July 30, 2010

Economics Group
Weekly Economic & Financial Commentary

U.S. Review Real GDP

Bars = Compound Annual Rate Line = Yr/Yr % Change
The Second Quarter Ended on a Soft Note 10% 10%

8% 8%
• Real GDP grew at a 2.4 percent annual rate during the
second quarter, but recent data suggest the period ended 6% 6%

on a weak note and point to a slower second half of 2010. 4% 4%

• New home sales rose in June, but downward revisions to 2% 2%

April and May data show an even larger pullback

0% 0%
following the end of homebuyer tax incentives.
-2% -2%
• Advance orders for durable goods fell in June, and
-4% -4%
regional surveys show industrial activity losing steam.
-6% Real GDP: Q2 @ 2.4% -6%
• Consumer confidence fell in July, despite generally good Real GDP: Q2 @ 3.2%
news on corporate earnings and rising share prices. -8% -8%
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Global Review South Korean Real GDP

Bars = Compound Annual Rate Line = Yr/Yr % Change
Global Economy More Resilient Than You Think 20% 20%

15% 15%
• South Korea released second-quarter GDP earlier this
week, and while growth slowed from the first quarter, 10% 10%

the pace of activity continued to surprise analysts. 5% 5%

The South Korean economy is still humming along at a

0% 0%
rapid clip.
-5% -5%
• The economic data out of Europe also brightened
-10% -10%
significantly, reducing market fears of a double-dip in
Europe and easing some of the strains in the European -15% -15%

bond market, as concerns about the sovereign debt crisis -20%

Compound Annual Growth: Q2 @ 6.0%
-20%
faded into the background. Year-over-Year Percent Change: Q2 @ 7.1%
-25% -25%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Inside
Wells Fargo U.S. Economic Forecast
Actual Forecast Actual Forecast U.S. Review 2
1Q 2Q
2009
3Q 4Q 1Q 2Q
2010
3Q 4Q
2006 2007 2008 2009 2010 2011
U.S. Outlook 3
Real Gross Domestic Product
1
-6.4 -0.7 2.2 5.6 2.7 3.2 1.6 2.2 2.7 2.1 0.4 -2.4 2.9 2.3
Global Review 4
Personal Consumption 0.6 -0.9 2.8 1.6 3.0 3.0 1.5 2.2 2.9 2.7 -0.2 -0.6 2.2 2.1 Global Outlook 5
Inflation Indicators
2
Point of View 6
"Core" PCE Deflator 1.7 1.6 1.3 1.5 1.4 1.2 1.2 1.2 2.3 2.4 2.4 1.5 1.2 1.6
Consumer Price Index -0.2 -1.0 -1.6 1.5 2.4 1.8 0.9 0.6 3.2 2.9 3.8 -0.3 1.4 1.2 Topic of the Week 7
Industrial Production
1
-17.6 -10.3 8.3 7.0 6.9 7.5 3.9 2.2 2.2 2.7 -3.3 -9.3 5.3 3.4 Market Data 8
2
Corporate Profits Before Taxes -19.0 -12.6 -6.6 30.6 34.0 25.0 20.0 14.0 10.5 -4.1 -11.8 -3.8 22.6 7.1
3
Trade Weighted Dollar Index 83.2 77.7 74.3 74.8 76.1 77.3 80.0 81.5 81.5 73.3 79.4 74.8 81.5 88.0
Unemployment Rate 8.2 9.3 9.6 10.0 9.7 9.7 9.8 9.8 4.6 4.6 5.8 9.3 9.7 9.6
4
Housing Starts 0.53 0.54 0.59 0.56 0.62 0.60 0.52 0.60 1.81 1.34 0.90 0.55 0.58 0.85

Quarter-End Interest Rates

Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 5.25 4.25 0.25 0.25 0.25 1.00
Conventional Mortgage Rate 5.00 5.42 5.06 4.93 4.97 4.58 4.50 4.70 6.14 6.10 5.33 4.93 4.70 5.60
10 Year Note 2.71 3.53 3.31 3.85 3.84 2.97 3.00 3.20 4.71 4.04 2.25 3.85 3.20 4.00
Forecast as of: July 7, 2010
1
C ompound Annual Growth Rate Quarter-over-Quarter
2
Year-over-Year Percentage C hange
Economics Group U.S. Review Wells Fargo Securities, LLC
U.S. Review
More Evidence Of A Second Half Slowdown
Real Domestic Final Sales
Bars = Compound Annual Rate Line = Yr/Yr % Change
Real GDP grew at a 2.4 percent annual rate during the second 8% 8%
quarter. While the gain was slightly higher than the reduced
market expectations, most of the strength occurred earlier in the 6% 6%
quarter and the revisions to previously published data show the
recession was deeper than first reported and the recovery in 4% 4%
private final demand has been much weaker.
There is a growing debate about whether the economy will need 2% 2%

