Wells Fargo & Company · NYSE:WFC
Wells Fargo & — Investor Presentation (December 2017)
34 slides from Wells Fargo &'s investor presentation, Dec 14, 2017
Slide 1: 2018 Annual Economic Outlook: A cautious tale for an optimistic outlook
2018 Annual Economic Outlook A cautious tale for an optimistic outlook John Silvia, Chief Economist Mark Vitner, Senior Economist Jay Bryson, Global Economist December 14, 2017
Slide 2: U.S. Outlook
U.S. Outlook
Slide 3: Sustained Growth Ahead
Sustained Growth Ahead U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change 10% 10% GDP - CAGR: Q3 @ 3.3% 8% GDP - Yr/Yr Percent Change: Q3 @ 2.3% 8% 6% 6% 4% Forecast 4% We expect real GDP growth to 2% 2% average 2.6 percent over the 0% 0% forecast period. -2% -2% -4% -4% -6% -6% -8% -8% -10% -10%
Slide 4: Employment Situation: Labor Market Tightening
Employment Situation: Labor Market Tightening Hiring is improving across a broadening assortment of industries and the unemployment rate continues to trend lower. Wage increases remain curiously modest. Nonfarm Employment Unemployment and Wages Nonfarm Employment Change Unemployment and Wage Rates C
Slide 5: Credit Markets in Focus
Credit Markets in Focus Retail sales continue to outpace wage and salary growth, which means consumers are utilizing credit to finance spending. Delinquency rates have held steady for the most part. Salaries and Sales Debt Delinquencies Retail Sales vs. Wages & Salaries Household Debt Delinquencies
Slide 6: Rebound in Fixed Investment
Rebound in Fixed Investment Equipment spending has been gaining momentum, reflecting stronger global growth. Accelerating Growth Price Rebound Driving Investment Real Business Fixed Investment, Equipment Fixed Investment Spending on Energy Bars = Compound Annual Rate Line = Yr/Yr % Change As Percent
Slide 7: Small Business Optimism
Small Business Optimism Business owners have become much less worried about the regulatory environment. Sales and earnings trends also look more positive. Tax reform will be a positive. Small Business Optimism Small Business Concerns NFIB Small Business Optimism Small Business Most Important Problem
Slide 8: Consistent Rent Growth
Consistent Rent Growth Apartment Effective Rent Growth Quarter-over-Quarter Percent Change 6.0% 2.4% 5.0% 2.0% 4.0% 1.6% 3.0% 1.2% 2.0% 0.8% Effective rents have risen nationally every quarter since 1.0% 0.4% the Great Recession. 0.0% 0.0% -1.0% -0.4% -2.0% -0.8% -3.0% -1.2% Quarter-over-Quarter: Q3
Slide 9: Single and Multifamily Improvement
Single and Multifamily Improvement Housing Starts Millions of Units 2.4 2.4 Thousands Multifamily Starts Multifamily Forecast 2.1 Single-Family Starts 2.1 Single-Family Forecast 1.8 1.8 Forecast Single-family construction is 1.5 1.5 ramping up while apartment 1.2 1.2 construction has begun to cool.
