1. 2016 Southwest Business Forum Global Economic Outlook Tim Quinlan, Economist January 6, 2016

2. Economics 2 Pace of Policy Firming After months of feet-dragging, Fed finally delivered the first rate hike in nine years on December 16 Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities, LLC

3. Economics 3 Unemployment The labor market is steadily firming, the unemployment rate is spot-on the FOMC’s central tendency target Source: U.S. Department of Labor, Federal Reserve Board and Wells Fargo Securities, LLC

4. Economics 4 Labor Turnover The recent pickup in job openings and quits are consistent with recently strong employment gains, although there is potential for moderation going forward Source: U.S. Department of Labor and Wells Fargo Securities, LLC Separations Hiring

5. Economics 55 Inflation Low oil prices continue to weigh on headline inflation, but core inflation has remained fairly stable Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

6. 66 Tech in 2000 Vs. Oil Today Is the decline in energy prices a harbinger of recession like in 2000 when the collapse in the NASDAQ foreshadowed the subsequent economic downturn in 2001? Source: Bloomberg LP, IHS Global Insight and Wells Fargo Securities, LLC Crude Oil over the Past 10 Years Tech Stocks in the Late 1990s & Early 2000s

7. Supply/ Demand Imbalance 7  Persistent supply gluts combined with softer demand have resulted in a global imbalance that has lasted longer than most analysts expected.  There is more to price forecasting than supply and demand, but the chart below is not encouraging for the trajectory for oil prices. CLO Spreads Source: IHS Global Insight and Wells Fargo Securities, LLC

8. 88 Employment / Share of S&P Market Cap Market Cap Employment Source: U.S. Dept. of Commerce, Bureau of Labor Statistics, (Energy Industries include: petroleum and coal products, support activities for mining, pipeline transportation), Standard and Poor’s and Wells Fargo Securities, LLC  The tech sector in 2000 comprised a 4X larger share of employment and was more than a third of the market cap of the S&P 500.  Energy in the summer of 2014 was only about 10% of the market cap.

9. 99 Business Fixed Investment Source: U.S. Department of Commerce, and Wells Fargo Securities, LLC Value Added Fixed Investment  Capex in the tech sector comprises a 22% share of all business investment spending.  Investment in the energy (while a key driver of growth from 2009-2012) still comprised less than 6% of all business outlays.

10. 10 Energy Share of Debt Market Source: Bloomberg LP and Wells Fargo Securities, LLC High Yield Investment Grade  Energy’s drag could be more visible in the bond market. Our credit strategy team thinks that low commodity prices, energy and materials will likely continue to serve as the greatest headwinds for the HY market.  With energy comprising a 14.3% share of the HY market, that makes sense to us.

11. Takeaways Conclusions and Our Current Thoughts on the Economy  Oil and commodity price weakness means everything to businesses heavily reliant on the sector. But for the broader economy, the price weakness alone will not push us into recession. The price dynamic is still a major negative, but compared to last year, oil should be less of a factor in holding back business spending and holding down inflation. Consumer spending should get some help from increased discretionary income as a result of smaller fuel outlays.  Big issues for the economy in 2016 will be the ongoing drag from trade, occasional disruptions from inventories and steady growth in both consumer spending and housing activity.  Below-target inflation will be most important factor in pace of Fed rate increases. Any stabilization in oil prices will mean less of a price drag compared to last year. 11

12. Economics 12 Global Supply/Demand Balance Crude Oil Market Update – Not Returning to S/D Balance Anytime Soon Source: US Energy Information Administration Short Term Energy Outlook, May, Aug 2015 September May

13. Economics 13 World Liquid Fuels Consumption Crude Oil Market Update: Reason to Care About the Economy Source: US Energy Information Administration Short Term Energy Outlook, November 2015

14. Economics 14 Real GDP Forecast Outlook is for below-trend growth to continue Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

15. Economics 15 Housing We continue to look for a gradual recovery in homebuilding. Apartment demand remains exceptionally strong but supply is catching up with demand. Single-family housing starts are beginning to ramp back up. Gains will be more modest than in past building cycles. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

16. Economics 16 Household Balance Sheets A recovery in household asset values has boosted net worth, but households continue to save at a higher rate than during the past expansion Source: Federal Reserve Board, U.S. Department of Commerce and Wells Fargo Securities, LLC Household Net WorthHousehold Assets

17. Economics 17 Household Balance Sheets Consumer deleveraging may be nearing an end, but monthly debt and other financial obligation payments remain near historic lows Source: Federal Reserve Board and Wells Fargo Securities, LLC Financial Obligations RatioHousehold Debt

18. Economics 18 Real PCE Forecast Consumer spending growth is set to moderate but remain positive throughout the forecast horizon Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

19. Economics 19 ISM Weakness in the ISM index suggests that in the midst of broader economic expansion, the factory sector is in contraction Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

20. Economics 20 Core Capital Spending Weakness in core capital goods orders has not been as pronounced, but we saw broad declines in the second half of 2014 Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

21. Economics 21 Inflation Although factory orders have shown considerable weakness in recent months, much of this can be attributed to price declines, particularly in the energy sector, as orders are reported in nominal terms Source: U.S. Department of Labor and Wells Fargo Securities, LLC

22. Economics 22 Business Spending Tough to find reasons to get excited about prospects for capital outlays Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

23. Economics 23 How Will Business Spending Fare as FOMC Raises Rates? Past tightening cycles show that credit spreads have a tendency to narrow and equipment spending often improves even as the Fed raises rates. Source: Bloomberg LP, U.S. Department of Commerce and Wells Fargo Securities, LLC Capex Credit Spreads

24. Economics 24 Inventories Quite a bit of stockpiling against a backdrop of weak business investment spending is an indication that the recent pace of the inventory build is unsustainable and could be a drag on 2H growth. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Inventory Change & Investment Inventory Contribution

25. Economics 25 U.S. Forecast

26. International Developments

27. Economics 27 Chinese Stock Market What are the implications of the Chinese stock market volatility for the Chinese economic outlook Source: Bloomberg LP and Wells Fargo Securities, LLC

28. Economics 28 Chinese Household Assets Equities represent a small proportion of household assets in China Source: CEIC and Wells Fargo Securities, LLC

29. Economics 29 China Real GDP Growth in China has stabilized, but we do not expect it to return to the double-digit growth rates seen in the past Source: Bloomberg LP and Wells Fargo Securities, LLC

30. Economics 30 Eurozone Real GDP 2 Years of Uninterrupted Growth Source: IHS Global Insight and Wells Fargo Securities, LLC

31. Economics 31 Eurozone PMIs The Eurozone purchasing managers’ indices are pointing to continued recovery Source: Bloomberg LP and Wells Fargo Securities, LLC

32. Economics 32 Eurozone Bank Lending Bank lending in the euro area is starting to grow again after two years of contraction Source: IHS Global Insight and Wells Fargo Securities, LLC

33. Economics 33 Outstanding Government Debt The outstanding debt of the Spanish and Italian governments swamps the others Source: IHS Global Insight Wells Fargo Securities, LLC

34. Economics 34 Japanese Monetary Base The expansion of the monetary base will continue to expand the size of the BoJ’s balance sheet considerably Source: Bank of Japan, IHS Global Insight and Wells Fargo Securities, LLC

35. Economics 35 Monetary Base Comparison The expansion of the monetary base in Japan is really just playing catch-up ball with the Fed and ECB Source: Bloomberg LP and Wells Fargo Securities, LLC

36. Economics 36 FX Forecast Eventual Fed tightening should be dollar positive. Euro to face more weakness as slow growth profile remains consistent with continued QE. Commodity currencies could go lower weighed down by easy- money policies Source: Wells Fargo Securities, LLC

37. Economics 37 Global Forecast Growth in the global economy likely will grind closer to long term trend Source: International Monetary Fund and Wells Fargo Securities, LLC

38. Economics Wells Fargo Securities, LLC Economics Group 38 John E. 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.commark.vitner@wellsfargo.com Jay H. Bryson, Global Economist …………………....…… …. jay.bryson@wellsfargo.com jay.bryson@wellsfargo.com Sam Bullard, Senior Economistsam.bullard@wellsfargo.comsam.bullard@wellsfargo.com Nick Bennenbroek, Currency Strategist……nicholas.bennenbroek@wellsfargo.comnicholas.bennenbroek@wellsfargo.com Eugenio J. Alemán, Senior Economist… …………eugenio.j.aleman@wellsfargo.comeugenio.j.aleman@wellsfargo.com Anika R. Khan, Senior Economist …. anika.khan@wellsfargo.comanika.khan@wellsfargo.com Senior Economists Erik Nelson, Economic Analyst erik.f.nelson@wellsfargo.comerik.f.nelson@wellsfargo.com Alex Moehring, Economic Analyst alex.v.moehring@wellsfargo.comalex.v.moehring@wellsfargo.com Misa Batcheller, Economic Analyst misa.n.batcheller@wellsfargo.commisa.n.batcheller@wellsfargo.com Michael Pugliese, Economic Analyst michael.d.pugliese@wellsfargo.commichael.d.pugliese@wellsfargo.com Economists Azhar Iqbal, Econometrician………………… ……………azhar.iqbal@wellsfargo.comazhar.iqbal@wellsfargo.com Tim Quinlan, Economist …………………… ……………..tim.quinlan@wellsfargo.comtim.quinlan@wellsfargo.com Eric J. Viloria, Currency Strategist eric.viloria@wellsfargo.comeric.viloria@wellsfargo.com Sarah House, Economist …………… ………… sarah.house@wellsfargo.comsarah.house@wellsfargo.com Michael A. 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