more fiscal and monetary stimulus during the second half of the
year. The argument for stimulus got a boost from a paper released 0% 0%

by Mark Zandi and Alan Blinder that shows the extraordinary

efforts taken by the Treasury, Federal Reserve and the Congress -2% -2%

that helped to stave off a much more dire economic outcome than
what actually transpired. Altogether, around $4 trillion in fiscal -4% -4%
Final Sales: Q2 @ 1.3%
and monetary stimulus was thrown at the economy. While this Final Sales: Q2 @ 1.2%
spending may have averted a deeper recession, or even -6% -6%
depression, it has not done much to promote economic growth 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

over the past year. With most of the spending now behind us, the
debate is shifting to whether policymakers should do more of Consumer Confidence Index
Conference Board
what has already been tried, do less or do something different. 160 160

Consumers clearly sense something is missing in this economic

recovery. The Consumer Confidence Index has fallen for two 140 140

months in a row and remains extraordinarily low at 50.2. Most of

the drop in the Index has been in the expectations component, 120 120

which has fallen 18 points in the past two months. Consumers are
still deeply concerned about employment and income prospects. 100 100

The share of households reporting that jobs are hard to get rose
2.3 points to 45.8, while the percentage that believe jobs are 80 80

plentiful remains near its all-time low at just 4.3. The

expectations for employment and income both weakened in July, 60 60

with consumers expecting fewer jobs to be created over the next

six months and more consumers expecting income to fall or 40 Confidence Yr/Yr % Chg: Jul @ 6.4% 40
Confidence: Jul @ 50.4
remain stagnant. 12-Month Moving Average: Jul @ 53.4
20 20
The latest snapshot of the labor market posted a modest
87 89 91 93 95 97 99 01 03 05 07 09
improvement during the past week, with first-time claims for
unemployment insurance falling 11,000 to 457,000.
Durable Goods New Orders
Unfortunately, that level of jobless claims is inconsistent with the Series are 3-Month Moving Averages
monthly gains in nonfarm employment. Next week’s employment 30% 30%

report will again post a decline, as temporary Census jobs fall out
20% 20%
of the data. We expect nonfarm payrolls to dip by 45,000 in July.
The jobless rate may increase 0.1 percentage point.
10% 10%
New home sales rose 23.6 percent in June, but data for May and
April were revised substantially lower. The huge percentage 0% 0%

increase garnered headlines but does not mark a turn in new

-10% -10%
home sales. Builders generally reported a sharper pullback in
demand and have weaker production pipelines than they believed -20% -20%
they would have once the homebuyer tax credits expired.
Manufacturing activity appears to be cooling off. Advance orders -30% -30%

for durable goods fell 1.0 percent in May, following a revised

-40% 3-Month Annual Rate: Jun @ 9.2% -40%
0.8 percent drop the prior month. Several regional surveys noted
Year-Over-Year Percent Change: Jun @ 16.7%
that the rebound in manufacturing activity is losing momentum. -50% -50%
Output is still rising, but the rate of improvement has slowed. 93 95 97 99 01 03 05 07 09

2
Economics Group U.S. Outlook Wells Fargo Securities, LLC
ISM Manufacturing • Monday
The Institute for Supply Management’s (ISM) headline
ISM Manufacturing Composite Index
manufacturing index remained in expansionary territory in June, Diffusion Index
but fell for the second consecutive month. The 4.2 point drop from 65 65

its April peak of 60.4 reflects the ending of the inventory cycle as
manufacturers bring inventories in line with sales. The forward- 60 60

looking new orders index remained above the threshold of 50, but
55 55
fell 7.2 points to 58.5, the largest monthly drop since September
2008. Retracement in the regional manufacturing surveys in July
50 50
further reflect the slowdown in the factory sector. Moreover, if the
last two inventory cycles provide any insight, ISM could fall below
45 45
50 by year-end. Moderation in ISM is consistent with our
expectation of slower industrial production in the second half of
40 40
the year.

