U.S. Economic Outlook Mark Vitner, Managing Director & Senior Economist February 1, 2013

Economic Outlook 2 Economic Growth We are more than three 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 willingness of businesses and households to commit to major capital purchases. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Economic Outlook 3 Financial Crises Are Becoming More Frequent Treasury yields are currently near record low levels. We believe QE and fiscal policy uncertainty are the primary drivers of ultra-low interest rates. Source: IHS Global Insight and Wells Fargo Securities, LLC

Economic Outlook 44 The Timing of The First Fed Rate Hike The timing for the Fed’s first tightening move has been pushed even further out. Interest rates may rise sooner than currently expected. Source: Federal Reserve Board and Wells Fargo Securities, LLC Individual FOMC Member ForecastsConsensus Fed Funds Rate Hike

Economic Outlook 5 Unemployment Forecast Further reductions in the unemployment rate may lead to an earlier tightening in monetary policy. Source: Federal Reserve Board and Wells Fargo Securities, LLC

Economic Outlook 6 Federal Reserve Balance Sheet The massive expansion of the Fed’s balance sheet has lifted asset prices and has also given the economy a boost. But all magic comes with a price! Source: Federal Reserve Board and Wells Fargo Securities, LLC

Economic Outlook 7 U.S. Budget Deficit The federal budget deficit has come down somewhat but remains problematic. Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC

Economic Outlook 8 Labor Market Unemployment is gradually trending down, although much of the improvement has come from unusual forces, including extraordinary seasonal factors and sluggish labor force growth. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Economic Outlook 9 Labor Market Job losses exceeded every post- World War II downturn, and the modest recovery to date has been extremely disappointing. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Economic Outlook 10 Consumer Related This year’s improved stock market has helped bolster consumer spending at a time when real incomes are barely growing, and consumer confidence remains historically low. Source: U.S. Department of Commerce, Conference Board and Wells Fargo Securities, LLC Consumer ConfidenceHousehold Wealth

Economic Outlook 11 Consumer Confidence Future expectations took a hit on worries about the fiscal cliff and upcoming deficit negotiations. Consumers feel better about current economic conditions. Source: Conference Board and Wells Fargo Securities, LLC Present vs. Future ExpectationsConsumer Confidence

Economic Outlook 12 Wells Fargo/Gallup Small Business Index Small business confidence rose 20 points in early January, swiftly rebounding from the 28 point plunge the previous quarter. Source: Gallup, Wells Fargo Bank and Wells Fargo Securities, LLC

Economic Outlook 13 Homebuilding We believe housing starts have bottomed and will increase modestly over the next few years. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Economic Outlook 14 Housing Starts Apartment construction accounts for much of the recent improvement in homebuilding. We believe multifamily housing will account for a larger proportion of future starts. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Multifamily Housing StartsSingle & Multifamily Housing Starts

Economic Outlook 15 Home Prices Home prices have firmed recently as foreclosures have become a smaller portion of overall sales. Prices will likely fluctuate along a low trajectory until more foreclosures clear through the pipeline. Source: Federal Housing Finance Agency, National Association of Realtors, S&P Corp. and Wells Fargo Securities, LLC

Economic Outlook 16 NAHB/Wells Fargo Housing Market Index Homebuilder sentiment has risen significantly over the past year, but it is still at a relatively low level. Source: National Association of Home Builders and Wells Fargo Securities, LLC

Economic Outlook 17 Supply & Demand Apartments have seen the greatest improvement in operating fundamentals. Source: Reis, Inc., PPR and Wells Fargo Securities, LLC IndustrialApartment

Economic Outlook 18 Supply & Demand Office vacancy rates have leveled off but absorption remains relatively weak. Source: Reis, Inc. and Wells Fargo Securities, LLC RetailOffice

Alabama & Birmingham

Economic Outlook 20 Alabama Employment Picture Nonfarm payrolls remain 6.8 percentage points below their prerecession peak. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Economic Outlook 21 Alabama Employment Growth by Industry Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Economic Outlook 22 Alabama – Labor Market Employment growth may be slightly better than previously expected. The unemployment rate is relatively low and continues to fall. Source: U.S. Department of Labor and Wells Fargo Securities, LLC Unemployment Rate Employment

Economic Outlook 23 Alabama – Housing Market Home prices in Alabama remain well below the national average. Homebuilding remains slow. Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Housing PermitsHome Prices

Economic Outlook 24 Birmingham – Labor Market Employment growth has been weak recently, although the unemployment continues to decline. Source: U.S. Department of Labor and Wells Fargo Securities, LLC Unemployment Rate Employment

Economic Outlook 25 Birmingham – Housing Market Birmingham’s home prices have weakened, homebuilding remains relatively slow. Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Housing PermitsHome Prices

Economic Outlook 26 Birmingham – Apartment CRE Apartment vacancy rates continue to trend lower, and rent continues to rise. Source: Reis, Inc., and Wells Fargo Securities, LLC RentSupply & Demand

Economic Outlook 27 Birmingham – Retail CRE The retail sector has not regained momentum. Vacancy rates have held steady around 15 percent. Source: Reis, Inc., and Wells Fargo Securities, LLC RentSupply & Demand

Economic Outlook 28 Birmingham – Office CRE The office sector has yet to see a recovery. All measures of growth remain weak. Source: Reis, Inc., and Wells Fargo Securities, LLC RentSupply & Demand

Economic Outlook 29 Birmingham – Warehouse CRE Industrial vacancies have begun to trend lower, and effective rent has risen the past two quarters. Source: PPR and Wells Fargo Securities, LLC RentSupply & Demand

Economic Outlook 30 China Fiscal Policy Uncertainty Credit Availability & Financial Reform European Debt Crisis Deleveraging Monetary Policy Geopolitical Tensions Energy/Commodity Price Swings Issues to Watch

Economic Outlook 31 Our Forecast

Appendix

Economic Outlook 33 Recent Special Commentary Wells Fargo Economics Group Publications To view any of our past research please visit: economics To join any of our research distribution lists please visit: economics A Sampling of Our Recent Special, Regional & Industry Commentary

Economic Outlook Wells Fargo Securities, LLC Economics Group 34 John Silvia … … Global Head of Research and Economics Diane Schumaker-Krieg ………………… …… Global Head of Research & Economics Chief Economist Mark Vitner, Senior Economist……………....………... Jay Bryson, Global Economist …………………....………. Eugenio Aleman, Senior Economist ……………. Sam Bullard, Senior Economist…………………………. Anika Khan, Senior Economist.…. Senior Economists Sarah Watt, Economic Analyst ……………………………. Kaylyn Swankoski, Economic Analyst Zachary Griffiths, Economic Analyst Sara Silverman, Economic Analyst Economists Azhar Iqbal, Tim Quinlan, Economist Michael A. Brown, Economist ………………… 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 Services 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 The FSA 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. Peg Gavin, Executive Assistant. Cyndi Flowe, Administrative Assistant