1. Mark Vitner, Managing Director & Senior Economist March 8, 2017
U.S. Economic Outlook
Mark Vitner, Managing Director & Senior Economist
March 8, 2017

2. How Will The Trump Presidency Impact the Economy
Economic Outlook
After growing 1.6 percent in 2016, we expect real GDP to rise 2.3 percent this year. The risk is now more heavily weighted to the upside, however, with tax cuts, defense outlays and regulatory reforms becoming a tailwind.
Globalization
Trump’s election signals a pause in the push toward globalization. Trade, tourism, immigration and foreign direct investment are all being impacted significantly.
Monetary Policy
The era of ultra low interest rates is ending. Monetary policy is now focusing on normalizing interest rates and working to offset more typical late cyclical imbalances.
Small Business
Small business confidence spiked following the election, as hopes for tax cuts and regulatory reform increased. Expectations have risen more than current conditions.
Housing
Mortgage rates spiked following the presidential election but remain low relative to historical standards. Reforms to the mortgage market are likely.

3. Real Private Final Sales
Economic Growth
Real GDP growth has been solid but unspectacular. Real GDP growth has averaged a 2.1 percent pace since the recession has ended but growth has been very uneven. Growth has been concentrated in only a few sectors and metro areas have grown much faster than rural areas.
Real GDP Forecast
Real Private Final Sales
Source: U.S. Department of Commerce and Wells Fargo Securities 3 3
Economic Outlook

4. Employment Situation
While the monthly data have been volatile, the employment data look much stronger than the GDP data, which has raised questions about the quality and sustainability of economic growth. The unemployment rate is below 5 percent and local area labor markets are tightening.
Nonfarm Employment
Unemployment Rate
Source: U.S. Department of Labor and Wells Fargo Securities 4 4

5. Actual vs. Potential GDP
After seven and a half years of modest economic growth, much of the excess slack in the economy has been eliminated
Potential growth has slowed considerably from prior cycles, however, and a considerable gap remains between actual GDP and the previous trend in potential GDP.
Source: U.S. Department of Commerce, CBO and Wells Fargo Securities

6. Labor Market: Wages
Average hourly earnings’ growth has picked up modestly but remains limited by changes in the composition of the workforce. Younger less skilled workers are entering the workforce and older more skilled workers leaving it.
The Atlanta Fed Wage Tracker provides a better measure of wage growth and shows wage gains accelerating.
Source: Federal Reserve Bank of Atlanta, U.S. Department of Labor and Wells Fargo Securities 6

7. Inflation Expectations
Long-term inflation expectations fell alongside oil. Market-based measures have shown signs of a rebound. Will survey measures follow?
Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities

8. Oil Prices & Inventory
While oil prices have risen from their 2016 lows, inventory remains elevated
Oil Prices
Oil Inventory
Source: Baker Hughes Inc., IHS Global Insight and Wells Fargo Securities 8 8

9. NFIB Small Business Confidence
Small Business Confidence surged following the presidential election.
Small business owners are hopeful that President Trump will lower marginal tax rates and help roll back regulations.
Source: NFIB and Wells Fargo Securities 9

10. Corporate Profits
Corporate profits as a share of value added remain historically high but slowed over the past two years and the stronger dollar and weaker global growth cut into sales and margins.
Source: U.S. Department of Commerce and Wells Fargo Securities

11. Government Spending
Trump’s presidential campaign focused on increased spending on infrastructure and defense, which suggests government spending is set to rise over the next few years.
Source: U.S. Department of Commerce and Wells Fargo Securities

12. Composition of Federal Spending Federal Debt Continues to Rise
Federal Fiscal Policy
The composition of federal spending has shifted dramatically.
The CBO projects that the debt-to-GDP ratio will surpass 88 percent by 2027.
Composition of Federal Spending
Federal Debt Continues to Rise
Source: Congressional Budget Office and Wells Fargo Securities 12

13. Housing Starts
Multifamily housing should continue to account for a historically large share of new residential construction, but the mix is shifting back toward single-family construction
Source: U.S. Department of Commerce and Wells Fargo Securities 13

14. Long-term yields spiked in the wake of the U.S. presidential election
Interest Rates
Long-term yields spiked in the wake of the U.S. presidential election
Source: Federal Reserve Board, FHLMC and Wells Fargo Securities

15. The era of ultra-low interest rates is ending.
Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities

16. Global Forecast
Global economic growth is expected to gain momentum in 2017 but remain sluggish by recent historical standards
Source: International Monetary Fund and Wells Fargo Securities 16

17. Regional Trends

18. Year-over-Year Percent Change in Real GDP Growth by State (Q3 2016)
GDP growth has been strongest along the coasts
Source: U.S. Department of Commerce and Wells Fargo Securities

19. Contribution to Economic Growth
Economic growth has been concentrated in parts of the country with outsized exposure to the energy and tech sectors
Source: U.S. Department of Commerce and Wells Fargo Securities

20. Year-over-Year Employment Growth by State (December 2016)
Job growth has been strongest in the Pacific Northwest and Southeast
Source: U.S. Department of Labor and Wells Fargo Securities

21. Employment by Industry
North Carolina
North Carolina continues to add jobs at a solid pace. The majority of key industry segments posted an increase in employment over the past year. Charlotte and Raleigh have seen notable job growth, and gains were also strong in the Triad and Asheville.
Employment
Employment by Industry
Source: U.S. Department of Labor and Wells Fargo Securities 21 21

22. North Carolina Employment by Metro Area
Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, 22

23. North Carolina Housing Market
Residential construction activity has ramped up over the past year, but remains well below its pre-recession level. Apartment development has been booming, particularly in Charlotte and Raleigh. Single-family homebuilding is improving and should rise solidly in 2017.
Housing Permits
Population Growth
Source: U.S. Department of Commerce and Wells Fargo Securities 23 23

24. North Carolina Home Prices
Home prices in North Carolina have risen at a slightly slower rate than the national average.
Source: CoreLogic and Wells Fargo Securities 24

25. The Triad Area
The Triad’s historic ties to manufacturing have made for a more sluggish recovery.
Nonfarm Employment
Unemployment Rates
Source: U.S. Department of Labor and Wells Fargo Securities 25 25

26. Greensboro-High Point MSA
Greensboro has seen healthy employment gains over the past year. The region has reported particularly strong hiring in trade, transportation & utilities and education & health services.
Nonfarm Employment
Employment by Industry
Source: U.S. Department of Labor and Wells Fargo Securities 26 26

27. Greensboro-High Point MSA
Housing permits have gradually trended higher since the recession. Population growth is showing signs of moderating.
Housing Permits
Population Growth
Source: U.S. Department of Commerce and Wells Fargo Securities 27 27

28. Employment by Industry
Winston-Salem MSA
Job growth has reportedly decelerated in Winston-Salem. The QCEW data suggest the slowdown is likely overstated. Education & health services, led by Wake Forest University, posted one of the largest employment increases and continues to add to local economic growth.
Nonfarm Employment
Employment by Industry
Source: U.S. Department of Labor and Wells Fargo Securities 28 28

29. Winston-Salem MSA
Residential construction activity has been slow to get back on track in Winston-Salem. Population growth has also been modest, as the metro has not experienced the same influx of new residents that has been seen in many other North Carolina areas.
Housing Permits
Population Growth
Source: U.S. Department of Commerce and Wells Fargo Securities 29 29

30. U.S. Economic Forecast
Source: IHS Global Insight and Wells Fargo Securities

31. Appendix

32. Economic Outlook Group Publications
A Sampling of Our Recent Special, Regional & Industry Commentary
To view any of our past research please visit:
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