35 35
ISM Manufacturing Composite Index: Jun @ 56.2
Previous: 56.2 Wells Fargo: 55.0 12-Month Moving Average: Jun @ 55.7
30 30
Consensus: 54.2 87 89 91 93 95 97 99 01 03 05 07 09

Construction Spending • Monday

Construction spending fell 0.2 percent in May with declines
Residential and Nonresidential Construction
Billions of Current Dollars, SAAR concentrated in multifamily and home improvements. Single-
$800 $600 family outlays, however, increased 0.8 percent on the month, the
Private Residential Construction: May @ $260.8B (Left Axis)
Nonresidential Construction: May @ $275.6B (Right Axis) fourth consecutive monthly gain. With the expiration of the
$700 homebuyers’ tax credit, single-family construction spending should
$500
fall in June. The payback will likely pull the headline down 1.4
$600
percent in June. Private nonresidential construction spending was
$400
down 24.8 percent from year-ago levels in May with declines
$500
concentrated in manufacturing, commercial, office and lodging. We
expect declines in nonresidential outlays to persist through year-
$400
$300 end, which will continue to subtract from GDP.

$300

$200
$200

Previous: -0.2% Wells Fargo: -1.4%

$100 $100
94 96 98 00 02 04 06 08 10 Consensus: -0.5%
Employment • Friday
The pace of the economic recovery continues to rely on private-
Nonfarm Employment Change
sector employment growth. Since January, the private sector added Change in Employment, In Thousands
only 593,000 jobs. Some market participants point to weak job 600 600

creation in the small business sector as the major drag on job

growth. According to data released by ADP, small firms, which are 400 400

defined as companies that employ 1–49 workers, represent about

200 200
45 percent of the level of employment, but accounted for only 16
percent of the increase in employment over the past five months.
0 0
Small firms will likely remain reluctant to hire as credit continues
to be hard to obtain. Initial jobless claims have now fallen in three
-200 -200
of the last four weeks, but remain stubbornly around 450,000. The
elevated level of claims suggests employment will likely remain
-400 -400
weak.

-600 -600

Nonfarm Employment Change: Jun @ -125,000

Previous: -125K Wells Fargo: -45K
-800 -800
Consensus: -60K 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3
Economics Group Global Review Wells Fargo Securities, LLC
Global Review
Slower Global Growth, Not Another Great Recession
South Korean Merchandise Trade Balance
Billions of USD, Not Seasonally Adjusted
Market fears about a double-dip global recession, or a Great $8.0 $8.0
Recession Part II, faded a little further into the background this $7.0 $7.0
week as economic data from South Korea and Continental Europe
$6.0 $6.0
built upon the good second-quarter GDP data out of the United
$5.0 $5.0
Kingdom early in the month. Some slowing of global growth is
$4.0 $4.0
expected in the second half of 2010 and into 2011, but there is
$3.0 $3.0
nothing in the numbers so far to suggest the global economy is
headed for a train wreck. $2.0 $2.0

$1.0 $1.0
In Asia, South Korea was one of the first countries, after China, to
$0.0 $0.0
report second-quarter GDP. The data revealed an economy that
-$1.0 -$1.0
continues to hum along at a respectable pace. South Korean GDP
expanded another 1.5 percent from the first quarter of 2010 and -$2.0 -$2.0

is 7.2 percent above a year ago. The numbers easily beat analysts’ -$3.0 -$3.0

consensus expectations and the central banks own forecasts. -$4.0 Merchandise Trade Balance: Jun @ $6.4 -$4.0

South Korea’s economy has seen strong growth now for six -$5.0 -$5.0
consecutive quarters. Growth has been reignited on a solid 1998 2000 2002 2004 2006 2008 2010

foundation of record low interest rates, government stimulus

spending and robust export growth. The concerns had grown South Korean Exchange Rate
KRW per USD
about the durability of growth as the Korean Central Bank begins 1,600 1,600
to raise borrowing costs and government stimulus programs
begin to unwind. 1,500 1,500

South Korean manufacturing, exports, consumer and capital

spending all posted increases from the first quarter. Exports of 1,400 1,400

goods increased 7.1 percent over the quarter led by shipments of

automobiles, semiconductors and machinery. On a weaker note, 1,300 1,300

South Korea’s construction sector contracted 0.8 percent from

the first quarter, and services and government spending slowed 1,200 1,200

sharply, rising just 0.2 and 0.1 percent, respectively.

