June 08, 2011

Economics Group
MONTHLY OUTLOOK
U.S. Overview

International Overview

Growth Disappoints in Q2, Better Q3

Higher gas prices, severe weather events and Japanese supply
chain disruptions appear to have had a substantial negative
impact on growth in the short run. Payroll growth has also
moderated so far in the current period, while the
unemployment rate has reversed course and ticked back up to
more than 9 percent. Due to these concerns, consumer
confidence and spending has also pulled back. Even the
singular point of strength in this recovery, manufacturing, saw
some slowing as the May ISM manufacturing index recorded
its largest monthly decline since 1984. However, we expect a
bounce back in Q3.

Slower Global Growth, Slower Global Inflation

The recent weakness in economic indicators across the world
has brought to the forefront the continuous fragility of the
current economic environment. While some of the slowdown
was expected and welcomed due to the recent acceleration in
inflationary pressures, it comes at a very precarious stage in
the global recovery as U.S. economic growth has also
weakened considerably since the end of last year.

Our forecast calls for real GDP to rise at a 2 percent pace

during the second quarter, which is only slightly above first
quarter growth. The composition, however, should be
markedly improved with real final sales strengthening from
the first quarters paltry 0.6 percent pace to a solid 3.3 percent
pace in the second quarter and 2.5 percent in the second half
of this year. One turnaround factor later this year is that the
drag from government spending should also diminish as
revenue growth slowly improves at the state and local level.
With GDP growth and inflation still below trend, ongoing debt
concerns in Europe plus monetary and fiscal policy set to
become neutral/restrictive, respectively, in the coming
quarters, our below-trend outlook represents a continuing
challenge for both private and public decision makers to
maintain their goal to right size their organizations.

While some of the recent numbers are temporary in nature

and are related to the effects of the Japanese earthquake,
tsunami and nuclear crisis, markets have started to second
guess the strength of the global economy. Furthermore, the
reemergence of the unsolved Greek fiscal and debt crisis and
all of its potential consequences for the global economy is
making markets even more nervous regarding the future of the
global economy.
Although emerging market economies have also slowed down
a bit following central banks monetary tightening, they are
still growing at a relatively strong pace and will continue to
provide a life line for the rest of the world. Furthermore, this
slowdown in economic activity has pushed down commodity
prices, which will take some pressure off central banks to stay
put during the next several months and avoid increasing
interest rates further. Thus, we are still positive that the
current slowdown in economic activity is temporary and that
the global economy will continue to grow during the rest of the
year.

Real GDP
10.0%

Bars = CAGR

Real Global GDP Growth

Line = Yr/Yr Percent Change

10.0%

Year-over-Year Percent Change

7.5%

7.5%

GDPR - CAGR: Q1 @ 1.8%

GDPR - Yr/Yr Percent Change: Q1 @ 2.3%

8.0%

8.0%
6.0%

6.0%
Period Average

6.0%

6.0%
Forecast
4.0%

4.0%

2.0%

2.0%

0.0%

0.0%

-2.0%

-2.0%

-4.0%

-4.0%

-6.0%

-6.0%

-8.0%
2000

-8.0%
2002

2004

2006

2008

2010

4.5%

4.5%

3.0%

3.0%

1.5%

1.5%

0.0%

0.0%

-1.5%

-1.5%

2012

1970

1975

1980

1985

1990

Source: U.S. Department of Commerce, International Monetary Fund and Wells Fargo Securities, LLC

This report is available on wellsfargo.com/economics and on Bloomberg WFEC

1995

2000

2005

2010

Economics Group

U.S. Outlook

Temporary Glitch or Wishful Thinking?

