1. The U.S. Economy: “The Recovery is Underway, But It Will be Slow” Eugenio J. Aleman, Director and Senior Economist August 14, 2012

2. Economics 2 Real GDP Growth U.S. real GDP growth recovered somewhat, but remains weak Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

3. Economics 3 U.S. Nonfarm Employment Employment turned the corner in October of 2010, but it is still weak Source: U.S. Department of Labor and Wells Fargo Securities, LLC

4. Economics 4 U.S. Employment By Industry While employment growth has been fairly broad based, the government sector has continued to struggle Source: U.S. Department of Labor and Wells Fargo Securities, LLC

5. Economics 5 Unemployment Rate Not as high as during the 1980s recession, but more damaging Source: U.S. Department of Labor and Wells Fargo Securities, LLC

6. Economics 6 The Employment Situation The reason for the decline in the unemployment rate is tied to the drop-off in the labor force participation rate, not the creation of jobs Source: U.S. Department of Labor and Wells Fargo Securities, LLC

7. Economics 7 Mean Duration of Unemployment Duration of unemployment shows a struggling labor market Source: U.S. Department of Labor and Wells Fargo Securities, LLC

8. Economics 8 Unemployment by Education Level College graduates have the edge even in the worst recession since the depression Source: U.S. Department of Labor and Wells Fargo Securities, LLC

9. Economics 9 Consumer Price Index Consumer prices are increasing once again Source: U.S. Department of Labor and Wells Fargo Securities, LLC

10. Economics 10 Producer Price Index As well as producer prices Source: U.S. Department of Labor and Wells Fargo Securities, LLC

11. Economics 11 The U.S. Economy The Humpty-Dumpty Economy The U.S. Economy sat on a wall, The U.S. Economy had a great fall. All the king's Treasury-men, And all the king's Federal Reserve-men, Couldn't put The U.S. Economy together again. On this side of the wall: Inflation & stagnation = stagflation On this side of the wall: 1930’s depression/ Japan-like depression

12. Economics 12 Helicopter Ben to the Rescue The Helicopter Effect!

13. Economics 13 Federal Reserve Target Rate Monetary policy remains extremely expansive Source: Federal Reserve Board and Wells Fargo Securities, LLC

14. Economics 14 Federal Reserve Balance Sheet A Monetary Tsunami? Source: Federal Reserve Board and Wells Fargo Securities, LLC

15. Economics 15 The Housing Market

16. Economics 16 Your House As Seen By: You…

17. Economics 17 Your House As Seen By: Your Buyer…

18. Economics 18 Your House As Seen By: Your Lender…

19. Economics 19 Your House As Seen By: Your Appraiser…

20. Economics 20 Your House As Seen By: And… Your County’s Tax Assessor…

21. Economics 21 New Home Sales New home sales are very depressed Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

22. Economics 22 Housing Starts As well as housing starts Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

23. Economics 23 Existing Home Sales Existing home sales are strengthening Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

24. Economics 24 Home Prices Home prices have remained weak, but there are signs of improvement Source: National Association of Realtors, FHFA, S&P Case-Shiller and Wells Fargo Securities, LLC

25. Economics 25 Home Mortgages Home mortgages have been declining for the past three years Source: Federal Reserve Board and Wells Fargo Securities, LLC

26. Economics 26 Negative Equity O…M…G…? Source: FHFA and Wells Fargo Securities, LLC

27. Economics 27 ISM Manufacturing Index Manufacturing has expanded for almost two years Source: Institute for Supply Management and Wells Fargo Securities, LLC

28. Economics 28 U.S. Manufacturing A Myth…Obliterated! Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

29. Economics 29 ISM Non-Manufacturing Index The service sector is also in expansion mode Source: Institute for Supply Management and Wells Fargo Securities, LLC

30. Economics 30 Consumer Credit Credit card lending is non- existent Source: Federal Reserve Board and Wells Fargo Securities, LLC

31. Economics 31 Household Debt Households are deleveraging fast…but not fast enough! Source: Federal Reserve Board and Wells Fargo Securities, LLC

32. Economics 32 Consumer Confidence Consumer confidence is still very weak for a strong recovery Source: The Conference Board and Wells Fargo Securities, LLC

33. Economics 33 Personal Saving Rate The best news is that the saving rate continues to increase Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

34. Economics 34 Mortgage and Treasury Rates Mortgage interest rates have plummeted again…but who is buying? Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC

35. Economics 35 Global Forecast Growth will remain positive but weak Source: Wells Fargo Securities, LLC

36. The Texas Economy

37. Economics 37 Texas – Employment Growth & Unemployment Rate Employment growth in Texas continues to outpace the nation, as strong growth in the service sectors outweighs the drag by the government sector. Source: U.S. Department of Labor and Wells Fargo Securities, LLC Employment by Industry Employment

38. Economics 38 Texas – Personal Income Situation Personal income growth continues to show strength. In addition, Texas has seen consistent growth in wages and salaries. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Composition of Income GrowthPersonal Income

39. Economics 39 Texas – Home Prices and Construction Home prices in Texas have remained relatively stable. Construction activity is being led by a surge in the multifamily sector. Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Housing PermitsHome Prices

40. Economics Wells Fargo Securities, LLC Economics Group 40 John Silvia …....................... … john.silvia@wellsfargo.comjohn.silvia@wellsfargo.com Global Head of Research and Economics Diane Schumaker-Krieg ………………… …… ….diane.schumaker@wellsfargo.comdiane.schumaker@wellsfargo.com Global Head of Research & Economics Chief Economist Mark Vitner, Senior Economist……………....………... mark.vitner@wellsfargo.com mark.vitner@wellsfargo.com Jay Bryson, Global Economist …………………....………. jay.bryson@wellsfargo.com jay.bryson@wellsfargo.com Eugenio Aleman, Senior Economist ……………. eugenio.j.aleman@wellsfargo.com eugenio.j.aleman@wellsfargo.com Sam Bullard, Senior Economist…………………………. sam.bullard@wellsfargo.com sam.bullard@wellsfargo.com Anika Khan, Senior Economist.…. anika.khan@wellsfargo.comanika.khan@wellsfargo.com Senior Economists Sarah Watt, Economic Analyst ……………………………. sarah.watt@wellsfargo.com sarah.watt@wellsfargo.com Kaylyn Swankoski, Economic Analyst kaylyn.swankoski@wellsfargo.comkaylyn.swankoski@wellsfargo.com Economists Azhar Iqbal, Econometrician………………………………azhar.iqbal@wellsfargo.comazhar.iqbal@wellsfargo.com Tim Quinlan, Economist …………………………………..tim.quinlan@wellsfargo.comtim.quinlan@wellsfargo.com Michael A. Brown, Economist ………………… michael.a.brown@wellsfargo.commichael.a.brown@wellsfargo.com 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, and Wells Fargo Securities International Limited. 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. 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 2007. 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. peg.gavin@wellsfargo.com peg.gavin@wellsfargo.com Cyndi Flowe, Administrative Assistant cyndi.h.flowe@wellsfargo.comcyndi.h.flowe@wellsfargo.com