1,100 1,100
The strong GDP growth numbers suggest that further interest
rate hikes from the Bank of Korea can be expected this year. The
1,000 1,000
Bank of Korea also reported this week that South Korea’s current
account surplus reached a one-year high of $5.04 billion in June. KRW per USD: Jul @ 1,198.8
900 900
The won has been rallying on the stronger economic news,
2000 2002 2004 2006 2008 2010
prompting the central bank to intervene in the currency market to
temper the strengthening currency.
German Unemployment Rate
The economic data out of Europe over the past two weeks has Seasonally Adjusted
13.0% 13.0%
been almost unanimously positive, surprising the markets, which
had been bracing for signs that the sovereign debt crisis would
still be negatively impacting European growth. Some of the 12.0% 12.0%

highlights, European manufacturing and service PMIs for July,

exceeded expectations and revealed robust expansion. European 11.0% 11.0%
industrial orders jumped a much stronger-than-expected 3.8
percent in May. German consumer confidence improved in
10.0% 10.0%
August, suggesting that the sovereign debt crisis has not
irreparably damaged German consumer spending growth. While
Germany’s labor market continued to show improvement, 9.0% 9.0%

German unemployment fell 20,ooo in July and the

unemployment rate slipped to 7.6 percent from 7.7 percent in 8.0% 8.0%
June. Taken together, these data have raised expectations for
Unemployment Rate: Jun @ 7.7%
European Union second-quarter GDP growth and helped to ease
7.0% 7.0%
concerns about the economic fallout from the sovereign debt 1997 1999 2001 2003 2005 2007 2009
crisis.

4
Economics Group Global Outlook Wells Fargo Securities, LLC
U.K. PMIs • Monday - Wednesday
The U.K. economy has posted three straight quarterly gains in GDP
U.K. Purchasing Managers' Indices
as it gradually continues to recover from the recession. While Diffusion Indices
growth jumped in the second quarter, we suspect the sequential 65 65

growth rate in the second quarter will likely be the high-water mark
60 60
for the next several quarters and the expansion will slow somewhat
as fiscal tightening and deficit reduction programs sap economic 55 55
growth in the coming quarters.
50 50
Still, consumer spending has shown signs of strength in recent
months with retail sales adding 1.0 percent in May, a larger 45 45
increase than had been expected and the second straight increase.
40 40
The various purchasing managers’ indexes (PMI) have all been in
expansion territory in recent month. No major changes are 35 35
expected when PMI data become available in the first half of the
UK Services: Jun @ 54.4
week. 30
UK Construction: Jun @ 58.4
30
UK Manufacturing: Jun @ 57.5
Previous: 57.5 (Mfg.) 58.4 (Const.) 54.4 (Services) 25 25
2000 2002 2004 2006 2008 2010
Consensus: 57.0 (Mfg.) N/A (Const.) 54.8 (Services)
Eurozone Retail Sales • Wednesday
After plunging in late 2008/early 2009 retail sales in the Eurozone
Euro-zone Retail Sales, Ex-Motor Vehicles
Year-over-Year Percent Change have essentially been going sideways since the spring of 2009. In
5.0% 5.0% fact, over the past 12 months, retail sales have been up six times
4.0% 4.0%
and down six times. June retail sales data will print on Wednesday,
but we do not expect this sideways trend to change until consumers
3.0% 3.0% begin to have confidence that the sovereign debt crisis is no longer
2.0% 2.0%
a concern, and that could be several quarters.
The ECB also meets next week. With the core rate of CPI inflation
1.0% 1.0%
only 0.9 percent in June and weak economic growth likely causing
0.0% 0.0% the core rate to trend lower in the months ahead, we think the ECB
has the cover to keep monetary policy accommodative. While no
-1.0% -1.0%
change in the target rate is expected, analysts will watch for any
-2.0% -2.0% hints that ECB President Trichet gives about the future course of
Retail Sales, 3MMA of YoY: May @ 0.5%
policy in his post-meeting press conference.
-3.0% -3.0%
Retail Sales, YoY: May @ 0.5%
-4.0% -4.0%
Previous: 0.5% (Year-over-year)
1997 1999 2001 2003 2005 2007 2009
Consensus: 0.1%
Canadian Net Employment Change • Friday
With two hikes in the overnight lending rate already implemented,
Canadian Employment
Canada is the only G7 economy to have already begun monetary Month-over-Month Change in Employment, In Thousands
policy tightening. While Canada is leading the economic recovery 125 125