It has been nearly two years since the economic recovery began
but rather than a celebration this milestone has been marked
by renewed doubts about the sustainability of the recovery and
a revaluation of expectations for the longer-run trend growth of
the economy. Virtually all the early data for May have been
disappointing. Nonfarm employment increased by just
54,000 last month - roughly a third of what the consensus had
expected. Moreover, previous gains in March and April were
revised lower, breaking a string of seven consecutive months of
positive revisions. The breath of industries adding jobs shrank
last month and according to the ADP employment report,
small- and medium-sized firms, which have been the primary
driver of job growth over the past year, pulled back
considerably. The unemployment rate rose 0.1 percentage
points to 9.1 percent, as labor force growth exceeded the
rebound in household employment. Motor vehicle and chainstore sales also faltered a bit during the month and the ISM, as
well as many of the regional purchasing managers surveys,
showed manufacturing activity cooling off a bit.
Some pullback had been expected. The Japanese earthquake
led to supply shortages at a number of vehicle assembly plants
and may have also reduced output in parts of the technology
sector. The string of tornados and floods along the Mississippi
that hit the country in April and May also likely cut into job
growth as did the sharp run-up in energy prices. But the
economy was not all that strong even before all these special
factors arrived on the scene. We are still working through a
whole host of structural issues, the most important of which is
the housing slump and the still broken mortgage finance
sector. In addition, state and local governments continue to
slash their payrolls as they attempt to bring their budget gaps
into balance. With fiscal and monetary policy stimulus winding

down, it is hard to see how economic growth can return to a

3 percent or better pace on a sustained basis.
Given these constraints, we continue to maintain a much more
cautious outlook. Our latest forecast calls for real GDP to rise at
around a 2 percent pace in the current quarter and we expect a
modest bounce back this summer as auto plants ramp
production back up to make up for lost output this spring. Real
GDP is expected to rise just 2.4 percent for all of 2011 and we
see growth averaging just a 2.6 percent pace in 2012. Our GDP
calls remain below the latest Blue Chip Consensus of
2.6 percent and 3.1 percent, respectively.
Our longer-term outlook for 2012-2014 posits growth at
3.1 percent on average. This rate reflects a slight downshift
from the historical trend rate of growth and is consistent with
slower growth in the labor force over this period.
With real GDP growth averaging less than 3 percent this year
there are three implications we see for the economy. First,
unemployment will decline only gradually. Second, the Fed will
take its time removing the stimulus that it has put in place over
the past couple of years, especially since core inflation remains
below the 2 percent target and sovereign debt concerns still
simmer in Europe. Finally, a 3 percent growth rate will not
eliminate the need for difficult decisions for public policy
makers at both the federal and local levels. Revenues will not
grow fast enough in this era of subpar GDP growth to avoid the
need to cut spending.
In the private sector, a sub 3 percent rate of growth suggests
continued discipline on costs and the importance of strategic
initiatives to diversify revenues across products domestically
and internationally as well. In recent months, we have seen
many firms take advantage of current low financing costs to
increase borrowing in the capital markets.

Nonfarm Employment
400

Wells Fargo Securities, LLC

Federal Funds Target Rate

Thousands of Employees, Average Monthly Change

400

Percent

7.00%

7.00%

Forecast
200

200

6.00%

6.00%

5.00%

5.00%

4.00%

4.00%

3.00%

3.00%

-200

-200

-400

-400
2.00%

2.00%
Forecast
-600

-600

-800
2000

Federal Funds: Q1 @ 0.25%

-800

2002

2004

2006

1.00%

1.00%

Nonfarm Employment: Q1 @ 165.7K

2008

2010

2012

0.00%
2000

0.00%
2002

2004

2006

2008

2010

2012

Source: U.S. Department of Labor, Federal Reserve Board and Wells Fargo Securities, LLC

Economics Group

U.S. Economic Forecast

Wells Fargo Securities, LLC

Wells Fargo U.S. Economic Forecast

q22011

Actual

2011

Forecast

2009
1Q

2Q

2010
3Q

4Q

1Q

2Q

3Q
q22011

Real Gross Domestic Product (a)

Personal Consumption
Business Fixed Investment
Equipment and Software
Structures
Residential Construction
Government Purchases

