John E. Silvia, Chief Economist
August 19, 2014
Economic Outlook: Cyclical Recovery, Structural Challenges The Coca-Cola Bottlers’ Association
The Coca-Cola Bottlers’ Association 2
Where Are We Now?
Source:
Five benchmarks for good decision making
Inflation Interest Rates
Growth
Profits The Dollar
The Coca-Cola Bottlers’ Association 3
Expectations for the Future
Wells Fargo vs. Consensus
How do we differ from consensus?
Sustained-trend growth
Employment—cyclical and structural change
Still cautious on consumer segments
Housing improving—multifamily especially
State and local governments—still restructuring
Unsustainable long-run fiscal policy
Europe exits recession
China growth stable at 7 percent plus
The Coca-Cola Bottlers’ Association 4
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2000 2002 2004 2006 2008 2010 2012 2014
U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change
GDP - CAGR: Q2 @ 4.0%
GDP - Yr/Yr Percent Change: Q2 @ 2.4%
Forecast
Upswing 2H 2014: One-off or Sustained?
A poor start to 2014 should limit full-year growth to about
1.9 percent, but should pick up again in 2015
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 5
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
96 98 00 02 04 06 08 10 12 14
Real Final Sales to Private Domestic Purchasers vs. Government Spending
Final Sales to Private Dom. Purch.: Q2 @ 2.8%
Gov. Consumption & Investment: Q2 @ -0.7%
Both series are Year-over-Year Percent Changes
Private Sector vs. Public Sector
The economy is rebalancing back to private sector demand
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 6
70
75
80
85
90
95
100
105
110
115
-60
-40
-20
0
20
40
60
80
100
120
04 05 06 07 08 09 10 11 12 13 14
Wells Fargo Small Business Survey & NFIBOverall Situation, NFIB Small Business Optimism 1986=100
Overall Situation: Q3 2014 @ 49.0 (Left Axis)
Small Business Optimism: Q2 2014 @ 95.6 (Right Axis)
Small Businesses
Small Businesses: A full recovery in small business
optimism is still distant, taxes and regulation the two big issues
Source: National Federation of Independent Businesses, Gallup, Wells Fargo Bank and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 7
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65
90 92 94 96 98 00 02 04 06 08 10 12 14
ISM Manufacturing Composite IndexDiffusion Index
ISM Manufacturing Index: Jul @ 57.1
12-Month Moving Average: Jul @ 55.3
Manufacturing
Large, Global Businesses: Recent pickup in activity
Source: Institute for Supply Management and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 8
250
300
350
400
450
500
550
600
650
700
250
300
350
400
450
500
550
600
650
700
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Initial Claims for UnemploymentSeasonally Adjusted, In Thousands
Year-over-Year Percent Change: Aug-2 @ -13.7%
Initial Claims: Aug-2 @ 289.0 Thousand
4-Week Moving Average: Aug-2 @ 293.5 Thousand
52-Week Moving Average: Aug-2 @ 326.0 Thousand
Initial Unemployment Claims: Cyclical
Signaling continued, moderate job gains ahead
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 9
57
58
59
60
61
62
63
64
65
57
58
59
60
61
62
63
64
65
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Employment-Population Ratio16 Years and Over, Seasonally Adjusted
Employment-Population Ratio: Jul @ 59.0
Employment: Structural
Structural Change: A much lower base to support
growth and spending, especially for entitlements
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 10
110
113
116
119
122
125
128
125
128
131
134
137
140
143
2007 2008 2009 2010 2011 2012 2013 2014
Full-Time vs. Total EmploymentMillions
Total Employees: Jul @ 139.0 M (Left Axis)
Total Full-Time Employees: Jul @ 118.5 M (Right Axis)
Full Time: 3.4 M Below Prerecession Peak
Total: 0.6 M Above Prerecession Peak
Employment: Structural
We still have a ways to go before recovering all of the full-time jobs lost in the most recent
recession
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 11
52%
54%
56%
58%
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
52%
54%
56%
58%
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
92 94 96 98 00 02 04 06 08 10 12 14
Labor Force Participation RateSeasonally Adjusted
Female: Jul @ 56.9%
Male: Jul @ 69.3%
Employment: Participation Rates by Gender
Participation rates for both men and women have declined—a
new path for women
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 12
2%
4%
6%
8%
10%
12%
14%
16%
18%
2%
4%
6%
8%
10%
12%
14%
16%
18%
94 96 98 00 02 04 06 08 10 12 14
Unemployment RatesSeasonally Adjusted
U-6 Unemployment Rate: Jul @ 12.2%
U-3 Unemployment Rate: Jul @ 6.2%
Employment: Structural
U-3 reverting to 6.37 percent long-run average, but U-6 is not
mean-reverting. Employment growth is mean-reverting at
1.28 percent.
