Economic Overview September 2009 Jay N. Mueller, CFA Wells Capital Management Fixed Income Group

2 Economic Overview Big Six Summary  Growth: Q3 bounce followed by weak recovery  Employment: job losses slowing  Inflation: headline about to turn up; core stable  Monetary: Fed on hold  Fiscal: short term uncertainty; long run train-wreck  International: USA lags global recovery

3 Economic Overview Growth

4 Economic Overview U.S. GDP: quarterly growth rate (annualized) Source: Bloomberg Rate of contraction has moderated: Q3 likely to be positive

5 Economic Overview Personal Consumption (real growth rate annualized) Source: Bloomberg Following a small bounce in Q1 consumption resumed its decline in Q2

6 Economic Overview Private Domestic Fixed Investment % change Source: Bloomberg Though an improvement over Q1, PDI contracted for the 8 th straight quarter in Q2

7 Economic Overview Employment

8 Economic Overview Payrolls: monthly change (non-farm, 000) Source: Bloomberg The pace of job loss is slowing, but still worrisome

9 Economic Overview Unemployment Rate Source: Bloomberg Closing in on 10%

10 Economic Overview Broad Unemployment (U6) Including discouraged workers and underemployed

11 Economic Overview Initial Claims for Unemployment Insurance (4 wk ma) Claims off peak but remain uncomfortably high

12 Economic Overview Initial Claims for Unemployment Insurance (4 wk ma) Prior peaks in claims coincide with business cycle troughs

13 Economic Overview Initial Claims (4 wk ma) versus Unemployment Rate The 1982 claims peak was swiftly followed by a drop in the unemployment rate. Not so for the 1991 and 2001 peaks.

14 Economic Overview Average Work Week Hours worked remains very low

15 Economic Overview Mean Period of Unemployment (weeks) Out of work for nearly half a year on average

16 Economic Overview Inflation

17 Economic Overview CPI YOY Source: Bloomberg Energy-driven deflation likely to revert to inflation later this year

18 Economic Overview CPI YOY – long term view Source: Bloomberg Most significant headline deflation in sixty years

19 Economic Overview CPI Ex-food and Energy YOY Source: Bloomberg Core inflation is low and fairly stable

20 Economic Overview Crude Oil – West Texas Intermediate spot price Source: Bloomberg Crude has trended higher since late ‘08

21 Economic Overview Natural Gas – near futures contract Source: Bloomberg Much weaker than oil

22 Economic Overview Copper – near futures contract Source: Bloomberg Substantial rally so far this year

23 Economic Overview Monetary Policy

24 Economic Overview Federal Funds Target Rate Source: Bloomberg Short term rate management has reached its downside limit

25 Economic Overview Monetary Base Source: Bloomberg Quantitative Easing: a massive injection of bank reserves

26 Economic Overview M1 year over year growth rate Source: Bloomberg Fastest money supply growth in twenty-five years

27 Economic Overview Consumer Credit Outstanding Source: Bloomberg No traction from easy policy so far – consumer credit has been shrinking since September ‘08

28 Economic Overview Fiscal Policy

29 Economic Overview U.S. Federal Surplus/Deficit as a % of GDP Source: Bloomberg With Projection for 2009

30 Economic Overview Deficit Projections – Obama Budget SOURCE: CBO, White House Office of Management and Budget | The Washington Post - March 21, 2009 Federal spending is running wild with worse to come

31 Economic Overview Public Federal Debt Outstanding with projection for 2009 Source: Bloomberg

32 Economic Overview U.S. Federal Debt Projection Federal public debt outstanding likely to double or worse over the next decade

33 Economic Overview International

34 Economic Overview Global Data Cross Section GDP yoyCPI yoyIP yoyUnemployment Eurozone-4.7%-0.7%-17.0%9.5% Japan-6.4%-2.2%-22.9%5.7% UK-5.5%+1.8%-9.3%7.8% U.S.-3.9%-2.1%-13.1%9.7% Source: Bloomberg The U.S. was first into recession but Europe and Japan have been hit harder:

35 Economic Overview Japan Unemployment Rate Highest on record

36 Economic Overview Euro/US Dollar safe haven trade is unwinding

37 Economic Overview Gold $/ounce gold supported by doubts about the dollar

38 Economic Overview Thank you! The Portfolio Manager has written this review for informational purposes only. The views expressed on the financial markets and sector valuations are based on the judgment and experience of the Portfolio Manager. This presentation is for the sole use of the intended recipient[s] and may contain privileged information. Any unauthorized review, use, disclosure or distribution is prohibited.