-4.9
-0.5
-35.2
-31.6
-41.0
-36.2
-3.0

-0.7
-1.6
-7.5
0.2
-20.2
-19.7
6.2

1.6
2.0
-1.7
4.2
-12.4
10.6
1.6

5.0
0.9
-1.4
14.6
-29.2
-0.8
-1.4

3.7
1.9
7.8
20.5
-17.8
-12.3
-1.6

1.7
2.2
17.2
24.8
-0.5
25.6
3.9

q22011

q22011

q22011

q22011

q22011

q22011

q22011

-389.2
2.9
-125.8
-1.1

-342.0
1.5
-161.8
-1.0

-390.8
-1.4
-128.2
1.1

-330.1
1.9
-36.7
2.8

-338.4
-0.3
44.1
2.6

-449.0
-3.5
68.8
0.8

q22011

q22011

q22011

q22011

2.6
2.4
10.0
15.4
-3.6
-27.3
3.9

-3.9
-3.9
-10.3

-0.4
0.2
-10.6

2.3
0.4
-7.7

4.7
2.1
1.1

4.8
1.1
5.3

3.7
0.9
6.8

q22011

q22011

q22011

4.6
0.9
5.6

1.6
-0.2
1.8
-2.3
2.1

1.5
-1.0
1.8
-4.1
1.8

1.3
-1.6
1.5
-5.2
1.5

1.7
1.5
1.7
1.5
1.4

1.8
2.4
1.3
5.1
1.7

1.5
1.8
1.0
4.3
1.9

q22011

q22011

q22011

q22011

0.4
-1.7
-18.9
69.7
-17.3
-10.1

5.9
-2.1
-11.5
67.7
-11.4
-3.1

-4.4
-2.3
5.3
68.9
-3.9
0.4

0.0
-0.9
5.6
70.3
42.5
41.9

1.3
2.1
8.1
72.3
37.6
27.0

5.6
2.6
7.1
74.0
37.0
26.5

q22011

q22011

q22011

q22011

q22011

q22011

-448.9
-95.6
83.2

-304.9
-84.4
77.7

-329.4
-97.5
74.3

-388.1
-100.9
74.8

-328.9
-108.7
76.1

-287.0
-122.7
78.8

Nonfarm Payroll Change (f)

Unemployment Rate
Housing Starts (g)
Light Vehicle Sales (h)
Crude Oil - WTI - Front Contract (i)

-780.7
8.2
0.53
9.6
43.08

-516.0
9.3
0.53
9.7
59.62

-255.7
9.7
0.59
11.6
68.30

-135.3
10.0
0.57
10.8
76.19

39.3
9.7
0.61
11.0
78.72

181.0
9.6
0.60
11.3
78.03

q22011

q22011

q22011

1.2
1.2
0.9
3.7
1.9
1.0
3.5
6.7
75.5
26.4
16.2

q22011

q22011

q22011

q22011

0.25
1.19
3.25
5.00
0.21
0.81
1.67
2.71
3.56

0.25
0.60
3.25
5.42
0.19
1.11
2.54
3.53
4.32

0.25
0.29
3.25
5.06
0.14
0.95
2.31
3.31
4.03

0.25
0.25
3.25
4.93
0.06
1.14
2.69
3.85
4.63

0.25
0.29
3.25
4.97
0.16
1.02
2.55
3.84
4.72

0.25
0.53
3.25
4.74
0.18
0.61
1.79
2.97
3.91

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

Forecast as of: June 8, 2011

Notes: (a) Compound Annual Growth Rate Quarter-over-Quarter
(b) Year-over-Year Percentage Change
(c) Quarterly Sum - Billions USD; Annual Data Represents Fiscal Yr.
(d) Quarterly Sum - Billions USD
(e) Federal Reserve Major Currency Index, 1973=100 - Quarter End

q22011

q22011

q22011

q22011

-397.7
3.3
16.2
-3.4

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2Q
q22011

1.8
2.2
3.4
11.6
-16.8
-3.3
-5.1

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2.0
2.1
16.9
7.8
6.8
3.3
-1.0

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

3.0
2.0
7.7
8.9
3.5
2.5
-1.7

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2.8
2.1
9.5
11.0
4.0
4.5
-1.7

q22011

q22011

-388.2
0.3
18.7
-1.0

4Q
q22011

q22011

q22011

-398.5
-0.1
52.2
1.2

3Q
q22011

q22011

-377.4
0.3
42.0
0.7

q22011

q22011

q22011

q22011

-369.4
0.2
50.0
0.2

1Q
q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2Q
q22011

2.2
2.0
8.2
8.8
5.8
7.0
-1.4

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2.6
2.2
10.2
11.0
7.0
9.0
-1.2

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2.6
2.2
10.0
10.2
9.0
11.0
-0.5