among developed countries, its economy is not without its troubles. 100 100
Retail sales data for the months of April and May came in much 75 75
weaker than expected, declining 2.2 percent in April and another
50 50
0.2 percent in May. GDP data for the month of April were also
disappointing, coming in essentially flat despite expectations for an 25 25

eighth consecutive monthly gain. 0 0

The job market in Canada remains a bright spot as employers have -25 -25

added to payrolls every month so far this year, including a 93,200 -50 -50
print in June, which has restored the labor market to within
-75 -75
spitting distance of pre-recession highs. We will find out if jobs
-100 -100
grew again in July when the jobs report is released on Friday.
Change in Employment: Jun @ 93.2K
-125 -125
6-Month Moving Average: Jun @ 51.4K
Previous: 93.2K -150 -150
2002 2004 2006 2008 2010
Consensus: 10K

5
Economics Group Point of View Wells Fargo Securities, LLC
Interest Rate Watch Consumer Credit Insights
Japanese-Style Deflation? Central Bank Policy Rates New Lows for Mortgage Rates
7.5% 7.5%
Federal Reserve Bank of St. Louis US Federal Reserve: Jul - 30 @ 0.25%
ECB: Jul - 30 @ 1.00%
Mortgage rates have fallen to 4.54 percent,
President James Bullard noted that the 6.0%
Bank of Japan: Jul - 30 @ 0.10%
Bank of England: Jul - 30 @ 0.50%
6.0%
the lowest since Freddie Mac began
threat of Japanese-style deflation in the reporting 30-year fixed-rate mortgage rates
U.S. has increased and that the Federal 4.5% 4.5%
in the 1970s. Rates now stand roughly
Reserve needs to make its battle strategy 2 percentage points below the peak before
clear to the financial markets. The strategy 3.0% 3.0%
the recession and another 60 bps below
to combat deflation would be another large rates in April of this year. Better credit
dose of quantitative easing, not simply 1.5% 1.5%
scores and higher down payments can
extending the extended period language on bring rates even lower—but only for the
short-term interest rates. We view the risk 0.0% 0.0% most qualified and well-positioned buyers.
of a Japanese-style deflation as low but still 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
The oversupplied housing market is still
high enough for the Fed’s concern. Yield Curve searching for price stability, making home
U.S. Treasuries, Active Issues
We track a large number of inflation 4.50% 4.50%
purchasing exceed the risk tolerance of
indicators and virtually all them are 4.00% 4.00% many consumers (hence the large impact of
pointing to reduced inflationary pressures 3.50% 3.50% homebuyer incentives). Accordingly,
during the second half of this year. The 3.00% 3.00% mortgage applications for refinancing have
Consumer Price Index has declined during 2.50% 2.50% increased 98 percent on the year, while
each of the past three months and will 2.00% 2.00%
mortgage applications for purchase have
likely end the year up between zero and 0.5 1.50% 1.50%
fallen about 19 percent. Treasury yields
percent. The core CPI will likely rise less have fallen over the past few months as
1.00% 1.00%
than 1 percent in 2010. These low inflation July 30, 2010 investors have sought a haven from volatile
0.50% July 23, 2010 0.50%
numbers are the result of weak final June 30, 2010 equity performance and sovereign debt
0.00% 0.00%
demand, an excess supply of housing and 3M 2Y 5Y 10
Y
30
Y concerns in Europe, and mortgage rates
excellent weather, which is leading to have followed, with an average spread of
Forward Rates
abundant harvests and low food prices. 90-Day EuroDollar Futures 150 basis points off of 10-year Treasury
1.50% 1.50%

