September 10, 2010

Economics Group

Weekly Economic & Financial Commentary

U.S. Review U.S. Exports and Imports Year-over-Year Percent Change, 3-Month Moving Average More Signs the Economic Recovery Is Still Intact 30% 30%

 This week’s economic data went a long way toward 20% 20% easing fears about a double-dip recession. Worries that 10% 10% real GDP could fall into negative territory in the coming

quarter now seem a little overblown. 0% 0%  One clear sign the economy continues to grow is the -10% -10% recently released data on the trade balance. The U.S.

trade deficit narrowed sharply by 14 percent to $42.8 -20% -20% billion in July. -30% -30%  The Fed’s Beige Book showed seven of the 12 districts Exports: Jul @ 19.1% Imports: Jul @ 26.1% reported modest growth or positive development from -40% -40% the previous reporting period. 94 96 98 00 02 04 06 08 10

Global Review Bank of Canada Overnight Lending Rate Canadian Recovery Continues, but Watch Out for Trade 6% 6%

 The Bank of Canada (BoC) raised its overnight lending 5% 5% rate to 1.00 percent this week. In its statement, the BoC

noted it now expects a more gradual recovery in Canada, 4% 4% while expressing concern that the U.S. recovery “is being held back by high unemployment.” 3% 3%  The Canadian trade deficit widened to its largest gap on 2% 2% record in July as exports to the United States fell 2.2 percent. 1% 1%

 Unlike in the United States, employers in Canada have BOC : Sep @ 1.00% been adding to payrolls for the better part of the past 0% 0% year, including another 35,8oo jobs added in August. 2000 2002 2004 2006 2008 2010

Wells Fargo U.S. Economic Forecast Inside Actual Forecast Actual Forecast 2009 2010 2006 2007 2008 2009 2010 2011 U.S. Review 2 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q U.S. Outlook 3 Real Gross Domestic Product 1 -4.9 -0.7 1.6 5.0 3.7 1.6 1.6 2.3 2.7 1.9 0.0 -2.6 2.7 2.2 Global Review 4 Personal Consumption -0.5 -1.6 2.0 0.9 1.9 2.0 1.7 1.3 2.9 2.4 -0.3 -1.2 1.5 1.6 Global Outlook 5 Inflation Indicators 2 "Core" PCE Deflator 1.6 1.5 1.3 1.7 1.8 1.5 1.3 1.0 2.3 2.4 2.3 1.5 1.4 1.1 Point of View 6 Consumer Price Index -0.2 -1.0 -1.6 1.5 2.4 1.8 1.1 0.6 3.2 2.9 3.8 -0.3 1.4 1.0 Topic of the Week 7 Industrial Production 1 -17.6 -10.3 8.3 7.0 7.1 6.7 6.2 2.2 2.2 2.7 -3.3 -9.3 5.5 3.5 2 Market Data 8 Corporate Profits Before Taxes -17.3 -11.4 -3.9 42.5 37.6 39.2 17.6 12.8 10.5 -6.1 -16.4 -0.4 25.8 6.8 Trade Weighted Dollar Index3 83.2 77.7 74.3 74.8 76.1 78.8 76.8 77.3 81.5 73.3 79.4 74.8 77.3 83.0 Unemployment Rate 8.2 9.3 9.6 10.0 9.7 9.7 9.6 9.9 4.6 4.6 5.8 9.3 9.7 9.6 Housing St art s4 0.53 0.54 0.59 0.56 0.62 0.60 0.55 0.60 1.81 1.34 0.90 0.55 0.59 0.81

Quarter-End Interest Rates 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 0.31 Conventional Mortgage Rate 5.00 5.42 5.06 4.93 4.97 4.74 4.10 4.20 6.14 6.10 5.33 4.93 4.50 5.15 10 Year Note 2.71 3.53 3.31 3.85 3.84 2.97 2.50 2.60 4.71 4.04 2.25 3.85 2.98 2.98 Forecast as of: September 8, 2010 1 Compound Annual Growth Rate Quarter-over-Quarter 2 Year-over-Year Percentage Change

Economics Group U.S. Review Wells Fargo Securities, LLC U.S. Review No Cause for Despair, but No Cause for Celebration Trade Balance In Goods And Services Billions of Dollars This week’s economic data went a long way toward easing fears $0 $0 about a double-dip recession. A second downturn is not implausible, but worries that real GDP could fall into negative -$10 -$10 territory in the coming quarter now seem a little overblown. But, before we pop the champagne cork, our forecast still calls for -$20 -$20 sluggish economic growth through 2010 and gradually increasing -$30 -$30 over the course of 2011 (see our Monthly Outlook).