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

3.5
6.7
7.7

q22011

q22011
q22011

q22011

q22011

q22011

q22011

0.8
1.2
0.6
3.8
2.0

3.8
0.6
8.2

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

4.1
3.3
8.4

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

1.1
3.5
1.4
6.7
1.7

q22011

q22011

q22011

q22011

q22011

q22011

4.9
2.6
6.5

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.9
2.2
1.1
5.1
2.0

q22011

5.1
2.3
8.3

q22011

q22011

q22011

q22011

q22011

q22011

1.5
3.8
1.6
6.9
1.7

q22011

q22011

q22011

q22011

q22011

1.9
4.0
2.1
6.4
1.9

4.3
2.1
5.2

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

4.7
2.4
5.3

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2.0
2.9
2.2
3.9
1.9

q22011

q22011

q22011

q22011

q22011

q22011

q22011

2.0
3.0
2.2
4.0
1.8

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

1.1
3.8
3.1
76.1
18.3
13.7

q22011

q22011

q22011

-369.0
-113.3
73.2

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

138.7
9.6
0.54
12.3
85.17

0.8
4.7
4.6
76.8
8.5
6.5

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.6
4.4
2.5
76.9
6.2
5.7

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

1.1
4.5
6.9
77.4
6.2
6.2

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

1.4
4.4
3.0
77.6
6.7
7.7

q22011

-345.0
-155.0
69.5

q22011

q22011

q22011

-390.0
-160.0
71.0

q22011

q22011

147.0
9.1
0.55
12.5
105.80

q22011

q22011

q22011

-275.5
-145.0
69.0

q22011

165.7
8.9
0.58
13.0
94.10

q22011

q22011

q22011

-460.4
-135.0
70.6

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

168.3
8.9
0.61
13.2
108.00

q22011

q22011

175.0
8.8
0.66
13.5
110.00

1.2
3.1
3.4
77.9
6.9
8.3

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

1.6
2.7
3.9
78.1
7.2
8.6

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

1.8
2.6
4.0
78.4
7.5
8.8

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.25
0.30
3.25
4.71
0.12
0.61
2.01
3.30
4.34

0.25
0.30
3.25
4.84
0.09
0.80
2.24
3.47
4.51

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.25
0.30
3.25
4.50
0.10
0.40
1.60
2.90
4.10

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.25
0.35
3.25
4.80
0.15
0.70
1.90
3.20
4.30

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.25
0.40
3.25
5.00
0.20
1.00
2.20
3.40
4.50

0.25
0.40
3.25
5.20
0.45
1.30
2.40
3.60
4.70

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

0.50
0.65
3.50
5.40
0.95
1.40
2.60
3.80
4.90

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

-363.0
1.1
-113.1
-0.6

0.75
0.90
3.75
5.50
1.45
1.60
2.80
3.90
5.00

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

q22011

### ###

### ###

### ###

### ###

### ###

### ###

### ###

2.9
1.7
5.7
15.3
-13.7
-3.0
1.0

2012

### ###

### ###

### ###

### ###

5.0
2.6
7.4

2.2
0.5
-1.0

2.1
3.1
2.3
4.0
2.0

2.3
3.8
2.3
6.4
3.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

-1.7
-2.1
-7.0
1.5
-0.3
1.7
-2.6
1.7

### ###

### ###

### ###

-422.5
-0.5
62.6
1.4

1.7
4.0
-3.3
77.7
-16.4
-10.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.6
-1.7
-11.1
69.2
-0.4
5.1

3.8
1.4
6.4

-454.8
-668.9
74.3

190.0
8.1
0.83
14.3
112.00

-295.9
5.8
0.90
13.2
99.65

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

-1415.7
-378.4
77.7

0.00 0.00

0.0

0.0

0.00 0.00

0.00 0.00

1.25
1.40
4.25
5.60
1.65
1.90
2.90
4.00
5.10

1.88
2.93
4.88
6.04
1.40
2.01
2.80
3.66
4.28

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.25
0.69
3.25
5.04
0.15
0.96
2.20
3.26
4.08

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###
### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

1.3
1.6
1.0
4.2
1.3

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

1.4
3.0
5.3
74.5
29.2
20.4

### ###

### ###

### ###

### ###

### ###

### ###

-1294.2
-470.2
75.6

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###
### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