Slide 10: Rents Cutting into Paychecks
Rents Cutting into Paychecks Rental Affordability Major Apartment Markets Median Rent as Share of Median Income, Zillow Los Angeles, CA San Francisco, CA New York, NY San Jose, CA Riverside, CA The proportion of income spent Denver, CO Portland, OR on rent has risen dramatically in Seattle, WA many
Slide 11: Property Price Divide
Property Price Divide Commercial Property Price Index Index December 2006 = 100, All Property Types 175 175 Major Markets (All Property): Oct @ 150.5 Non-Major Markets (All Property): Oct @ 118.1 150 150 Property prices in major 125 125 markets have grown at a faster clip than those located in non-
Slide 12: Global Outlook
Global Outlook
Slide 13: Global Economic Indicators
Global Economic Indicators World Export & IP Volume Year-over-Year Percent Change 25% 25% 20% 20% 15% 15% 10% 10% There is a synchronous global 5% 5% upswing underway following 0% 0% last year’s slowdown. -5% -5% -10% -10% -15% -15% -20% World Export Volume: Sep @ 5.7% -20% World Industrial Producti
Slide 14: Global GDP Growth
Global GDP Growth Real Global GDP Growth Year-over-Year Percent Change, PPP Weights 7.5% 7.5% 6.0% 6.0% Period Average 4.5% WF 4.5% We look for the global economy Forecast to expand near its long-run 3.0% 3.0% average over the next two years. 1.5% 1.5% 0.0% 0.0% -1.5% -1.5% 1980 1985 1990 1995 2000
Slide 15: International Outlook
International Outlook Wells Fargo International Economic Forecast (Year-over-Year Percent C hange) GDP CPI 2017 2018 2019 2017 2018 2019 Global (PPP Weights) 3.5% 3.4% 3.4% 3.1% 3.5% 3.5% Global (Market Exchange Rates) 3.3% 3.3% 3.2% 3.1% 3.5% 3.5% Advanced Economies 1 2.4% 2.4% 2.2% 1.8% 1.9% 2.0%
Slide 16: Trade-Weighted Value of the U.S. Dollar
Trade-Weighted Value of the U.S. Dollar Trade Weighted Dollar Major Curency Index, 1973 = 100 115 115 110 110 105 105 Forecast 100 100 We forecast that the dollar will 95 95 decline broadly, albeit modestly, 90 90 in coming quarters . 85 85 80 80 75 75 70 70 Trade Weighted Dollar: Q3 @ 88.1 65 65 20
Slide 17: Profits, Fiscal Policy & Interest Rates
Profits, Fiscal Policy & Interest Rates
Slide 18: Encouraging Trend In Profits
Encouraging Trend In Profits Corporate Profits USD Millions $500 $2250 $450 $2000 $400 $1750 Corporate balance sheets are in $350 $1500 good shape and profits are $300 $1250 improving. $250 $1000 $200 $750 $150 $500 Foreign Profits: Q3 @ $434.1 (Left Axis) Domestic Profits: Q3 @ $1,781.0 (Right Axis
Slide 19: Costly Interest
Costly Interest Average Annual Net Outlay Growth By Spending Category, CBO's 2017-2027 Projections 14% 14% Average Annual Net Outlay Growth Average Annual Revenue Growth 12% 12% Spending on mandatory 10% 10% programs will likely squeeze the resources available for 8% 8% discretionary spending on 6%
Slide 20: Historical Perspective
Historical Perspective Tax Legislation: A Comparison 1986 Tax Reform Act 2001/2003 Bush Tax Cuts Outlook for Today Revenue Neutral Not Revenue Neutral Likely Not Revenue Neutral Striving for Permanent, but Permanent Temporary Budget Obstacles Are Large Individual Tax Cut of $120 Billion Individual T
Slide 21: Lower Taxes, Less Revenue
Lower Taxes, Less Revenue Senate GOP Tax Plan Reduction in Revenues from 2018-2027, JCT Estimate $700B $700B $600B $600B $500B $500B On net, the Senate plan cuts taxes by just 0.2 percent of GDP $400B $400B in 2018 but roughly one percent in 2019. $300B $300B $200B $200B $100B $100B $0B $0B Individu
Slide 22: Debt Woes
Debt Woes U.S. Debt Held By The Public CBO Baseline Projections Begin in 2017, Percent of GDP 100% 100% Baseline Debt: 2027 @ 91.2% 90% 90% 80% 80% The debt-to-GDP ratio for the federal government is more than 70% 70% double today than what it was 60% 60% on the eve of the Great Recession. 50% 50% 4
Slide 23: Will Inflation Pick Up Alongside Economic Growth?