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 13
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2000 2002 2004 2006 2008 2010 2012 2014
Real Personal Consumption ExpendituresBars = CAGR Line = Yr/Yr Percent Change
PCE - CAGR: Q2 @ 2.5%
PCE - Yr/Yr Percent Change: Q2 @ 2.3%
Forecast
Consumer Spending
Subpar recovery suggests slower consumer spending and lower
state sales tax revenues compared to the past
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 14
-16%
-12%
-8%
-4%
0%
4%
8%
12%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
90 92 94 96 98 00 02 04 06 08 10 12 14
Real Disposable IncomeBoth Series are 3-Month Moving Averages
Real Disposable Income, 3-Month Annual Rate: Jun @ 3.8%
Real Disposable Income, Yr/Yr % Change: Jun @ 2.6%
Income: Modest Growth
Income growth remains lackluster compared to previous
economic expansions
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 15
55.3% 51.6% 51.7%47.5% 46.8%
10.2%11.3% 11.0%
11.8% 11.3%
6.9%6.7% 8.1%
7.7% 8.8%
15.5% 18.7% 15.6%
13.0% 13.2%
0.8% 0.6% 2.0%
3.0% 3.9%
11.3% 11.2% 11.6%17.0% 16.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980 1990 2000 2010 Past 12
Months
Personal Income SourcesTransfers Rental Income Receipts on Assets
Proprietors Income Supplements to Wages Wages & Salary
Personal Income: Varied Sources
Wages and salaries make up about half of personal income as
transfer payments make up a greater share of income over
time
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 16
0%
50%
100%
150%
200%
250%
0%
50%
100%
150%
200%
250%
Lowest 20
percent
Second 20
percent
Third 20
percent
Fourth 20
percent
Highest 20
percent
Income Growth by QuintilePercent Change from 1984 to 2012, After-Tax Income
Income Growth: Different Rates
After-tax nominal income has increased the most for the lowest and highest income
households since the mid-1980s
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 17
-3.4%
1.2%
3.5%
5.6%
4.7%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Lowest 20
percent
Second 20
percent
Third 20
percent
Fourth 20
percent
Highest 20
percent
Income Growth by QuintilePercent Change in Nominal After-Tax Income 2007-2012
Income Growth: Rising at Different Rates
Since before the recession, income growth has been clearly
concentrated in the upper quintiles
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 18
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Bloomberg Consumer Comfort by Income6-Week Moving Averages
Income Between $25K and $39.9K: Aug-03 @ 31.4
Income Between $50K and $74.9K: Aug-03 @ 39.4
Income Between $75K and $99.9K: Aug-03 @ 51.8
Income Over $100K: Aug-03 @ 57.7
Consumer Confidence: By Income Group
Confidence improves with income, but remains historically
low across all income ranges
Source: Bloomberg LP and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 19
0
20
40
60
80
100
120
140
160
0
20
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Consumer Confidence by Household Income1985=100; 3-Month Moving Averages
Under $15,000: Jul @ 55.1$15,000-$24,999: Jul @ 60.2$25,000-$34,999: Jul @ 67.1$35,000-$49,999: Jul @ 80.3$50,000 and Over: Jul @ 109.3
Consumer Confidence: By Income Group
Confidence improves with income, but remains historically
low across all income ranges
Source: Conference Board and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 20
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Household AssetsTrillions of Dollars
Financial Assets: Q1 @ $67.2 Trillion
Household Real Estate Holdings: Q1 @ $20.2 Trillion
Other Tangible Assets: Q1 @ $8.2 Trillion
Household Finances: Rebound in Financial Wealth
Overall wealth has rebounded since the financial crisis, driven
by gains in financial markets
Source: Federal Reserve Board and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 21
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