0.25
0.34
3.25
4.69
0.14
0.70
1.93
3.22
4.25

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

2.6
2.1
9.6
9.8
6.2
7.0
-1.2

### ###

### ###

### ###

### ###

-389.3
0.0
60.8
0.1

### ###
### ###

4.1
2.6
7.8

### ###

### ###

### ###

4.7
2.4
6.2

### ###
### ###

### ###

1.3
3.4
1.6
6.3
1.8

### ###

### ###

### ###

### ###

### ###

2.0
3.1
2.2
4.0
2.0

### ###
### ###

1.2
4.5
4.5
77.2
6.9
6.5

### ###

### ###

### ###

### ###

### ###

### ###

1.4
2.7
3.9
78.3
7.3
8.7

### ###
### ###

-1449.9
-595.0
70.0

### ###
### ###

78.3
9.6
0.58
11.5
79.53

### ###

### ###
### ###

-383.3
0.3
40.7
-0.2

### ###
### ###

### ###
### ###

### ###

2.4
2.5
9.2
10.9
-1.8
-1.6
-1.4

### ###
### ###

### ###
### ###

-421.9
9.3
0.55
10.4
61.80

### ###

### ###
### ###

### ###
### ###

-215.0
-175.0
77.0

### ###

### ###
### ###

### ###
### ###

2.1
2.6
4.1
78.7
7.6
8.9

### ###

### ###

### ###
### ###

### ###
### ###

q22011

185.0
8.4
0.78
14.1
112.00

q22011

q22011

-504.1
1.1
-37.6
-0.5

q22011

q22011

185.0
8.6
0.74
13.9
111.00

-409.1
-0.4
67.2
0.1

q22011

-165.0
-170.0
76.0

2011
### ###

### ###
### ###

q22011

q22011

-145.0
-165.0
75.0

q22011

180.0
8.7
0.69
13.7
111.00

q22011

q22011

q22011

-400.0
-165.0
73.0

q22011

q22011

q22011

q22011

-2.6
-1.2
-17.1
-15.3
-20.4
-22.9
1.6

q22011

q22011

q22011

q22011

0.0
-0.3
0.3
-2.4
5.9
-24.0
2.8

q22011

q22011

q22011

2.8
2.3
10.2
10.0
11.0
12.5
-0.2

q22011

q22011

q22011

2.0
3.4
2.2
4.3
2.2

q22011

4.9
2.5
6.7

q22011

q22011

q22011

q22011

### ###

q22011

-393.7
-0.4
63.0
0.1

2010

4Q

q22011

q22011

-380.9
-0.2
59.0
0.1

Forecast

2009

q22011

q22011

q22011

-373.4
-0.1
54.0
0.1

3Q
q22011

q22011

q22011

0.25
0.29
3.25
4.35
0.16
0.42
1.27
2.53
3.69

1Q
q22011

2008

q22011

q22011

-45.7
9.6
0.58
11.6
76.20

q22011

q22011

q22011

q22011

-290.2
-125.5
73.6

q22011
q22011

Quarter-End Interest Rates (j)

Federal Funds Target Rate
3 Month LIBOR
Prime Rate
Conventional Mortgage Rate
3 Month Bill
2 Year Note
5 Year Note
10 Year Note
30 Year Bond

q22011

q22011

q22011
q22011

q22011

q22011

q22011

q22011
q22011

Federal Budget Balance (c)

Current Account Balance (d)
Trade Weighted Dollar Index (e)

q22011

q22011

q22011
q22011

Real Disposable Income (a)

Nominal Personal Income (b)
Industrial Production (a)
Capacity Utilization
Corporate Profits Before Taxes (b)
Corporate Profits After Taxes

q22011

3.1
4.0
7.7
7.7
7.7
3.3
-1.7

q22011

q22011

q22011

q22011

q22011

-505.0
-1.7
121.4
1.6

q22011
q22011

Inflation Indicators (b)

"Core" PCE Deflator
Consumer Price Index
"Core" Consumer Price Index
Producer Price Index
Employment Cost Index

q22011

q22011

q22011
q22011

Nominal GDP
Real Final Sales
Retail Sales (b)

4Q
q22011

q22011
q22011

Net Exports
Pct. Point Contribution to GDP
Inventory Change
Pct. Point Contribution to GDP

Actual
2012

2011

### ###

### ###

### ###

-1100.0
-675.0
75.3

### ###
### ###

164.0
8.9
0.60
13.1
104.47

### ###

### ###

### ###

### ###

### ###

185.0
8.5
0.76
14.0
111.50

### ###
### ###

### ###

0.25
0.34
3.25
4.79
0.14
0.73
1.99
3.24
4.35

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

### ###

0.69
0.84
3.69
5.43
1.13
1.55
2.68
3.83
4.93

### ###

(f) Average Monthly Change

(g) Millions of Units
(h) Quarterly Data - Average Monthly SAAR; Annual Data - Actual Total Vehicles Sold
(i) Quarterly Average of Daily Close
(j) Annual Numbers Represent Averages