One clear sign the economy continues to grow is the recently -$40 -$40 released data on the trade balance. The U.S. trade deficit narrowed sharply by 14 percent to $42.8 billion in July, which -$50 -$50 was less than most analysts expected. The smaller trade gap was a -$60 -$60 welcome surprise, but was largely payback from a jump of $6.0

billion in non-oil imports in June. The increase was clearly -$70 -$70 Total Balance: Jul @ -$42.8 Billion unsustainable as imports well outpaced domestic demand. With Goods Only: Jul @ -$55.2 Billion imports growing at a faster pace than exports in the second -$80 -$80 quarter, net exports shaved off an astounding 3.4 percentage 92 94 96 98 00 02 04 06 08 10 points from real GDP, the largest drag in more than six decades. Initial Claims for Unemployment We don’t think trade will continue to take such a large bite out of Seasonally Adjusted, In Thousands economic growth in the coming quarter, however. The real trade 700 700 Year-over-Year Percent Change: Sep-4 @ -18.9% deficit in July is about equal to the average in the second quarter. 650 Initial Claims: Sep-4 @ 451.0 Thousand 650 If the trade deficit remains at this level over the next two months, 4-Week Moving Average: Sep-4 @ 477.8 Thousand 52-Week Moving Average: Sep-4 @ 478.4 Thousand trade should exert very little drag on overall real GDP growth in 600 600 the third quarter. 550 550 The Fed’s Beige Book also confirmed the economy is in recovery, but a slow recovery indeed. Seven of the 12 districts reported 500 500 modest growth or positive development from the previous 450 450 reporting period. Similar to the national economy, consumer spending appeared to increase and reports on manufacturing 400 400 activity showed further expansion, but at a slower pace. Wage 350 350 pressures remained limited with the exception of a few sectors that noted a mismatch in job requirements versus applicant skills. 300 300

Labor market indicators for the week were also promising. Initial 250 250 jobless claims dropped 27,000, to 451,000, but they may be 86 88 90 92 94 96 98 00 02 04 06 08 10 distorted due to the Labor Day holiday. On a trend basis, the four-week moving average is still very elevated at 477,750, but it Consumer Credit is the second consecutive weekly decline and is moving in the 3-Month Moving Average 20% 20% right direction. We still need claims to drop to around 400,000 on a consistent basis to have a self-sustaining recovery. 15% 15% Other data highlighting employment conditions were the Job Openings and Labor Turnover Survey. Hiring remains lackluster, but the brunt of layoffs is behind us. The hires and separation 10% 10% rate, which is the rate of hires and separations as a percentage of

total nonfarm payrolls, remained unchanged at 3.3 and 3.4 5% 5% percent in July, respectively.

Consumer credit also printed this week and further illustrated the 0% 0% important adjustments that are needed to help consumers live within their means. Credit declined 1.8 percent in July with revolving credit (mostly credit cards) dropping 6.3 percent. -5% -5% Year-over-Year Percent Change: Jul @ -3.37% Consumers are clearly using debit cards and cash more frequently 3-Month Annual Rate: Jul @ -2.31% in an effort to pay down debt to repair damaged balance sheets. -10% -10% 90 92 94 96 98 00 02 04 06 08 10

