7/23/2016 UnitedStatesEconomyGDP,Inflation,CPIandInterestRate

EconomicForecastsfromtheWorld'sLeadingEconomists

U.S.EconomicOutlook
June28,2016

TheU.S.economyhasbeeningoodshapeoverallinthesecondquarterfollowingtheslowdowninQ1.ConsumerspendingthemainengineoftheeconomylikelyremainedstronginQ2asretailsales
expandedforasecondconsecutivemonthinMay.Inaddition,anincreaseintheISMmanufacturingindexwaspositivenewsinMay,althoughtheindicatorstillsuggestssoftgrowthinthesector.Meanwhile,the
MayjobsreporttookcenterstageasnonfarmpayrollsgrewattheweakestpacesinceSeptember2010.On8June,HillaryClinton,formerfirstlady,secretaryofstateandsenatorforNewYork,becamethe
DemocraticParty'spresumptivenomineeforthe2016presidentialelection.ClintonwillrunagainsttheRepublicans'choiceofrealestatemogulandtelevisionpersonality,DonaldTrump,inanunusualbattleto
leadthecountry.Americanvotersaredividedandmanyarefacedwithatoughdecisionastheymustchoosebetweenonecandidatewho,formany,isassociatedwithsupportingthedysfunctionalWashington
statusquo,whilemanyothersbelieveavoteforTrumpisequivalenttotakingadiveintotheunknown.

UnitedStatesEconomyData
2011 2012 2013 2014 2015

Population(million) 312 314 317 319 321

GDPpercapita(USD) 49,725 51,384 52,608 54,375 55,868

GDP(USDbn) 15,518 16,155 16,663 17,348 17,947

EconomicGrowth(GDP,annualvariationin%) 1.6 2.2 1.5 2.4 2.4

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7/23/2016 UnitedStatesEconomyGDP,Inflation,CPIandInterestRate
DomesticDemand(annualvariationin%) 1.6 2.1 1.3 2.5 3.0

Consumption(annualvariationin%) 2.3 1.5 1.7 2.7 3.1

Investment(annualvariationin%) 6.4 9.8 4.2 5.3 4.0

Exports(G&S,annualvariationin%) 6.9 3.4 2.8 3.4 1.1

Imports(G&S,annualvariationin%) 5.5 2.2 1.1 3.8 4.9

IndustrialProduction(annualvariationin%) 2.9 2.8 1.9 2.9 0.3

RetailSales(annualvariationin%) 7.3 5.0 3.7 3.9 2.2

UnemploymentRate 8.9 8.1 7.4 6.2 5.3

FiscalBalance(%ofGDP) 8.4 6.7 4.1 2.8 2.4

PublicDebt(%ofGDP) 98.3 102 104 105 106

Money(annualvariationin%) 7.4 8.6 6.8 6.2 5.9

InflationRate(CPI,annualvariationin%,eop) 3.1 1.8 1.5 0.7 0.7

InflationRate(CPI,annualvariationin%) 3.1 2.1 1.5 1.6 0.1

Inflation(PPI,annualvariationin%) 3.9 1.8 1.4 1.6 0.9

PolicyInterestRate(%) 0.25 0.25 0.25 0.25 0.50

StockMarket(annualvariationin%) 5.5 7.3 26.5 7.5 2.2

CurrentAccount(%ofGDP) 3.0 2.8 2.3 2.2 2.7

CurrentAccountBalance(USDbn) 460.4 449.7 376.8 389.5 484.1

TradeBalance(USDbillion) 740.7 741.2 702.6 741.5 759.3

SampleReport
5yearsofUnitedStateseconomicforecastsformorethan30economicindicators.