Economics Group

International Outlook Wells Fargo Securities, LLC

Slower Global Growth Is Good News for Inflation

and a 7.5 percent rate for the whole of the past year. Although
real exports of goods and services contributed negatively to
economic growth during the first quarters of the year on a
seasonally-adjusted basis, exports of goods have remained
relatively strong during the second quarter of the year and
should contribute positively to economic growth during the
second quarter. Exports of goods increased by 31.1 percent
during the month of May compared to the same month a year
earlier, but what is even more surprising is that exports grew
by 47.7 percent during May of last year as the external sector
was recovering from the deep 37.9 percent drop in exports
recorded in May 2009. This means that Brazilian exports are,
today, almost $3 billion higher than during the pre-crisis peak.
Although some of this can be explained by higher prices, we
have to remember that commodity prices were also very high
during that period of time.

Recent news from across the world seems to be indicating a

pause in the upbeat expectations of relatively strong economic
growth. While markets were already expecting some negative
temporary effects coming from the Japanese crisis, some are
taking the temporary argument and converting it to something
more lasting than originally thought. Interestingly enough,
some recent indicators for Japan were actually in expansionary
territory or better than expected in April and May with the
Markit/JMMA Manufacturing PMI increasing to a level of
51.3 from a 45.7 reading for April, which would indicate that
the Japanese manufacturing sector is recovering after the
devastating events in March. However, data for Germany,
which is the country almost singlehandedly driving growth in
the Eurozone, slowed down marginally in May with the
Manufacturing PMI posting a reading of 57.7 from an April
number of 58.2. A similar trend was clear for the advance
German Services PMI for May. Meanwhile, the Chinese central
bank continues to undertake measures to slow down the
economy, but the actual numbers coming are not budging that
much with the Manufacturing PMI slowing down marginally
from a reading of 52.9 in April to a 52.0 in May.

Another country in Latin America that is showing some signs of

exports slowdown is Mexico, which is probably a reflection of
the recent slowdown in the U.S. economy. Mexican exports
increased by only 12.5 percent during April, year over year,
with non-petroleum exports increasing by 9 percent and
petroleum exports surging by 35.1 percent. This compares
negatively with a growth rate of exports of 20.1 percent year
over year in March.

In India, we see the same thing occurring as GDP came out at

7.8 percent in the first quarter, year over year, from an
upwardly revised growth rate of 8.3 percent during the last
quarter of 2010. Furthermore, the trade sector, while weaker
compared to the past several quarters continues to boom all
across the world. For example, Indias exports were up by
34.4 percent in April, year over year, compared to a
43.9 percent during the previous month.
In the Latin America region, the Brazilian economy is slowing
down due to a deceleration in domestic consumption, but the
external sector has shown mixed results. Brazilian GDP growth
during the first quarter came in at 4.2 percent year over year,
down from a 5.0 percent growth during the last quarter of 2010

All this news is actually good news for the world economy as
economies have reacted to central banks moves to
preemptively reign in accelerating inflation. Furthermore, the
recent drop in commodity prices will definitely help with
slowing down inflation. At this point, we do not see central
banks across the world continuing to fight inflation as
forcefully as they have been for the past several quarters. This
means that the U.S. dollar may have a respite in the coming
months and the global economy, and especially emerging
market economies, will continue to drive growth.

Chinese Manufacturing PMI

Brazilian Real GDP

Seasonally Adjusted

60

60

Bars = Compound Annual Rate

15%

Line = Yr/Yr % Change

10%

10%
55

55

50

50

45

45

5%

5%

0%

0%

-5%

-5%

-10%

-10%
40

40
-15%

Compound Annual Growth: Q1 @ 5.4%

Chinese Manufacturing PMI: May @ 52.0

35
2005

15%

35
2006

2007

2008

2009

-15%

Year-over-Year Percent Change: Q1 @ 4.2%

2010

2011

-20%

-20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Bloomberg LP, IHS Global Insight and Wells Fargo Securities, LLC
4

Economics Group

International Economic Forecast

Wells Fargo Securities, LLC

Wells Fargo International Economic Forecast

(Year-over-Year Percent C hange)

