Goods +0.53% Services +0.93% Structures -0.15% Nonresidential -0.24% Fixed investment +0.03% Cap goods -0.15% Residential +0.27% Int. property +0.

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1 Trend Macrolytics, LLC Donald Luskin, Chief Investment Officer Thomas Demas, Managing Director Michael Warren, Energy Strategist Data Insights: GDP Friday, January 29, 2016 Today's GDP data: what you need to know -- where did the growth come from? Contributions to real, sequential quarter change, SAAR Biggest change per detail-level: positive negative Personal consumption +1.46% Goods +0.53% Services +0.93% Durable +0.32% Nondurable +0.22% Structures -0.15% Nonresidential -0.24% Fixed investment +0.03% Cap goods -0.15% Residential +0.27% Real GDP +0.70% Inventories -0.45% Net exports -0.47% Int. property +0.07% Exports -0.31% Goods -0.46% Services +0.15% Imports -0.16% Goods -0.08% Services -0.08% Government +0.12% Federal +0.18% Defense +0.14% State/local -0.06% Nondefense +0.04% Source: Bureau of Economic Analysis For more information contact us: Donald Luskin: Thomas Demas: Copyright 2016 Trend Macrolytics LLC. All rights reserved. This document is not to be forwarded to individuals or organizations not authorized by Trend Macrolytics LLC to receive it. For information purposes only; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources deemed to be reliable, but no warranty is made as to accuracy.

2 Price index data: what you need to know -- where did the inflation come from? Contribution to sequential quarter change, SAAR Biggest change per detail-level: positive negative Durable -0.14% Personal consumption +0.09% Goods -0.80% Nondurable -0.66% Services +0.89% Health care +0.15% Energy -0.65% Other +0.74% Food unch Core +0.87% Gross dom purchases +0.20% Fixed investment +0.14% Nonresidential +0.06% Residential +0.08% Structures -0.01% Cap goods +0.07% Inventories -0.02% Government unch Int. property +0.07% Federal +0.07% State/local -0.06% Defense +0.03% Nondefense +0.04% Source: Bureau of Economic Analysis, TrendMacro calculations 2

3 Personal income data: what you need to know -- where did the growth come from? Contribution to nominal, seq quarter change, SAAR Biggest change per detail-level: positive negative Employee compensation +3.17% Wages +2.67% Benefits +0.49% Proprietors income +0.38% Rent +0.21% Disposable personal income +3.34% Asset income +0.02% Transfer payments +0.86% Interest -0.47% Dividends +0.28% Social insurance contributions -0.32% Taxes -0.77% Source: Bureau of Economic Analysis, TrendMacro calculations 3

4 Quarter change unemployment rate Broken Okun's Law: real growth required to change unemployment Expansion Recession Linear trend, plus monthly plots for 09-current expansion Latest +1.5% rec +1.5% rec +1.0% +1.0% rec 80 rec rec +0.5% 0 Average exp Average rec rec rec -0.5% 09-current exp +0.5% 60 rec rec 01 rec rec 70 rec -1.0% -15% -10% -5% 0 +5% +10% +15% 0 09-current exp exp exp exp exp exp -0.5% exp exp exp exp exp -1.0% -15% -10% -5% 0 +5% +10% +15% Quarter change real GDP, less postwar average Source: Bureau of Economic Analysis, BLS Current Population Survey, TrendMacro calculations 4

5 25-quarter gain from recession min The Zarnowitz Law: severity of output loss in recession, versus vigor of recovery Actual --- Regression for recessions Theoretical for current recovery based on regression 45% % % 30% 25% y = x R² = % 15% % 5% -5% -4% -4% -3% -3% -2% -2% -1% -1% 0% Loss from expansion max to recession min The plucked string theory: GDP reverts to trend after perturbation Real GDP, USD billions, log scale --- '47-' % --- '74-'07 trend 3.02% --- Post-'07 trend Recession $20,000 Post-73 trend 3% Post-07 trend 2% Pre-73 trend 4% $18,000 $16,000 $14,000 $12,000 $2,000 $10,

6 "New normal" watch: personal consumption share of nominal GDP Personal consumption expenditures Ex-health care services Recession 70% 65% 60% 55% 50% "New normal" watch: nominal personal consumption expenditures USD billions Personal consumption expenditures Ex-health care services Recession $14,000 $12,000 $10,000 $8,000 $6,000 $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5, $4,000 $2,000 $0 6

7 Capital on strike: fixed investment share of nominal GDP Fixed investment Equipment Int. property Nonresidential structures Housing Recession 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% Capital on strike: nominal fixed investment USD billions Fixed investment Equipment Int. property Nonresidential structures Housing $3,000 $2,500 $2,000 $1,500 $1,000 $2,700 $2,200 $1,700 $1,200 $700 $ $500 $0 7