Will Inflation Pick Up Alongside Economic Growth? PCE Deflator & "Core" PCE Deflator Line = Yr/Yr Percent Change 5% 5% 4% 4% 3% 3% Eight and a half years into the Forecast expansion, core PCE inflation 2% 2% has been 2.0 percent or higher for only five months. 1% 1% 0% 0% -1% -1% PCE Deflator - Yr/Y
Slide 24: Stubbornly Low Inflation
Stubbornly Low Inflation Core PCE continues to remain below the Fed’s two percent target. Price inflation for services remains above 2 percent, while goods’ prices are experiencing deflation. Inflationary Pressures? Inflationary Pressures in Services PCE Deflator vs. Core PCE Deflator Core Goods vs.
Slide 25: Steepening of the Short End
Steepening of the Short End 2-Year and Federal Funds Rate 2.0% 2.0% FFR: Dec-14 @ 1.50% 1.8% 2-Year Yield: Dec-13 @ 1.844% 1.8% 1.6% 1.6% 1.4% 1.4% We expect the policy-sensitive 1.2% 1.2% 2-year yield to increase as the Fed continues to tighten policy 1.0% 1.0% through 2018. 0.8% 0.8% 0.6% 0.6% 0.4
Slide 26: Appropriate Pace of Policy Firming
Dot Plot: Reliable? Appropriate Pace of Policy Firming Target Federal Funds Rate at Year-End 5.0% 5.0% December 2017 Median Response 4.5% September 2017 Median Response 4.5% December 2016 Median Response 4.0% December 2015 Median Response 4.0% Futures Market: December 13 3.5% 3.5% The Fed has consis
Slide 27: Portfolio Projections
Portfolio Projections Projected SOMA Treasury Securities Maturity Profile Billions of U.S. Dollars $80 $80 Reinvestments Redemptions $70 $70 Runoff Cap The FOMC began slowing the $60 $60 pace of reinvestment in $50 $50 September with a $6 billion cap on Treasuries and a $4 billion $40 $40 cap for MB
Slide 28: No Clouds on Immediate Horizon
No Clouds on Immediate Horizon Recession Probability Based on Probit Model Model with LEI Two-Quarter Ahead Recession Probability: Q4 @ 0.20% Threshold: Two-Consecutive Quarters > 50% 100% 100% 80% 80% Our model predicts a low change of a U.S. recession during the 60% 60% next six months. 40% 40% 20
Slide 29: Long in the Tooth?
Long in the Tooth? 10-Year Minus Federal Funds Policy Rate 6% 6% 10 Year - FFR: Nov @ 1.20% 4% 4% 2% 2% Our proposed framework identifies a threshold between 0% 0% the fed funds rate and the 10- year Treasury yield as a leading -2% -2% indicator of a recession. -4% -4% -6% -6% -8% -8% 1954 1964 1974
Slide 30: U.S. Economic Forecast
U.S. Economic Forecast Wells Fargo U.S. Economic Forecast q 4 2 01 7 2 01 7 Actual Forecast Actual Forecast 2017 2018 2019 2015 2016 2017 2018 2019 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Real Gross Domestic Product 1 1.2 3.1 3.3 2.4 2.6 2.6 2.6 2.6 2.4 2.5 2.5 2.6 2.9 1.5 2.3 2.7 2.5 Personal Consumpti
Slide 31: 2018 Annual Economic Outlook Q&A
2018 Annual Economic Outlook A cautious tale for an optimistic outlook Q&A
Slide 32: Appendix
Appendix
Slide 33: Wells Fargo Economics Group Publications
Wells Fargo Economics Group Publications Recent Special Commentary Date Title Authors U.S. Macro December-05 Are Millennials Moving Out and Settling Down? House & Vaisey December-04 Understanding the Senate Tax Plan's Dynamic Score Brown, Pugliese & Kinnaman December-04 Tax Package Next Steps: Recon
Slide 34: Wells Fargo Securities Economics Group
Wells Fargo Securities Economics Group Global Head of Research, Economics & Strategy Economists Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com …… Sarah House, Economist sarah.house@wellsfargo.com Global Head of Research, Economics & Strategy Michael A. Brown, Economist michael.a.brow
Wells Fargo & Company — Investor Presentation (December 2017) on 6ix