GDP
2010
Global (PPP weights)
Global (Market Exchange Rates)
Advanced Economies
United States
Eurozone
United Kingdom
Japan
Korea
Canada

Developing Economies
China
India
Mexico
Brazil
Russia

2011

CPI
2012

2010

2011

2012

4.9%
3.7%

3.9%
2.7%

4.2%
3.0%

4.2%
n/a

5.4%
n/a

4.8%
n/a

2.8%
2.9%
1.7%
1.3%
4.0%
6.2%
3.2%

2.0%
2.4%
1.9%
1.4%
-0.8%
4.3%
2.9%

2.6%
2.6%
2.2%
2.0%
2.4%
4.5%
2.9%

1.5%
1.6%
1.6%
3.3%
-0.7%
3.0%
1.8%

3.1%
3.4%
2.7%
4.4%
0.2%
3.9%
2.9%

2.5%
3.1%
2.2%
2.7%
0.0%
2.9%
2.2%

7.4%
10.4%
8.5%
5.5%
7.5%
4.0%

6.1%
9.2%
7.8%
4.3%
4.3%
4.1%

6.1%
8.8%
8.2%
4.4%
4.5%
3.9%

7.6%
3.3%
12.1%
4.2%
5.0%
6.9%

8.0%
4.7%
8.2%
3.9%
6.7%
9.6%

7.4%
3.8%
7.0%
3.9%
5.7%
10.0%

Forecast as of: June 8, 2011

1

Aggregated Using PPP Weights

Wells Fargo International Interest Rate Forecast

(End of Quarter Rates)

3-Month LIBOR

U.S.
Japan
Euroland*
U.K.
Canada

Q2
0.30%
0.20%
1.40%
0.80%
1.20%

2011
Q3
0.35%
0.20%
1.75%
0.80%
1.50%

Q4
0.40%
0.20%
2.00%
1.00%
2.00%

Q1
0.40%
0.20%
2.25%
1.50%
2.50%

10-Year Bond
2012
Q2
0.65%
0.20%
2.25%
1.50%
3.00%

Q3
0.90%
0.20%
2.75%
2.00%
3.25%

Q2
2.90%
1.16%
3.15%
3.40%
3.10%

2011
Q3
3.20%
1.20%
3.40%
3.60%
3.40%

Q4
3.40%
1.23%
3.50%
3.75%
3.70%

Q1
3.60%
1.24%
3.60%
4.00%
3.90%

2012
Q2
3.80%
1.25%
3.80%
4.10%
4.00%

Q3
3.90%
1.26%
3.90%
4.25%
4.10%

Forecast as of: June 8, 2011

*10-year German Government Bond Yield

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg

Head of Research
& Economics

(704) 715-8437
(212) 214-5070

diane.schumaker@wellsfargo.com

Paul Jeanne

Associate Director of
Research & Economics

(443) 263-6534

paul.jeanne@wellsfargo.com

John E. Silvia, Ph.D.

Chief Economist

(704) 374-7034

john.silvia@wellsfargo.com

Mark Vitner

Senior Economist

(704) 383-5635

mark.vitner@wellsfargo.com

Jay Bryson, Ph.D.

Global Economist

(704) 383-3518

jay.bryson@wellsfargo.com

Scott Anderson, Ph.D.

Senior Economist

(612) 667-9281

scott.a.anderson@wellsfargo.com

Eugenio Aleman, Ph.D.

Senior Economist

(704) 715-0314

eugenio.j.aleman@wellsfargo.com

Sam Bullard

Senior Economist

(704) 383-7372

sam.bullard@wellsfargo.com

Anika Khan

Economist

(704) 715-0575

anika.khan@wellsfargo.com

Azhar Iqbal

Econometrician

(704) 383-6805

azhar.iqbal@wellsfargo.com

Ed Kashmarek

Economist

(612) 667-0479

ed.kashmarek@wellsfargo.com

Tim Quinlan

Economist

(704) 374-4407

tim.quinlan@wellsfargo.com

Michael A. Brown

Economist

(704) 715-0569

michael.a.brown@wellsfargo.com

Tyler B. Kruse

Economic Analyst

(704) 715-1030

tyler.kruse@wellsfargo.com

Joe Seydl

Economic Analyst

(704) 715-1488

joseph.seydl@wellsfargo.com

Sarah Watt

Economic Analyst

(704) 374-7142

sarah.watt@wellsfargo.com

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 2011 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE