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March 18, 2011
Economics Group
Weekly Economic & Financial Commentary 
U.S. Review 
Despite Headwinds, Expansion Continues
The U.S. economy continues to generate solid economicgrowth. Manufacturing output increased for the eighthconsecutive month and regional manufacturing surveysin New York and Philadelphia surged in February suggesting continued strength in the coming month.
Weekly first-time unemployment claims fell by 16,000 to385,000 in the week ending March 12. The four-week moving average also nudged lower to 386,250 whichremains below the 400,000 threshold that has typically denoted labor market stability.
Manufacturing Production Growth
Output Growth by Volume, Not Revenue-25%-20%-15%-10%-5%0%5%10%15%87 89 91 93 95 97 99 01 03 05 07 09 11-25%-20%-15%-10%-5%0%5%10%15%3-Month Annual Rate: Feb @ 8.6%Yr/Yr Percent Change: Feb @ 6.8%Both Series are 3-Month Moving Averages
Global Review 
Despite the Tragedy in Japan, Global Growth Continues
The latest events in Japan have been devastating for thatcountry in terms of loss of life and human suffering andour hearts and prayers are with the Japanese people. Butthe implications for the rest of the world are probably not as dire, as Japan had not been contributing thatmuch to global growth before the earthquake.
Our biggest concern with what is happening in Japantoday is the reaction of the Japanese currency, whichshot up to an all time high versus the U.S. dollar beforethe G7 decided to make a concerted effort to weaken theyen.
Real Global GDP Growth
Year-over-Year Percent Change-1.5%0.0%1.5%3.0%4.5%6.0%7.5%1970 1975 1980 1985 1990 1995 2000 2005 2010-1.5%0.0%1.5%3.0%4.5%6.0%7.5%
Period Average
Wells Fargo U.S. Economic Forecast
Forecast2010 2011 2008 2009 2010 2011 20121Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product
3.7 1.7 2.6 2.8 2.7 2.4 2.7 3.0 0.0 -2.6 2.8 2.6 3.0Personal Consumption 1.9 2.2 2.4 4.1 2.4 2.4 2.4 3.0 -0.3 -1.2 1.8 2.7 2.6Inflation Indicators
"Core" PCE Deflator 1.8 1.5 1.2 0.8 0.8 0.9 1.0 1.3 2.3 1.5 1.3 1.0 1.4Consumer Price Index 2.4 1.8 1.2 1.2 2.2 3.3 3.5 3.4 3.8 -0.3 1.6 3.1 2.6Industrial Production
7.1 7.2 6.2 3.05.5 3.8 4.1 3.9-3.3 -9.3 5.7 4.6 3.9Corporate Profits Before Taxes
37.6 37.0 26.4 12.58.2 6.2 6.2 6.7-16.4 -0.4 27.5 6.8 7.0Trade Weighted Dollar Index
76.1 78.8 73.6 73.272.5 73.0 74.0 75.074.3 77.7 75.6 73.6 78.0Unemployment Rate 9.7 9.6 9.6 9.68.9 8.7 8.5 8.45.8 9.3 9.6 8.6 8.2Housing Starts
0.62 0.60 0.59 0.530.55 0.58 0.64 0.700.90 0.55 0.59 0.62 0.83Quarter-End Interest Rates
Federal Funds Target Rate0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 1.88 0.25 0.25 0.25 0.75Conventional Mortgage Rate4.97 4.74 4.35 4.71 4.90 5.15 5.15 5.20 6.04 5.04 4.69 5.10 5.6310 Year Note3.84 2.97 2.53 3.30 3.60 3.75 3.75 3.80 3.66 3.26 3.22 3.73 4.13
Forecast as of: March 18, 2011
Compound Annual Growth Rate Quarter-over-Quarter
Year-over-Year Percentage Change
Federal Reserve Major Currency Index, 1973=100 - Quarter End
Millions of Units
Annual Numbers Represent Averages
U.S. Review 2U.S. Outlook 3Global Review 4Global Outlook 5Point of View 6Topic of the Week 7Market Data 8
Economics Group U.S. Review Wells Fargo Securities, LLC
U.S. Review 
Industrial Production - Motor Vehicles & Parts
Year-over-Year Output Growth by Volume, Not Revenue-60%-40%-20%0%20%40%60%80%87 89 91 93 95 97 99 01 03 05 07 09 11-60%-40%-20%0%20%40%60%80%Motor Vehicles: Feb @ 10.8%Motor Vehicle Parts: Feb @ 4.6%Both Series are 3-Month Moving Averages
Housing Starts
Seasonally Adjusted Annual Rate, In Millions0. 02 03 04 05 06 07 08 09 10 Starts: Feb @ 479K
The Economic Expansion Is Still Underway 
Despite uncertainty overseas and market volatility, economicindicators for the week continued to suggest economic expansion.Manufacturing output increased for the eighth consecutive monthand regional manufacturing surveys in New York andPhiladelphia surged in February suggesting continued strength inthe coming month. Moreover, the initially reported decline inindustrial production in January was revised to a gain of 0.3 percent.The strength in the factory sector is being led by robust growth inthe auto sector. The production of motor vehicle and partsnotched a third-straight monthly increase. When considered inthe context of strong sales from manufacturers to auto dealersand the steady pace of retail auto sales, the auto sector as a wholeis as healthy as it has been since the “Cash for Clunkers” incentiveprogram. Although it is still too early to tell, some of the lost autoproduction in Japan could also help to boost domestic autooutput. While headline industrial production slipped 0.1 percentin February, much of the decline was due to a drop in utility output. According to NOAA, for the Central and Southern UnitedStates, the second half of the month saw temperatures 15 degreeshigher than normal, on average, while a warm spell broughtspring-like weather early in the Southeast.Another data point that is supportive of continued economicgrowth is initial jobless claims. Weekly first-time unemploymentclaims fell by 16,000 to 385,000 in the week ending March 12.The four-week moving average also nudged lower to386,250 which remains below the 400,000 threshold