Inflation numbers this low leave little July 30, 2010 notes, a trend we expect to hold for the
July 23, 2010

margin for error. If economic growth

June 30, 2010 remainder of 2010. As the recovery
1.25% 1.25%

falters or there is some exogenous shock to continues and investor fear diminishes, we
the economy, persistent and troublesome expect bond yields and mortgage rates to
1.00% 1.00%

deflation could become reality. gradually increase. For the well-positioned

consumer, this summer is likely to be the
The likelihood of much lower inflation and 0.75% 0.75%
best opportunity to finance a home for
risks of deflation are a big reason the some time. Unfortunately, however, many
0.50% 0.50%
Treasury’s two-year note is yielding less consumers, given the dismal labor market
than 0.7 percent and the 10-year note is and their overleveraged state, will be
0.25% 0.25%
constantly flirting with sub 4 percent Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11
unable to act.
yields. The low inflation numbers are also
apparent in the share prices of grocery Mortgage Data
store chains and food products companies,
which are seeing intense price pressures as Week 4 Weeks Year
consumers continually seek ways to cut Current Ago Ago Ago
their food budgets.
Mortgage Rates
As low as the inflation numbers are, we do 30-Yr Fixed 4.54% 4.56% 4.58% 5.25%
not believe troublesome deflation will 15-Yr Fixed 4.00% 4.03% 4.04% 4.69%
actually materialize. Apartment rents are 5/1 ARM 3.76% 3.79% 3.79% 4.75%
already rising, and we expect them to put 1-Yr ARM 3.64% 3.70% 3.80% 4.80%
pressure on the housing components of the
CPI in 2011. Inflation will remain low, MBA Applications
however, and this will continue to keep Composite 720.6 753.5 675.9 495.4
businesses in a cost-cutting mode, making Purchase 172.3 168.9 172.1 262.0
it difficult for the recovery to gain Refinance 3,918.1 4,161.9 3,613.1 1,862.1
momentum. Source: Freddie Mac, Mortgage Bankers Association and Wells Fargo Securities, LLC

6
Economics Group Topic of the Week Wells Fargo Securities, LLC
Topic of the Week
America’s (Un)Employment Experience
Unemployment Rate
The nation has a well-publicized and politicized Percent of Labor Force
12.0% 12.0%
unemployment problem. With nearly 10 percent of the
labor force unable to find work, the headlines and party
lines would suggest that employers are not comfortable
increasing their workforce under the shadow of slow 10.0% 10.0%
top-line revenue expectations. Yet, behind this macro
story are the micro dynamics of the labor market today,
a host of undercover factors that create an uneven 8.0% Forecast 8.0%
employment experience.
Certain characteristics of the labor force are having a
greater effect than ever before on employment status. 6.0% 6.0%
First, the spread between women’s and men’s rates of
unemployment has never been higher. The difference in
unemployment rates for those with less education versus 4.0% 4.0%
those with more is also increasingly problematic. Lastly,
different age cohorts are experiencing the labor market
Unemployment Rate: Q1 @ 9.7%
very differently, with older generations delaying
2.0% 2.0%
retirement, while teenage participation in the labor force
2000 2002 2004 2006 2008 2010
has declined. These systemic trends have implications
for the economy well beyond employment.
Credit Card Delinquency Rate vs. Initial Claims
The diversity of the labor market experience reflects a Percent, in Millions
variety of factors that cannot be changed in the short run 8% 9
Credit Card Delinquency Rate: Q1 @ 5.8% (Left Axis)
through fiscal stimulus. Thus, the labor market will not
Initial Jobless Claims: Q1 @ 6.032 MM (Right Axis) 8
recover quickly. Job creation provides the income
needed to support consumer spending, which has been 7
limited of late. Current income is more important than 6%

ever as consumer credit has retraced significantly; 6

consumers are reluctant to take on debt they are not
confident they can pay off. On the supply side, banks 5
have been hurt by credit delinquencies and are working 4%
to rebuild their balance sheets. Long-term loans may not 4

make sense if one cannot assume income and steady

3
employment. Given the weakened and evolving state of
the labor market, a new thought process in lending may 2%
2
be necessary when we compare the labor market
evolution to credit quality in the years ahead. 1

For further insight, see America’s (Un)Employment

0% 0
Experience: Diversity in the Details on our Web site.
91 93 95 97 99 01 03 05 07 09