2 Economics Group U.S. Outlook Wells Fargo Securities, LLC Retail Sales • Tuesday Retail sales rose 0.4 percent in July with motor vehicle and gasoline Retail Sales station sales both largely responsible for the gain. Core retail sales, 3-Month Moving Average which exclude autos, gasoline and building materials, fell 0.5 20% 20% percent on a three-month annualized basis. The weak showing in core retail sales is reflective of slower consumer demand, and the data suggest sluggish consumer spending in coming quarters. We 10% 10% expect retail sales to increase a modest 0.3 percent in August, due to a not-so-spectacular back-to-school shopping season. To attract 0% 0% customers, many clothing stores had to substantially mark down items. Discounting will likely slow overall sales in August. Gasoline station sales should also contribute slightly to the headline, but car -10% -10% sales should be flat. The underlying trend is still positive, but cautious consumers continue to think through buying decisions and look for the best deals. -20% -20% Year-over-Year Percent Change: Jul @ 5.9% Previous: 0.4% Wells Fargo: 0.3% 3-Month Annual Rate: Jul @ -0.7% -30% -30% Consensus: 0.3% 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Industrial Production • Wednesday Despite lackluster regional manufacturing surveys in July, Total Industrial Production Growth Output Growth by Volume, not Revenue industrial production rose 1.0 percent, which was stronger than the 15% 15% consensus forecast. Much of the increase was due to a 1.1 percent Both Series are 3-Month Moving Averages jump in manufacturing output. Auto production surged 9.9 percent 10% 10% as fewer auto plants shut down during the traditional retooling months. We do not expect this trend to stick and should begin to 5% 5% see some pullback in manufacturing production due to seasonal distortions. The ending of the inventory cycle will likely continue to 0% 0% keep gains modest in coming months. Due to the temporary nature of recent gains, we expect industrial production to increase 0.4 -5% -5% percent in August and capacity utilization to rise to 75 percent. While capacity utilization is much higher than recent lows, it -10% -10% remains well below its long-run average.

-15% -15% 3-Month Annual Rate: Jul @ 8.6% Year-over-Year Change: Jul @ 8.0% Previous: 1.0% Wells Fargo: 0.4% -20% -20% 87 89 91 93 95 97 99 01 03 05 07 09 Consensus: 0.2% Consumer Price Index • Friday With much of the talk around prices centered on deflation, the U.S. Consumer Price Index modest increase in consumer prices in July was a breath of fresh air Both Series are 3-Month Moving Averages and helped to quell some of the rhetoric. Led by a 4.3 percent gain 10% 10% in gasoline prices, headline CPI rose 0.3 percent. On a year-over- 8% 8% year basis, CPI is up 1.2 percent, which is well off its December 6% 6% 2009 peak of 2.7 percent, but still does not suggest the downside risk of deflation. Sustained declines in core CPI over the past two 4% 4% years were largely due to weakness in the shelter component. Both 2% 2% residential rent and owners’ equivalent rent, which make a 0% 0% tremendous contribution to overall prices have stabilized recently. -2% -2% The Fed still expects inflation to remain “subdued for some time” -4% -4% given the substantial resource slack restraining cost pressures and stable inflation expectations. -6% -6% -8% -8%

-10% CPI 3-Month Annual Rate: Jul @ -0.7% -10% Previous: 0.3% Wells Fargo: 0.2% CPI: Jul @ 1.5% -12% -12% Consensus: 0.3% 92 94 96 98 00 02 04 06 08 10

3 Economics Group Global Review Wells Fargo Securities, LLC Global Review Canadian Economy Grows Despite Widening Trade Gap Canadian Merchandise Trade Balance Millions of Canadian Dollars, Seasonally Adjusted The Bank of Canada (BoC) raised its key lending rate again this C$10,000 C$10,000 week, taking the overnight rate to 1.00 percent. The BoC remains

the only central bank from a G-7 economy to have raised rates—a C$8,000 C$8,000 solo role it has been playing since June. The language in the

official statement omitted remarks about the European sovereign C$6,000 C$6,000 debt crisis, but it suggests the BoC is likely dialing back its own

outlook somewhat. The bank now expects “the economic recovery C$4,000 C$4,000 in Canada to be slightly more gradual than it had projected in its

July Monetary Policy Report (MPR), largely reflecting a weaker C$2,000 C$2,000 profile for U.S. activity.” With a fragile economic recovery under

way and the inflation rate at the bottom of its target range, we C$0 C$0 expect the BoC to leave its policy rate at the present level at least through the remainder of this year. -C$2,000 -C$2,000

That concern has already begun to play out in the data as the July Merchandise Trade Balance: Jul @ -2,735M CAD trade deficit widened to C$2.74 billion, which represents the -C$4,000 -C$4,000 biggest gap in the Canadian trade deficit since records began in 2000 2002 2004 2006 2008 2010 1971. A C$1.2 billion narrowing in the trade surplus with the United States was the primary explanation for the drop. The Canadian Exports Canadian economy remains very susceptible to a slowdown in the 2009 European Union, United States, though Canada has diversified its export portfolio 8.3% over the past decade. In 2001, 88 percent of Canadian exports were destined for America; by 2009 that share had dropped to 75 Japan, 2.3% percent. That is not to say that Canadian exporters are not concerned about economic prospects in the United States, but Developing Countries, countries beyond America will become increasingly important, at 11.0% least at the margin, for Canada in the years ahead. But for now, net exports are weighing on economic growth. Second-quarter GDP growth in Canada was weaker than both the Other, 3.4% BoC and the consensus had expected. Market watchers were not United States, 75.0% likely expecting net exports to exert a 4.5 percent negative contribution to GDP. Fortunately, final domestic demand grew at an annualized pace of 3.5 percent in the quarter, fueled by modest consumer spending and robust business fixed investment spending. So the question going forward is: Will domestic demand continue to be strong enough to offset the potential drag from net exports? Canadian Employment Month-over-Month Change in Employment, In Thousands Manufacturing sales have increased in nine of the past 10 125 125

months, and the Ivey PMI in August climbed to its highest level 100 100 since 2008, so it appears that business spending will continue to 75 75 grow. On the consumer side, however, the data are somewhat less encouraging. Consumption grew at a 2.6 percent pace in the 50 50 second quarter, slightly off from the 4.3 percent rate in the first. 25 25

Retail sales have fallen in two out of the past three months, and 0 0 consumer confidence has been slipping in recent months as well. -25 -25 For there to be sustainable growth in consumer spending, the labor market will need to continue to grow. The good news is -50 -50

employers in Canada have been adding to payrolls for the better -75 -75 part of the past year, including another 35,800 jobs added in -100 -100 August. Unlike the U.S. job market, which is still under water, the Change in Employment: Jul @ -9.3K -125 -125 level of overall employment in Canada is now higher than it was 6-Month Moving Average: Jul @ 42.7K before the recession began, which should be supportive of -150 -150 consumer spending in coming quarters. 2002 2004 2006 2008 2010

4 Economics Group Global Outlook Wells Fargo Securities, LLC Chinese Industrial Production • Monday Chinese industrial production growth slowed for the fourth straight Chinese Industrial Production Index month in July to a year-over-year pace of 13.4 percent. It appears Year-over-Year Percent Change of 3-Month Moving Average that efforts by the Chinese government to reign in runaway 25% 25% spending earlier this year has been largely successful in cooling economic activity somewhat. We think there is some support for 20% 20% the notion that loan growth will begin to pick up from here, which will be supportive of a solid pace of growth in China, though somewhat slower than the double-digit pace we saw earlier this 15% 15% year. August industrial production data are due out Monday, and the consensus is looking for further moderation in output. The Chinese retail sales report for August is due out the same day. 10% 10% Year–over–year sales growth has been humming along at about 18 percent since March and will likely continue to grow at that pace in August. 5% 5% Year-over-Year Industrial Production: Jul @ 13.4% Previous: 13.4% 3-Month Moving Average: Jul @ 14.5% 0% 0% Consensus: 13.0% 1999 2001 2003 2005 2007 2009 Eurozone Industrial Production • Monday Despite the sovereign debt situation in some European countries, Eurozone Industrial Production Index Year-over-Year Percent Change the economic data out of the Eurozone are consistent with our 12% 12% outlook for slow recovery to continue. Real GDP expanded at an 9% 9% annualized rate of 3.9 percent in the second quarter, faster than the

6% 6% 1.3 percent pace of growth in the first quarter. Industrial production (IP) data were also stronger in the second quarter, 3% 3% though output slipped by a tenth of a percent in June. We get our 0% 0% first look at Q3 output data when July IP data hits the wire on -3% -3% Monday. Manufacturing PMI readings remained in the mid-50s in

-6% -6% July and August, so another pick-up in IP in July seems likely.

