Michael A. Brown, Economist October 6, 2015 Economic Outlook for 2016 and Beyond

Wells Fargo Economics 2 Overview LaborMarket Inflation & Interest Rates FiscalPolicy BusinessInvestment 2015Growth

Wells Fargo Economics 3 Where Are We Now? Economic growth should continue at a modest pace over the coming quarters Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 4 Real Final Sales Growth in domestic spending clearly has strengthened Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 5 Capital Spending Growth in business fixed investment spending will support growth in the coming quarters Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 6 Nonresidential Construction Commercial construction spending will help to perpetuate business investment in the year ahead Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 7 Small Businesses Small business optimism has finally turned around Source: National Federation of Independent Businesses, Gallup, Wells Fargo Bank and Wells Fargo Securities, LLC

Wells Fargo Economics 8 Small Businesses Recovery in home equity values has supported small business activity Source: Federal Reserve Board, Wells Fargo Bank, Gallup and Wells Fargo Securities, LLC

Wells Fargo Economics 99 U.S. Housing Market Despite some recent setbacks, we continue to look for a gradual recovery in homebuilding. The homeownership rate continues to come down. Source: NAR, CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Owners vs. RentersHomeownership

Wells Fargo Economics 10 A Shifting Demographic Profile Higher student debt burdens are hindering young adults’ ability to form new households Source: Federal Reserve Board, U.S. Department of Commerce and Wells Fargo Securities, LLC Household FormationStudent Loans

Wells Fargo Economics 11 The Consumer Food away from home, entertainment, and apparel spending have improved over the past year as the economy has picked up Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 12 The Consumer Consumer spending growth will continue to average around 2.5 percent Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 13 Unemployment Rates Alternative measures of unemployment show an historically high level of underemployment Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 14 Employment Rate The employment rate is picking up, but structural issues remain Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 15 The Employment Situation The employment picture is mixed across different levels of education Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 16 Employment: Structural A large proportion of the jobs created over the past four years have been part-time, which has weighed on wage & salary growth Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 17 Personal Income Income growth has finally begun to turn around but still lags prior recoveries Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 18 Inflation Inflation remains in check Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 19 Yield Curve: Rates Rise Without Fed The yield curve is expected to flatten further as the Fed begins to raise short-term interest rates in December of this year Source: Bloomberg LP and Wells Fargo Securities, LLC

Wells Fargo Economics 20 Key Issues Fiscal Policy Outlook What to watch for in the 114 th Congress  Oct. 29 th - Funding for Highway Trust Fund expires  How will the gap be filled?  November 5 th - Re-establishment of debt ceiling  How will Congress increase the borrowing limit?  December 11 th - FY 2016 budget debate  Current funding runs out  Corporate tax reform  Both sides agree action is needed, but what will be done?  International trade agreements (TPP, TTIP)  Don’t expect immediate action, but progress is being made

Wells Fargo Economics 21 Global Industrial Production It would take a sharp downturn in the rest of the world to have a meaningful effect on U.S. economic growth Source: IHS Global Insight and Wells Fargo Securities, LLC

The Idaho Economy

Wells Fargo Economics 23 Idaho – Current Economic Conditions Economic activity in Idaho is downshifting Source: Federal Reserve Bank of Philadelphia and Wells Fargo Securities, LLC

Wells Fargo Economics 24 Idaho– Employment Growth & Unemployment Rate Employment is growing modestly, while the unemployment rate is below the national rate Source: U.S. Department of Labor and Wells Fargo Securities, LLC Unemployment Rate Employment

Wells Fargo Economics 25 Idaho: Employment Overall employment growth has been strong over the past year Source: U.S. Department of Labor and Wells Fargo Securities, LLC

Wells Fargo Economics 26 Idaho: Personal Income Personal income growth has steadily rebounded since the recession ended Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Economics 27 Idaho– Home Prices and Construction Home prices are growing modestly in the state as building activity has begun to pick up Source: CoreLogic, Inc., U.S. Department of Commerce and Wells Fargo Securities, LLC Housing PermitsHome Prices

Wells Fargo Economics 28 Idaho – Economic Outlook The leading index signals somewhat stronger economic growth ahead Source: Federal Reserve Bank of Philadelphia and Wells Fargo Securities, LLC Outlook  Economic growth will likely remain modest given the state’s exposure to commodities and manufacturing.  The state’s manufacturing sector may face some challenges associated with slower global growth and reduced business investment.  Idaho’s unemployment rate remains well below the national average.  Manufacturing employment growth in the state will be challenging over the next several years due to changing tastes and preferences.  Job growth will be driven by the service sector. Leading Index

Wells Fargo Economics 29 Headwinds to Economic Growth Potential Headwinds to Economic Growth Effects of Monetary Policy Changes? Slower Pace of Business Investment Slower Global Growth Environment Fiscal Policy Uncertainty Modest Income Growth

Wells Fargo Economics 30 Outlook Summary Source: IHS Global Insight and Wells Fargo Securities, LLC

Appendix

Wells Fargo Economics 32 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: econ/alerts.asp A Sampling of Our Recent Special, Regional & Industry Commentary

Wells Fargo Economics Wells Fargo Securities, LLC Economics Group 33 John E. Silvia … … Global Head of Research and Economics Diane Schumaker-Krieg ………………… …… Global Head of Research & Economics Chief Economist Mark Vitner, Senior Economist……………....……….. Jay H. Bryson, Global Economist …………………....…… …. Sam Bullard, Senior Nick Bennenbroek, Currency Eugenio J. Alemán, Senior Economist… Anika R. Khan, Senior Economist …. Senior Economists Erik Nelson, Economic Analyst Alex Moehring, Economic Analyst Misa Batcheller, Economic Analyst Michael Pugliese, Economic Analyst Economists Azhar Iqbal, Econometrician………………… Tim Quinlan, Economist …………………… Eric J. Viloria, Currency Strategist Sarah House, 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. 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 © 2015 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. Donna LaFleur, Executive Assistant. Cyndi Burris, Senior Administrative Assistant