that hastypically denoted labor market stability.Housing market indicators reported this week, however,continued to show weakness. Housing starts plunged22.5 percent in February to a 479,000-unit pace, the secondlowest level on record. Single-family starts fell 11.8 percent,confirming that the demand for new single-family homes remainsexceptionally weak. While builder sentiment is finally improvingafter remaining unchanged for the past four months, prospectivebuyer traffic has shown little to no improvement. The oversupply of existing homes on the market and downward pressure onhome prices due to foreclosures continue to give builders littleincentive to significantly ramp up building activity.Housing permits fell 8.2 percent to a 517,000-unit pace, which isthe lowest level on record, but single-family permits are runningabove starts, which suggests we could see some modestimprovement in coming months. While this is encouraging news,much of the gain will be because of the seasonal adjustmentprocess. With starts at such depressed levels, any upwardmomentum could lead to exaggerated swings in the monthly data.This means the Spring home buying season will likely not be thebeacon of hope that many are expecting. Consequently, we do notexpect a genuine recovery in housing starts to occur until the paceof foreclosures slows significantly.
Single-family Housing Starts vs. Building Permits
SAAR, In Millions, 3-Month Moving Average0. 92 94 96 98 00 02 04 06 08 Housing Starts: Feb @ 406KSingle-family Building Permits: Feb @ 415K
Economics Group U.S. Outlook Wells Fargo Securities, LLC
Existing Home Sales • Monday 
Existing home sales rose 2.7 percent in January to 5.36 million, thehighest level in eight months. Sales gains were driven by distressedtransactions which accounted for 37 percent of total sales. Anothertrend that has become apparent is the number of all cashtransactions which increased 32 percent while investors accountedfor 23 percent of sales. The high level of existing home inventoriescontinues to weigh on the housing market. Single-family inventories fell 2.6 in January indicating a positive trend for thehousing market. As employment and income growth picks upexisting home sales should continue to increase. At the current paceof sales, it would take 7.5 months to clear the inventory of existingsingle-family homes. With the months supply numbers beginningto edge downward, there will likely be some positive momentum forexisting housing starts in the later part of this year.
Previous: 5.36M Wells Fargo: 5.00MConsensus: 5.12M
Existing Home Resales
Seasonally Adjusted Annual Rate - In Millions3. 2001 2003 2005 2007 2009 20113. Home Sales: Jan @ 5.36 Million
Durable Goods Orders • Thursday 
January durable goods orders remained positive, increasing2.7 percent for the month and in line with the consensus forecast.However, the data was likely distorted from some seasonaladjustment issues along with poor winter that led to the shutdownof some facilities. Orders for electrical equipment were off 4.9 percent, computer orders declined 6.8 percent and machinery orders fell 13.0 percent. Orders for non-defense capital goods alsofell 6.9 percent in January, which is the first decline in two months.Even in light of these somewhat disappointing numbers, theunderlying trend in orders is still positive. We expectmanufacturing output will continue to improve. Our expectation isthat durable goods orders rose 1.3 percent in February due tostronger orders for the month. Our 2011 forecast for industrialproduction remains strong as manufacturers continue to increaseproduction to meet increasing domestic and global demand.
Durable Goods New Orders
Series are 3-Month Moving Averages-50%-40%-30%-20%-10%0%10%20%30%1993 1995 1997 1999 2001 2003 2005 2007 2009 2011-50%-40%-30%-20%-10%0%10%20%30%3-Month Annual Rate: Jan @ -0.1%Year-over-Year Percent Change: Jan @ 9.0%
Previous: 3.2% Wells Fargo: 1.3%Consensus: 1.1%
Initial Jobless Claims • Thursday 
Initial jobless claims fell again this week to 385K, a decrease of 16K from the previous week. The trend, as measured by the four-week moving average continued to move downward, which is a positivesign for employment growth over the next few months. With therelease of this week’s claims data, initial jobless claims are now 15.2 percent lower than this time last year. Employment gains inFebruary increased by 192,000 and included an upward revision toJanuary’s employment number. We are beginning to see morewidespread job gains which would be a good sign for stability inemployment growth. Our forecast indicates that employmentgrowth should continue to pickup with gains averaging 162,500 permonth. In aggregate we believe an increase of around 2.0 millionjobs will be created this year and an additional 2.2 million jobs in2012.
Previous: 385K Consensus: 383K 
Initial Claims for Unemployment
Seasonally Adjusted, In Thousands25030035040045050055060065070086 88 90 92 94 96 98 00 02 04 06 08 10250300350400450500550600650700Year-over-Year Percent Change: Mar-12 @ -15.2%Initial Claims: Mar-12 @ 385.0 Thousand4-Week Moving Average: Mar-12 @ 385.3 Thousand52-Week Moving Average: Mar-12 @ 444.4 Thousand

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