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Economic Overview

Economic Overview. September 2009. www.wellscap.com. Jay N. Mueller, CFA Wells Capital Management Fixed Income Group. Growth: Q3 bounce followed by weak recovery Employment: job losses slowing Inflation: headline about to turn up; core stable Monetary: Fed on hold

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Economic Overview

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  1. Economic Overview September 2009 www.wellscap.com Jay N. Mueller, CFA Wells Capital Management Fixed Income Group

  2. Growth: Q3 bounce followed by weak recovery Employment: job losses slowing Inflation: headline about to turn up; core stable Monetary: Fed on hold Fiscal: short term uncertainty; long run train-wreck International: USA lags global recovery Big Six Summary

  3. Growth

  4. U.S. GDP: quarterly growth rate (annualized) Rate of contraction has moderated: Q3 likely to be positive Source: Bloomberg

  5. Personal Consumption (real growth rate annualized) Following a small bounce in Q1 consumption resumed its decline in Q2 Source: Bloomberg

  6. Private Domestic Fixed Investment % change Though an improvement over Q1, PDI contracted for the 8th straight quarter in Q2 Source: Bloomberg

  7. Employment

  8. Payrolls: monthly change (non-farm, 000) The pace of job loss is slowing, but still worrisome Source: Bloomberg

  9. Unemployment Rate Closing in on 10% Source: Bloomberg

  10. Broad Unemployment (U6) Including discouraged workers and underemployed

  11. Initial Claims for Unemployment Insurance (4 wk ma) Claims off peak but remain uncomfortably high

  12. Initial Claims for Unemployment Insurance (4 wk ma) Prior peaks in claims coincide with business cycle troughs

  13. Initial Claims (4 wk ma) versus Unemployment Rate The 1982 claims peak was swiftly followed by a drop in the unemployment rate. Not so for the 1991 and 2001 peaks.

  14. Average Work Week Hours worked remains very low

  15. Mean Period of Unemployment (weeks) Out of work for nearly half a year on average

  16. Inflation

  17. CPI YOY Energy-driven deflation likely to revert to inflation later this year Source: Bloomberg

  18. CPI YOY – long term view Most significant headline deflation in sixty years Source: Bloomberg

  19. CPI Ex-food and Energy YOY Core inflation is low and fairly stable Source: Bloomberg

  20. Crude Oil – West Texas Intermediate spot price Crude has trended higher since late ‘08 Source: Bloomberg

  21. Natural Gas – near futures contract Much weaker than oil Source: Bloomberg

  22. Copper – near futures contract Substantial rally so far this year Source: Bloomberg

  23. Monetary Policy

  24. Federal Funds Target Rate Short term rate management has reached its downside limit Source: Bloomberg

  25. Monetary Base Quantitative Easing: a massive injection of bank reserves Source: Bloomberg

  26. M1 year over year growth rate Fastest money supply growth in twenty-five years Source: Bloomberg

  27. Consumer Credit Outstanding No traction from easy policy so far – consumer credit has been shrinking since September ‘08 Source: Bloomberg

  28. Fiscal Policy

  29. U.S. Federal Surplus/Deficit as a % of GDP With Projection for 2009 Source: Bloomberg

  30. Deficit Projections – Obama Budget Federal spending is running wild with worse to come SOURCE: CBO, White House Office of Management and Budget | The Washington Post - March 21, 2009

  31. Public Federal Debt Outstandingwith projection for 2009 Source: Bloomberg

  32. U.S. Federal Debt Projection Federal public debt outstanding likely to double or worse over the next decade

  33. International

  34. Global Data Cross Section The U.S. was first into recession but Europe and Japan have been hit harder: Source: Bloomberg

  35. Japan Unemployment Rate Highest on record

  36. Euro/US Dollar safe haven trade is unwinding

  37. Gold $/ounce gold supported by doubts about the dollar

  38. Thank you! The Portfolio Manager has written this review for informational purposes only. The views expressed on the financial markets and sector valuations are based on the judgment and experience of the Portfolio Manager. This presentation is for the sole use of the intended recipient[s] and may contain privileged information. Any unauthorized review, use, disclosure or distribution is prohibited.

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