UnitedStatesEconomyOverview
EconomicOverviewoftheUnitedStates

Despitefacingchallengesatthedomesticlevelalongwitharapidlytransforminggloballandscape,theU.S.economyisstillthelargestandmostimportantintheworld.TheU.S.economyrepresentsabout20%
oftotalglobaloutput,andisstilllargerthanthatofChina.Moreover,accordingtotheIMF,theU.S.hasthesixthhighestpercapitaGDP(PPP),surpassedonlybysmallcountriessuchasNorwayand
Singapore.TheU.S.economyfeaturesahighlydevelopedandtechnologicallyadvancedservicessector,whichaccountsforabout80%ofitsoutput.TheU.S.economyisdominatedbyservicesoriented
companiesinareassuchastechnology,financialservices,healthcareandretail.LargeU.S.corporationsalsoplayamajorroleontheglobalstage,withmorethanafifthofcompaniesontheFortuneGlobal
500comingfromtheUnitedStates.

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7/23/2016 UnitedStatesEconomyGDP,Inflation,CPIandInterestRate
Eventhoughtheservicessectoristhemainengineoftheeconomy,theU.S.alsohasanimportantmanufacturingbase,whichrepresentsroughly15%ofoutput.TheU.S.isthesecondlargestmanufacturerin
theworldandaleaderinhighervalueindustriessuchasautomobiles,aerospace,machinery,telecommunicationsandchemicals.Meanwhile,agriculturerepresentslessthan2%ofoutput.However,large
amountsofarableland,advancedfarmingtechnologyandgenerousgovernmentsubsidiesmaketheU.S.anetexporteroffoodandthelargestagriculturalexportingcountryintheworld.

TheU.S.economymaintainsitspowerhousestatusthroughacombinationofcharacteristics.Thecountryhasaccesstoabundantnaturalresourcesandasophisticatedphysicalinfrastructure.Italsohasa
large,welleducatedandproductiveworkforce.Moreover,thephysicalandhumancapitalisfullyleveragedinafreemarketandbusinessorientedenvironment.ThegovernmentandthepeopleoftheUnited
Statesbothcontributetothisuniqueeconomicenvironment.Thegovernmentprovidespoliticalstability,afunctionallegalsystem,andaregulatorystructurethatallowtheeconomytoflourish.Thegeneral
population,includingadiversityofimmigrants,bringsasolidworkethic,aswellasasenseofentrepreneurshipandrisktakingtothemix.EconomicgrowthintheUnitedStatesisconstantlybeingdrivenforward
byongoinginnovation,researchanddevelopmentaswellascapitalinvestment.

TheU.S.economyiscurrentlyemergingfromaperiodofconsiderableturmoil.Amixoffactors,includinglowinterestrates,widespreadmortgagelending,excessiverisktakinginthefinancialsector,high
consumerindebtednessandlaxgovernmentregulation,ledtoamajorrecessionthatbeganin2007.Thehousingmarketandseveralmajorbankscollapsedin2008andtheU.S.economyproceededto
contractuntilthethirdquarterof2009inwhatwasthedeepestandlongestdownturnsincetheGreatDepression.TheU.S.governmentintervenedbyusingUSD700billiontopurchasetroubledmortgage
relatedassetsandproppinguplargeflounderingcorporationsinordertostabilizethefinancialsystem.ItalsointroducedastimuluspackageworthUSD831billiontobespentacrossthefollowing10yearsto
boosttheeconomy.

Theeconomyhasbeenrecoveringslowlyyetunevenlysincethedepthsoftherecessionin2009.Theeconomyhasreceivedfurthersupportthroughexpansionarymonetarypolicies.Thisincludesnotonly
holdinginterestratesatthelowerbound,butalsotheunconventionalpracticeofthegovernmentbuyinghugeamountsoffinancialassetstoincreasethemoneysupplyandholddownlongterminterestrates
apracticeknownasquantitativeeasing.

Whilethelabormarkethasrecoveredsignificantlyandemploymenthasreturnedtoprecrisislevels,thereisstillwidespreaddebateregardingthehealthoftheU.S.economy.Inaddition,eventhoughtheworst
effectsoftherecessionarenowfading,theeconomystillfacesavarietyofsignificantchallengesgoingforward.Deterioratinginfrastructure,wagestagnation,risingincomeinequality,elevatedpensionand
medicalcosts,aswellaslargecurrentaccountandgovernmentbudgetdeficits,areallissuesontheradar.

U.S.EconomicHistory

TheendofWorldWarIImarkedthebeginningofagoldenerafortheU.Seconomy.Thisperiodwasmarkedbyasurgeineconomicactivityandproductivity,agrowingandmoreprosperousmiddleclass,and
theriseofthebabyboomergeneration.Fromthelate1940stotheearly1970s,U.S.GDPgrewatanaverageannualrateofnearly4%.Bythe1970s,thestructuralchangeintheeconomyawayfromindustry
andmanufacturingtoserviceswasinfullforce.However,afterseveraldecadesofunprecedentedgrowth,theeconomybegantoshowsignsofslowingandaseriesofevents,includingthecollapseofthe
BrettonWoodssystem,the1973oilcrisisandincreasedglobalcompetition,precipitatedimportanteconomicchanges.The1970sweremarkedbyaperiodofstagnatinggrowthandinflationreferredtoas
stagflation.

The1980sgaverisetoReaganomics,aseriesofeconomicpoliciespromotedbyPresidentRonaldReagan.Themainobjectiveswerereducedgovernmentspendingandregulation,aswellaslowertaxesand
atightermoneysupply.Reganwashighlysuccessfulinoverhaulingthetaxcodeandpushingaheadwithderegulationinseveralmajorsectorsoftheeconomyandwhilegrowthandproductivityincreased,the
governmentsdebtmultipliedsignificantly.Inabroadersense,ReaganomicsmarkedaturntowardfreemarketsupplysideeconomicsandawayfromtheKeynsianinspiredeconomicsthathadbeenfavored
sincetheGreatDepression.

Increasingglobalintegrationandtheriseofnewtechnology,includingtheadoptionofproductivityenhancingITintheworkplaceandthesurgeofhightechcompanies,helpedfuelaneconomicboominthe
1990s.Theperiodbetween1993and2001markedthelongestsustainedexpansioninU.Seconomichistory,andpoweredasteepriseinemployment,incomeandconsumerdemand.

Moreover,thestronggrowthandlowunemploymentduringthistimewereparticularlyremarkablebecausethegovernmentbudgetwasreignedinsimultaneouslyandactuallyachievedasurplusforfouryears
between1998and2001.ThefiscalimprovementwasmadepossibleinpartbytaxincreasesintroducedbyPresidentBillClinton,butalsothankstotheboomingeconomyandsurgingstockmarket.Thestock
marketwasdrivenupbytheriseofinternetbasedcompaniesinwhatisknownasthedotcombubble,whichgeneratedvastsumsofunanticipatedrevenueforthegovernmentoncapitalgainstaxesand
risingsalaries.However,theovervaluationofdotcomstockseventuallybecameapparentandthebubbleburstin2000.

Thefirstyearsofthe2000ssawasharpdropineconomyactivityfollowingthedotcomburst.TheterroristattacksonSeptember11,2001,andseveralcorporatescandalsputafurtherdamperoneconomic

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activityandbusinessconfidence.TheFederalReserve(theFed),underAlanGreenspan,steppedintocounteractthestrugglingeconomybyintroducinglowinterestrates.Thismovewouldlaterbeconsidered
amajorfactorincausingthemassivehousingmarketbubblethatburstandprecipitatedtheGreatRecessionthatbeganin2008.

UnitedStatesBalanceofpayments

Overthepastseveraldecades,theU.S.currentaccountbalancehasbeenheavilyinfluencedbyinternationaltradeflows,withtheongoingtradedeficitresultinginaconsistentcurrentaccountdeficit.Earnings
onU.S.assetsandinvestmentsownedabroadhaveaverysmallpartinthecurrentaccount,andasurplusinthiscategoryisnotnearlyenoughtooffsetthelargetradedeficit.Overall,thecurrentaccount
deficitimpliesthatthevalueofthegoodsandservicesbeingpurchasedfromabroadbytheUnitedStatesexceedsthevalueofthegoodsandservicesbeingsoldtoforeigners.TheU.S.currentaccountdeficit
widenedprogressivelysincethe1990sandreachedanalltimerecordandglobalhighof5.8%ofGDPin2006.Thedeficitnarrowedinthefollowingyearsandreached2.4%in2013.Theimprovementhas
beendriveninlargepartbyincreaseddomesticoilproduction.

Thecurrentaccountdeficitismirroredbyacapitalaccountsurplus.ThenetamountofcapitalinflowsreceivedintheUnitedStatesfromabroadmakesitpossibletofinancethecurrentaccountdeficit.
ForeignerscontinuetoinvestinU.S.assetsandcompanies,andsothenetinternationalinvestmentpositionoftheUnitedStateshasgrownovertime.TheUnitedStatesisbyfarthetoprecipientofforeign
directinvestment(FDI).TheU.S.economyreceivedUSD166billioninFDIin2012,pushingthecumulativestocktoUSD2.7trillion.About80%ofFDIintheUnitedStatescomesfromasetofjustnine
industrializedcountries.TheUK,JapanandtheNetherlandsarethetopsourcesofFDIintheU.S.TheU.S.manufacturingsectordrawsabout40%ofFDI.

UnitedStatesTradeStructure

TheU.S.isthe2ndleadingexporterofgoodsandservicesintheworldandthenumberoneleadingimporter.TheU.S.consistentlyrunsatradedeficit,mainlyduetothedependenceonforeignoiltomeetits
energyneedsandhighdomesticdemandforconsumergoodsproducedabroad.In2013,theUnitedStatesrecordedaUSD702billiondeficitintradeofgoods,includingaUSD232billiondeficitinpetroleum
products.Meanwhile,theU.S.hadaUSD231billionsurplusintradeofservices.ThemaintradingpartnersoftheU.S.areCanada,China,MexicoandJapan.CanadaisthemaindestinationforU.S.exports,
whereasChinaisthemainsourceofimports.ThetradedeficitwithChinahitarecordhighUSD318billionin2013.

TheU.S.playsamajorroleintheinternationaltradesystemandisgenerallyseenasaproponentofreducedtradebarriersandfreetradeagreements.TheUnitedStatescurrentlyhasmorethanadozenfree
tradeagreementsinplace.AmongthemaretheNorthAmericanFreeTradeAgreement(NAFTA),whichwascreatedinconjunctionwithCanadaandMexicoin1994.In2011,theUnitedStatessignedfree
tradeagreementswithPanama,Colombia,andSouthKorea.TheUnitedStatesisalsoanactivememberoftheWorldTradeOrganization(WTO).

ExportsfromtheUnitedStates

AlthoughtheUnitedStateshaslostsomeofitscompetitiveedgeinrecentdecades,materialgoodsstillrepresenttwothirdsofitstotalexports.TheUnitedStatesmainlyexportshighvaluecapitalgoodsand
manufacturedproducts,includingindustrialmachinery,airplanes,motorvehiclesandchemicals.In2013,theU.S.exportedUSD1.579trillioningoods.

TheUnitedStatesistheworldsleadingexporterofservices.Thisincludesfinancialandprofessionalbusinessservicesaswellasotherknowledgeintensiveservices.Travel,transportationandtourismservices
arealsoamajorexport.TheUnitedStatesexportedarecordhighUSD682billionofservicesin2013,whichrepresentedaboutonethirdofitsexports.

ImportstotheUnitedStates

About80%oftotalimportsbroughttotheUnitedStatesfromabroadaregoods.Roughly15%oftheseimportsareintheformcrudeoil,fueloilandpetroleumproducts.Industrialmachinery,suppliesand
equipmentrepresentanother15%ofimportedgoods.Almost25%ofimportedgoodsarecapitalgoods,suchascomputers,computeraccessories,electronics,medicalequipment,andtelecommunications
equipment.Consumergoodsrepresentanother25%ofimportedgoods.Cellphones,pharmaceuticals,toys,householdequipment,textiles,apparel,televisions,andfootweararethemaintypesofconsumer
goodsimportedtotheUnitedStates.Anadditional15%ofimportedgoodsareautomotivevehicles,parts,andengines.Foodandbeveragesrepresentonlyabout5%ofimportedgoods.Servicesrepresent
only20%oftotalimports,andareprimarilyfinancialservices,aswellastravelandtransportation.

UnitedStatesEconomicPolicy

TheU.S.governmenthasfacedthemomentoustaskofreversingtheeffectsoftherecessionwithacombinationofexpansionaryfiscalandmonetarypolicy.Onthefiscalside,governmentstimulusspending

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andtaxcutspreventedfurtherdeteriorationoftheeconomy.Onthemonetaryside,theFederalReservehastackledeconomicweaknesswithbothtraditionalandunconventionalpolicies.

TheUnitedStatesistypicallyregardedasthehomeoffreemarketeconomicpolicies.However,theU.S.governmentexercisesasignificantamountofregulationovereconomic,commercialandfinancial
activities.Followingtherecession,thegovernmentsteppedupitsoversightinthefinancialsector.TheDoddFrankact,passedin2010,representsthemostcomprehensivereformoffinancialmarkets
regulationsincetheGreatDepression.

UnitedStatesFiscalPolicy

TheU.S.governmenttendstospendmoremoneythanittakesin,andthushasincurredfiscaldeficitsalmostuninterruptedlyduringthepastseveraldecades.Theonlytimewhenthegovernmentmanagedto
balanceabudgetinrecenthistorywasbetween1998and2001,whenthestrongeconomyresultedinhigherthanusualtaxrevenues.Thefiscaldeficitreachedthehighestpointsince1945in2009at9.8%of
GDP,buthasimprovedprogressivelysincethenthedeficitdroppedto4.0%ofGDPin2013.

Thelargestportionofgovernmentspendingismandatedbyexistinglaws,withalargeamountoffundsallocatedtoentitlementprogramssuchasSocialSecurityandMedicaid.Mandatoryspendingrepresents
nearly60%oftotalgovernmentspending.Theremainderisreferredtoasdiscretionaryspending,andisdeterminedbytheannualfederalbudget.Abouthalfofthediscretionarybudgetisspentonthemilitary
anddefense,withtheotherhalfspentongovernmentprogramsandpublicservices.

Nearly50%oftaxobtainedbytheU.S.governmentcomesfromincometaxesonindividuals,withanadditional10%comingfromincometaxesonbusinessesandcorporations.Another35%ofcollectionscome
frompayrollandsocialsecuritytaxes.Excisetaxeschargedongoodssuchasliquor,tobaccoandgasolinebringinasmalleramount.Taxrevenuesequaledabout18%ofGDPonaveragebetween1970and
2010.

ThestimuluspackageintroducedbytheObamaadministrationin2009includedUSD288billionintaxcutsandincentives.Lessthantwoyearslater,Obamaannouncedanextensiontothetaxcutsthathad
beenintroducedduringtheBushadministrationatacostofmorethanUSD400billionovertwoyears.

UnitedStatesMonetaryPolicy

TheU.S.CongresshasestablishedthatthemonetarypolicyobjectivesoftheFederalReservearetopromotemaximumemploymentandpricestabilityinwhatisknownasthedualmandate.TheFederal
OpenMarketCommittee(FOMC)istheFed'smonetarypolicymakingbody.TheFOMCmeetsabouteighttimesayeartodiscussdevelopmentsandtheoutlookfortheU.S.economyandtodebatedifferent
policyoptions,includingthelevelofinterestrates.Thefederalfundsrate,themaininterestratemanagedbytheFed,istheratewhichdepositbankschargeeachothertotradefundsovernightinorderto
maintainreservebalancerequirements.ThefederalfundsrateisoneofthemostimportantintheU.S.economybecauseitinfluencesallothershortterminterestrates.

Duringtheyearssincetherecessionhit,theFedhasbeenveryactive.TheFedhasmaintainedapolicyofkeepingthefederalfundsratenearzero.Interestrateswereinitiallysupposedtobekeptlowonlyuntil
theunemploymentratedroppedto6.5%orinflationsurpassed2.5%.However,thisspecificforwardguidancewasrevampedinMarch2014whentheFedannouncedthatanyfuturedecisionstohikeinterest
ratesnolongerdependedonpreviouslyestablishedquantitativethresholds,butratherontheassessmentofabroadrangeofmorequalitativeinformation.Inanadditionalresponsetocountertheeffectsofthe
recession,inDecember2012,theFedannouncedanunconventionalpolicyknownasquantitativeeasing.Thispolicyinvolvesthepurchaseofvastsumsoffinancialassetsinanattempttoincreasethemoney
supplyandholddownlongterminterestrates.

UnitedStatesExchangeRatePolicy

TheU.S.dollarisoftenreferredtoastheworldscurrencybecauseitisbyfarthemostusedcurrencyininternationaltransactionsandalsothemostwidelyheldreservecurrency.Almosttwothirdsofcurrency
reservesheldthroughouttheworldareinU.S.dollars.

AlthoughtheTreasuryDepartmenthastheprimaryauthoritytooverseeinternationalfinancialissues,theTreasurysdecisionsregardingforeignexchangearemadeinconsultationwiththeFederalReserve.
However,U.S.interventionintheforeignexchangemarkethasbecomeincreasinglylessfrequent.U.S.authoritiestypicallylettheopenforeignexchangemarketanddomesticmonetarypoliciesdetermine
rates.

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7/23/2016 UnitedStatesEconomyGDP,Inflation,CPIandInterestRate

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UnitedStatesFacts
Value Change Date

BondYield 1.57 1.26% Jul21

ExchangeRate 1.10 0.10% Jul21

StockMarket 18,517 0.42% Jul21

UnitedStatesEconomicGrowth
June28,2016

TheUKsvotetoleavetheEUhassentshockwavesthroughoutglobalfinancialmarketsandhasthepotentialtocauseameaningfulshocktoEurope.TheU.S.economyisnotimmunetoeconomicslowdowns
intheUKandtheEurozone,andtherecentdevelopmentsregardingtheUKsexitfromtheEUarecastingashadowontheU.S.outlook.FocusEconomicspanelistsexpectGDPtoincrease1.9%in2016,
whichisunchangedfromlastmonthsforecast.For2017,thepanelseesGDPgrowthat2.2%.

UpcomingEvents

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7/23/2016 UnitedStatesEconomyGDP,Inflation,CPIandInterestRate

UnitedStatesEconomicNews
UnitedStates:RetailsalesjumpupinJune
July15,2016

Nominalretailsalesincreased0.6%inJuneoverthepreviousmonth.

UnitedStates:InflationstabilizesinJune
July15,2016

Seasonallyadjustedconsumerpricesrose0.2%inJuneoverthepreviousmonthandmirroredtheresultobservedinMay.

UnitedStates:Junejobsreportcalmsmarketjitters
July8,2016

Markets,andlikelytheFederalReserve,breathedasighofreliefaftertheJunejobsreportshowedastrongincreaseinemploymentandthuseasedconcernsthattheU.S.economymighthaveloststeam.

UnitedStates:U.S.manufacturingsectorgainsmoremomentuminJune
July1,2016

AnincreaseintheISMmanufacturingindexinJunewasapositivesurpriseandsignalsagaininmomentumintheU.S.manufacturingsector.

UnitedStates:ConsumerconfidencereboundsandjumpstoeightmonthhighinJune
June28,2016

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7/23/2016 UnitedStatesEconomyGDP,Inflation,CPIandInterestRate
TheConferenceBoardsconsumerconfidenceindicatorjumpedfrom92.4inMayto98.0inJuneandbeatthe93.5themarketshadexpected.

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