-9% -9% Also on the docket in the Eurozone are August CPI data. Prices were flat in June and slipped a bit in July, though they remain -12% -12% higher on a year-over-year basis. A modest gain in August is -15% -15% expected. IPI: Jun @ 8.3% -18% -18% 3-Month Moving Average: Jun @ 9.1% Previous: -0.3% (Month-over-Month) -21% -21% 1997 1999 2001 2003 2005 2007 2009 Consensus: 0.1% U.K Retail Sales • Thursday The U.K. economy grew at an annualized pace of 4.9 percent in the United Kingdom Retail Sales second quarter, which was the fastest sequential growth rate in Year-over-Year Percent Change more than a decade. While the turnout was stronger than markets 10% 10% were expecting, it seems likely the second quarter will be the high- water mark for expansion in the United Kingdom for the 8% 8% foreseeable future. Several measures of activity provide signal that growth is continuing in the third quarter, but at a slower pace. Both 6% 6% the services and manufacturing PMIs have fallen for the first two months of the third quarter, though both remain in expansion 4% 4% territory. Despite the fact that consumer confidence also deteriorated in July, retail sales have held up, increasing 1.1 percent 2% 2% in July, the first month of the third quarter. The consensus expects 0% 0% a more modest increase of 0.3 percent when the August retail sales numbers come out on Thursday. -2% -2%

Retail Sales, Growth Rate: Jul @ 1.3% Previous: 1.1% (Month-over-Month) -4% -4% Consensus: 0.3% 1999 2001 2003 2005 2007 2009

5 Economics Group Point of View Wells Fargo Securities, LLC Interest Rate Watch Consumer Credit Insights Rates Rise as Downside Risk Slide Central Bank Policy Rates Putting It on Plastic

7.5% 7.5% US : Sep - 10 @ 0.25% Bond yields rose this week as investors ECB: Sep - 10 @ 1.00% Consumer spending rose 0.4 percent in Bank of Japan: Sep - 10 @ 0.10% began to feel more comfortable with the : Sep - 10 @ 0.50% July. However, since personal incomes only 6.0% 6.0% economy’s near-term growth prospects. A rose 0.2 percent, the savings rate declined double-dip recession now seems less likely to 5.9 percent from 6.2 percent. In 4.5% 4.5% and worries about deflation are also addition, credit card balances at

lessening somewhat. At the same time, the 3.0% 3.0% commercial banks declined by $6.8 billion federal government continues to tap the during the month. These numbers suggest

markets for billions in additional financing 1.5% 1.5% that after three months of bolstering their and talk of new stimulus programs does savings, consumers met pent-up demand

little to relieve fears about the deficit. 0.0% 0.0% by using cash, checks or “putting it on 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Uncertainty about the prospects for plastic.” But this time around, it’s a extending the Bush tax cuts also appears to Yield Curve different plastic. Rather than adding to U.S. Treasuries, Active Issues their debt by using credit cards, consumers be pulling money into the fixed-income 4.50% 4.50% are increasingly turning to debit cards market. Many equity investors 4.00% 4.00% when making purchases. understandably feel jilted by the collapse in 3.50% 3.50%

equity values following the onset of the 3.00% 3.00% This has important ramifications for the

financial crisis, the corporate scandals 2.50% 2.50% economy and for the banking industry. By

earlier in the decade and the Flash Crash 2.00% 2.00% paying down their credit card balances and that occurred in early May. As a result, not using credit cards for purchases, 1.50% 1.50% anything that restores confidence in the consumers are certainly repairing their own 1.00% 1.00% economy and stock market might present September 10, 2010 balance sheets. However, banks are losing 0.50% September 3, 2010 0.50% some upside risk to bond yields. August 10, 2010 out on the interest on those accounts so 0.00% 0.00% M Y Y Y Y vital to the bottom line. The result is likely The Fed’s Beige Book noted a widespread 3 2 5 10 30 to be higher bank fees and slower consumer moderation in economic activity across the Forward Rates 90-Day EuroDollar Futures spending growth for a time. country but was no worse than expected. 1.00% 1.00% September 10, 2010 Home sales have slowed tremendously September 3, 2010 More and more, it’s looking like this following the expiration of tax incentives, August 10, 2010 recession could be causing a permanent and low mortgage rates are only a relatively shift in consumer behavior. If this leads to 0.75% 0.75% modest boost to refinancing activity. a permanent, or at least long-lasting, Consumer spending is showing modest leftward shift of the aggregate demand gains across the country, and pricing power curve, the economy could be in for a fairly remains extremely limited, but there is 0.50% 0.50% long period of low inflation and elevated little to no sign of actual deflation. Hiring unemployment. The “new plastic” is likely was seen as picking up modestly, but many to be en vogue for some time to come. firms are opting to hire temporary workers 0.25% 0.25% Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 instead of permanent employees. The Fed is still weighing the prospects for Mortgage Data additional monetary stimulus but is unlikely to do much in the near term. We Week 4 Weeks Year still assign a relatively high probability of a Current Ago Ago Ago second quantitative easing (QE2) following Mortgage Rates the November election, with such a move 30-Yr Fixed 4.35% 4.32% 4.44% 5.07% possibly announced as soon as the Nov. 2-3 15-Yr Fixed 3.83% 3.83% 3.92% 4.50% FOMC meeting but more likely announced 5/1 ARM 3.56% 3.54% 3.56% 4.51% later that month. 1-Yr ARM 3.46% 3.50% 3.53% 4.64% We continue to hold on to our view that the Fed will reverse course late next year and MBA Applications begin raising the . That Composite 880.0 893.8 734.3 648.3 forecast is based on our belief that Purchase 184.5 173.6 175.4 304.1 economic growth will improve over the Refinance 4,926.5 5,085.3 3,993.0 2,651.2 coming year, removing much of the Source: Freddie Mac, Mortgage Bankers Association and Wells Fargo Securities, LLC

downside risks.

6 Economics Group Topic of the Week Wells Fargo Securities, LLC Topic of the Week No Double Dip for Chips or the Economy Real GDP vs. Real "Core" GDP After the BEA made a massive downward revision to Compound Annual Growth Rate GDP, there was a great deal of hand-wringing and 10% 10% worrying that real GDP growth would slow even further 8% 8% and possibly slip into negative territory. Now that much

of the July and early August data show modest economic 6% 6% gains, a double dip now seems much less likely. Moreover, private final demand actually looks a bit 4% 4% stronger that previously thought. Consumer spending was actually revised higher in the same report that 2% 2% showed real GDP revised down. Overall private final demand grew at a 4.3 percent annual rate during the 0% 0% second quarter and we believe growth in private demand -2% -2% should remain strong enough to offset the winding down

of stimulus programs and inventory rebuilding. -4% -4% All of the focus on the downside risks to the economy has diverted attention away from some of the more -6% Real GDP: Q2 @ 1.6% -6% positive trends that have taken place over the past year. Real "Core" GDP: Q2 @ 4.5% -8% -8% There has been significant healing in a number of key 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 areas, including the balance sheets of large companies and major financial institutions. Both sectors have been Household Debt - Consumer & Mortgage able to raise substantial amounts of new capital and As a Percent of Disposable Personal Income have seen profitability restored. 130% 130% Households are also making progress at strengthening 120% 120% their financial standing. Private-sector wage and salary

growth picked up over the past year, rising 1.1 percent. 110% 110% The increase allowed consumers to both modestly boost spending and increase saving. The saving rate has risen 100% 100% from a low of 2 percent two years ago to around 6 percent currently. Much of that increased saving has 90% 90% been used to pay down debt. The ratio of household debt to after-tax income has fallen from a peak of 123.9 80% 80% percent to 114.1 percent. Clearly, consumers still have a 70% 70% long way to go to bring household balance sheets back to

health, but more progress has been made than many 60% 60% realize and the process of deleveraging appears to be well under way. Moreover, income growth is likely to be 50% 50% stronger over the next couple of years than it was over Household Debt: Q1 @ 114.1% the last, so deleveraging will likely occur in a quicker 40% 40% manner in the future. 60 65 70 75 80 85 90 95 00 05 10