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7
Economics Group Market Data Wells Fargo Securities, LLC
Market Data ♦ Mid-Day Friday
U.S. Interest Rates Foreign Interest Rates
Friday 1 Week 1 Year Friday 1 Week 1 Year
7/30/2010 Ago Ago 7/30/2010 Ago Ago
3-Month T-Bill 0.14 0.15 0.18 3-Month Euro LIBOR 0.83 0.82 0.87
3-Month LIBOR 0.45 0.49 0.48 3-Month Sterling LIBOR 0.75 0.74 0.89
1-Year Treasury 0.32 0.31 0.56 3-Month Canadian LIBOR 0.99 0.94 0.60
2-Year Treasury 0.55 0.58 1.17 3-Month Yen LIBOR 0.24 0.24 0.41
5-Year Treasury 1.63 1.73 2.63 2-Year German 0.81 0.75 1.34
10-Year Treasury 2.95 2.99 3.61 2-Year U.K. 0.77 0.87 1.34
30-Year Treasury 4.05 4.01 4.41 2-Year Canadian 1.49 1.59 1.47
Bond Buyer Index 4.21 4.26 4.69 2-Year Japanese 0.16 0.15 0.28
10-Year German 2.69 2.71 3.43
Foreign Exchange Rates 10-Year U.K. 3.34 3.44 3.95
Friday 1 Week 1 Year 10-Year Canadian 3.14 3.23 3.56
7/30/2010 Ago Ago 10-Year Japanese 1.07 1.08 1.40
Euro ($/€) 1.303 1.291 1.408
British Pound ($/₤) 1.560 1.543 1.649 Commodity Prices
British Pound (₤/€) 0.835 0.837 0.853 Friday 1 Week 1 Year
Japanese Yen (¥/$) 86.440 87.460 95.560 7/30/2010 Ago Ago
Canadian Dollar (C$/$) 1.033 1.036 1.083 WTI Crude ($/Barrel) 77.90 78.98 66.94
Sw iss Franc (CHF/$) 1.039 1.054 1.088 Gold ($/Ounce) 1173.15 1189.20 934.40
Australian Dollar (US$/A$) 0.899 0.896 0.826 Hot-Rolled Steel ($/S.Ton) 565.00 565.00 455.00
Mexican Peso (MXN/$) 12.725 12.732 13.265 Copper (¢/Pound) 325.65 318.50 255.70
Chinese Yuan (CNY/$) 6.775 6.780 6.832 Soybeans ($/Bushel) 10.17 10.19 10.53
Indian Rupee (INR/$) 46.408 46.945 48.368 Natural Gas ($/MMBTU) 4.87 4.58 3.74
Brazilian Real (BRL/$) 1.760 1.774 1.883 Nickel ($/Metric Ton) 20,606 20,182 16,201
U.S. Dollar Index 81.738 82.464 79.285 CRB Spot Inds. 484.93 475.02 425.38

Next Week’s Economic Calendar

Monday Tuesday Wednesday Thursday Friday
2 3 4 5 6
ISM Ma n u fa ct u r i n g Per son a l In com e ISM Non -Mfg Non fa r m Pa y r ol l s
Ju n e 5 6 .2 Ma y 0 .4 % Ju n e 5 3 .8 Ju n e -1 2 5 K
Ju ly 5 5 .0 (W ) Ju n e 0 .2 % (W ) Ju ly 5 3 .1 (W ) Ju ly -4 5 K (W )
U.S. Data

Con st r u ct i on Spen din g Per son a l Spen di n g Un em pl oy m en t Ra t e

Ma y -0 .2 % Ma y 0 .2 % Ju n e 9 .5 %
Ju n e -1 .4 % (W ) Ju n e 0 .1 % (W ) Ju ly 9 .5 % (W )
Fa ct or y Or der s
Ma y -1 .4 %
Ju n e -0 .5 % (W )

UK UK UK Ger m a n y UK
Global Data

PMI Ma n u fa ct u r i n g
Pr ev iou s (Ju n ) 5 7 .5
PMI Con st r u ct i on
Pr ev iou s (Ju n ) 5 8 .4
Eu r o-zon e
PPI (YoY)
Pr ev iou s (Ma y ) 3 .1 %
PMI Ser v i ces
Pr ev iou s (Ju n ) 5 4 .4
Eu r o-zon e
Ret a i l Sa l es (MoM)
Pr ev iou s (Ma y ) 0 .1 %
Fa ct or y Or der s (MoM)
Pr ev iou s (Ma y ) -0 .5 %
Eu r o-zon e
ECB A n n ou n ces Ra t es
Pr ev iou s 1 .0 0 %
In du st r a i l Pr od. (MoM)
Pr ev iou s (Ma y ) 0 .7 %
Ca n a da
Net Ch a n ge in Em pl oy .
Pr ev iou s (Ju n ) 9 3 .2 K

Not e: (W ) = W ells Fa r g o Est im a t e (c) = Con sen su s Est im a t e

8
Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 diane.schumaker@wellsfargo.com

& Economics (212) 214-5070

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
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