Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family: 4,092 Single-Family, 12-Month Mov. Avg.: 2,982 Multi-Family, 12-Month Mov. Avg.: 234 Jacksonville Single-Family Avg. (1988 to 2003): 7, Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 17

18 St. Johns County Employment Picture Employment growth has improved in St. Johns County, but payrolls remain well below their prerecession peak Employment Growth Employment Level From Peak 20% St. Johns County Employment 3-Month Moving Averages 20% 102% St. Johns Employment: Percent of Previous Peak Percent, As of December % 15% 15% 100% 100% 10% 10% 98% 98% 5% 5% 96% 96% 0% 0% 94% 94% -5% -5% 92% 92% -10% -15% 3-Month Annual Rate: 2.2% Year-over-Year Percent Change: 1.6% % -15% 90% 88% % 88% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 18

19 St. Johns County Unemployment Rate 11% 10% St. Johns County Unemployment Rate Percent, Seasonally Adjusted Unemployment Rate: 7.6% 12-Month Moving Average: 9.2% 11% 10% 9% 9% 8% 8% The unemployment rate has fallen by 2.3 percentage points since the start of the year 7% 6% 5% 4% 7% 6% 5% 4% 3% 3% 2% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 19

20 St. Johns County Personal Income Per Capita $70.0 Personal Income Per Capita Thousands of Dollars $70.0 $60.0 * As of 2009 $60.0 $50.0 $47,500 $50.0 Personal income per capita in St. Johns County is higher than the state and metropolitan average $40.0 $30.0 $20.0 $39,400 $39,000 $40.0 $30.0 $20.0 $10.0 $10.0 $0.0 St. Johns County Jacksonville Florida $0.0 Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 20

21 St. Johns County Home Prices St. Johns County Home Prices Index, 2000=100, Not Seasonally Adjusted St. Johns County, FL: United States: * Back to 2002 Levels Home prices in St. Johns are back to 2002 levels Source: CoreLogic and Wells Fargo Securities, LLC Economic Outlook 21

22 St. Johns County Building Permits 5,000 St. Johns County, FL Housing Permits Seasonally Adjusted Annual Rate 5,000 4,000 4,000 Home construction remains very weak as new homes must compete against a tide of foreclosures 3,000 2,000 3,000 2,000 1,000 1,000 0 Single-Family: 1, Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 22

23 Issues to Watch Credit Availability & Finreg Deleveraging Trade Wars & Currency Devaluations European Debt Crisis Asian Real Estate Bubble? Fiscal & Monetary Policy Geopolitical Tensions Energy/Commodity Price Swings Economic Outlook 23

24 Our Forecast Wells Fargo U.S. Economic Forecast A c t u a l F o r e c a s t A c t u a l F o r e c a s t Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q Real Gross Domestic Product Personal Consumption Inflation Indicators 2 "Core" 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: August 26, 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 Economic Outlook 24

25 Appendix

26 Wells Fargo Economics Group Publications A Sampling of Our Recent Special, Regional & Industry Commentary Recent Special Commentary To view any of our past research please visit: economics To join any of our research distribution lists please visit: economics D a t e T i t l e A u t h o r s August-23 State Coincident Indicators Highlight A Disturbing Trend Vitner & Brown August-23 Are We Headed for Another Global Recession? 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 July-29 Housing Chartbook: July 2011 Vitner, Khan & Seydl July-27 With Greece "Stabilized," Will the Fire Spread? Bryson & Kruse July-25 Is the Greek Debt Problem "Solved?" Bryson & Kruse July-21 Employment: Beyond the Sound Bites Reading the Signals I Silvia & Watt July-21 Moody's Blues: Implications for a U.S. Downgrade Bryson, Quinlan & Seydl July-15 Employment Issues Linger in New Jersey Vitner, Khan & Watt July-15 Global Chartbook: July 2011 June-30 Maryland: Economic Diversity Breeds Uneven Growth Silvia, Brown & Kruse June-30 The Brazilian Exchange Rate Conundrum Aleman June-29 Housing Data Wrap-Up: June 2011 Vitner, Khan & Seydl June-24 Texas Budget: Biennium Aleman & Kruse June-24 Regional Chart Book: Quarter 2 Vitner, Brown & Seydl June-22 Credit Quality Monitor Anderson & Kashmarek June-22 FOMC: Steady as She Goes Bullard June-21 An Economic Framework for Financial Services Silvia, Brown & Watt June-01 U.K. Trip Notes: Will the Expansion Continue? Bryson May-31 Housing Chartbook: May 2011 Vitner, Khan & Seydl May-27 Three Hard Realities of an Economy Out of Balance Silvia May-26 North Carolina: Where Is the Job Growth? Silvia & Brown May-26 Conference Notes: Thoughts on the Fiscal Outlook Bryson May-25 Commercial Real Estate Chartbook: Quarter 1 Vitner, Khan & Seydl May-18 Cyclical vs. Structural Unemployment: The Debate Rages On Vitner & Seydl May-17 Virginia Faces Headwinds, but Still an Outperformer Silvia, Vitner & Watt May-16 Raise the Roof: A Perspective on Federal Spending Silvia, Brown & Seydl May-13 An Update on the U.S. Hispanic Market Aleman May-04 A Closer Look at Consumer Leverage Vitner, Quinlan & Kruse May-03 Deciphering Business Inventory Trends Anderson & Brown May-02 Housing Data Wrap Up: May 2011 Vitner, Khan & Seydl Economic Outlook 26

27 Wells Fargo Securities, LLC Economics Group a Global Head of Research and Economics: Diane Schumaker-Krieg Chief Economist: John Silvia 301 S. College Street MAC D Charlotte, NC Senior Economists John Silvia, Chief Economist john.silvia@wellsfargo.com Mark Vitner, Senior Economist mark.vitner@wellsfargo.com Jay Bryson, Global Economist jay.bryson@wellsfargo.com Scott Anderson, Senior Economist scott.a.anderson@wellsfargo.com Eugenio Aleman, Senior Economist eugenio.aleman@wellsfargo.com Sam Bullard, Senior Economist sam.bullard@wellsfargo.com Economists Anika Khan, Economist anika.khan@wellsfargo.com Azhar Iqbal, Econometrician azhar.iqbal@wellsfargo.com Ed Kashmarek, Economist ed.kashmarek@wellsfargo.com Tim Quinlan, Economist tim.quinlan@wellsfargo.com Michael Brown, Economist michael.a.brown@wellsfargo.com Tyler Kruse, Economic Analyst tyler.kruse@wellsfargo.com Joe Seydl, Economic Analyst joseph.seydl@wellsfargo.com Sarah Watt, Economic Analyst sarah.watt@wellsfargo.com Executive Assistants Peg Gavin (Charlotte), Executive Assistant peg.gavin@wellsfargo.com Carol Nightengale (Minneapolis), Executive Assistant Wells Fargo Securities Economics Group publications are produced by Wells Fargo carol.nightengale@wellsfargo.com 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, and Wells Fargo Securities International 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 o er 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 a liated 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 Economic Analysts Economic Outlook 27

Economic Outlook. May 17, 2011

Economic Outlook. May 17, 2011 Economic Outlook May 17, 2011 Economic Growth The economy ended 2010 on a strong note, but has run into a wall with higher gasoline prices and further weakness in housing more recently Source: U.S. Department