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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 9/10/2010 Ago Ago 9/10/2010 Ago Ago 3-Month T-Bill 0.13 0.12 0.14 3-Month Euro LIBOR 0.82 0.83 0.74 3-Month LIBOR 0.29 0.29 0.30 3-Month Sterling LIBOR 0.72 0.73 0.63 1-Year Treasury 0.28 0.23 0.30 3-Month Canadian LIBOR 1.20 1.03 0.50 2-Year Treasury 0.57 0.51 0.88 3-Month Yen LIBOR 0.23 0.23 0.37 5-Year Treasury 1.58 1.48 2.28 2-Year German 0.74 0.64 1.22 10-Year Treasury 2.78 2.70 3.35 2-Year U.K. 0.76 0.72 0.91 30-Year Treasury 3.85 3.78 4.20 2-Year Canadian 1.46 1.28 1.21 Bond Buyer Index 3.92 3.86 4.33 2-Year Japanese 0.15 0.14 0.22 10-Year German 2.40 2.35 3.30 Foreign Exchange Rates 10-Year U.K. 3.13 3.01 3.68 Friday 1 Week 1 Year 10-Year Canadian 2.98 2.87 3.33 9/10/2010 Ago Ago 10-Year Japanese 1.16 1.15 1.33 Euro ($/€) 1.272 1.290 1.458 British Pound ($/₤) 1.537 1.545 1.665 Commodity Prices British Pound (₤/€) 0.828 0.834 0.875 Friday 1 Week 1 Year Japanese Yen (¥/$) 84.190 84.310 91.730 9/10/2010 Ago Ago Canadian Dollar (C$/$) 1.037 1.039 1.077 WTI Crude ($/Barrel) 76.07 75.02 71.94 Swiss Franc (CHF/$) 1.019 1.016 1.038 Gold ($/Ounce) 1243.75 1246.75 996.60 Australian Dollar (US$/A$) 0.925 0.917 0.864 Hot-Rolled Steel ($/S.Ton) 545.00 545.00 555.00 Mexican Peso (MXN/$) 12.955 12.934 13.368 Copper (¢/Pound) 339.55 348.80 285.95 Chinese Yuan (CNY/$) 6.770 6.804 6.829 Soybeans ($/Bushel) 10.21 9.81 9.58 Indian Rupee (INR/$) 46.479 46.713 48.510 Natural Gas ($/MMBTU) 3.90 3.75 3.26 Brazilian Real (BRL/$) 1.718 1.733 1.811 Nickel ($/Metric Ton) 22,744 21,595 17,914 U.S. Dollar Index 82.674 82.463 76.817 CRB Spot Inds. 511.90 506.79 454.91

Next Week’s Economic Calendar Monday Tuesday Wednesday Thursday Friday 13 14 15 16 17 Retail Sales Industrial Production PPI CPI July 0.4% July 1.0% July 0.2% July 0.3% August 0.3% (W) August 0.4% (W) August 0.3% (W) August 0.2% (W) Retail Sales Less Autos Capacity Utilization Core PPI Core CPI July 0.2% July 7 4.8% July 0.2% July 0.1% August 0.3% (W) August 75.0% (W) August 0.1% (W) August 0.1% (W) U.S. Data U.S. Business Inventories Import Price Index Current Acount June 0.3% July 0.2% Q1 -$109.0B July 0.2% (W) August 0.2% (W) Q2 -$125B (W)

China Japan Canada UK In du st ria l Prod. (YoY) Indu st ria l Prod. (MoM) Mfg Sa les (MoM) Ret a il Ex A u t o Fu el Prev ious (Jul) 13.4% Prev ious (Jun) 0.3% Prev ious (Jun) 0.1% Prev ious (Jul) 0.9% Eu ro-zone Germ any Eu ro-zone Industrial Prod. (MoM) Zew Survey (Econ.Sen.) CPI (MoM) Global Data Global Previous (Jun) -0.1% Previous (Aug) 14.0 Previous (Jul) -0.3%

Note: (W) = Wells Fargo Estimate (c) = Consensus Estimate

8

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 [email protected] & Economics (212) 214-5070

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected] Mark Vitner Senior Economist (704) 383-5635 [email protected] Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected] Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected] Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 [email protected] Sam Bullard Senior Economist (704) 383-7372 [email protected] Anika Khan Economist (704) 715-0575 [email protected] Azhar Iqbal Econometrician (704) 383-6805 [email protected] Ed Kashmarek Economist (612) 667-0479 [email protected] Tim Quinlan Economist (704) 374-4407 [email protected]

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