04 05 06 07 08 09 10 11 12 13 14
Food Service & Drinking Places SalesYear-over-Year Percent Change, 3-Month Moving Average
Food Service & Drinking Places: Jun @ 5.0%
12-Month Moving Average: Jun @ 3.5%
Retail Sales
Sales at food service and drinking places remains at historically low levels after
rebounding nicely several years after the recession
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 22
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Lowest 20
percent
Second 20
percent
Third 20
percent
Fourth 20
percent
Highest 20
percent
Consumption of Food at Home vs. AwayShare of Consumption By Income Quintile, 2012
Food at Home
Food Away
Consumer Spending: By Income Quintile
Food away from home is disproportionately consumed by
the highest income earners
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 23
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Household Debt Service RatioDebt Payments as a Percent of Disposable Personal Income
DSR: Q1 @ 9.9%
Household Finances: Rebalancing Debt Exposure
Debt service has returned to more sustainable rates
Source: Federal Reserve Board and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 24
0%
12%
24%
36%
48%
60%
0%
3%
6%
9%
12%
15%
87 89 91 93 95 97 99 01 03 05 07 09 11 13
"Jobs Hard to Get" vs. Unemployment RateConference Board Consumer Confidence
Unemployment Rate: Jul @ 6.2% (Left Axis)
Jobs Hard to Get: Jul @ 30.7% (Right Axis)
Consumer Confidence – Jobs Hard to Get
A high percentage of consumers view jobs as “hard to get”
compared to mid-cycle 1990s, 2000s decade
Source: Conference Board, Bureau of Labor Statistics and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 25
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
04 05 06 07 08 09 10 11 12 13 14
Nondefense Capital Goods Orders, Ex-AircraftSeries Are 3-Month Moving Averages
3-Month Annual Rate: Jun @ 6.7%
Year-over-Year Percent Change: Jun @ 2.6%
New Orders
Signs of life appeared early in this
recovery in capital goods orders—
now the slowdown
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 26
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
U.S. Housing StartsMillions of Units
Forecast
Housing
Continued improvement ahead
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 27
2.45
2.50
2.55
2.60
2.65
2.70
2.75
2.80
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
80 84 88 92 96 00 04 08 12
Median Home Size vs. Average Household SizeSquare Feet; Number of Persons
Median Square Footage: 2013 @ 2,384 (Left Axis)
Number of Persons per Household: 2013 @ 2.54 (Right Axis)
Housing Demographics
Secular Shift? Households are living in smaller homes with more people since the recession, but longer-term
trends may win out
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 28
12.7%
29.4%
26.9%
20.1%
16.2%
14.8%
14.1%
11.6%
11.2%
10.7%
9.8%
8.7%
8.6%
7.4%
7.1%
25.0%
65.7%
49.3%
51.8%
26.1%
20.6%
18.0%
23.6%
32.9%
16.4%
19.6%
14.1%
19.5%
22.0%
21.0%
0% 20% 40% 60% 80%
National
Nevada
Florida
Arizona
Maryland
New Hampshire
New Jersey
Virginia
California
Massachusetts
South Carolina
North Carolina
Washington
Colorado
OregonQ1-2014
Q1-2011
Negative Equity Share By StateAs a Percent of Mortgages Outstanding
Housing
Negative equity in homes has contributed to foreclosures and
reduced labor mobility, but much improvement has been
seen since 3 years ago
Source: CoreLogic and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 29
Inflation & Interest Rates
Inflation Interest Rates
Growth
Profits The Dollar
Core Inflation
Monetary Policy
Yield Curve
Real Interest Rates
Wage-Price Spiral
Market Expectations
Key Drivers
The Coca-Cola Bottlers’ Association 30 30
-2%
-1%
0%
1%
2%
3%
4%
5%
-2%
-1%
0%
1%
2%
3%
4%
5%
92 94 96 98 00 02 04 06 08 10 12 14
PCE Deflator vs. Core PCE DeflatorYear-over-Year Percent Change
PCE Deflator: May @ 1.8%
"Core" PCE Deflator: May @ 1.5%
Inflation: Rising – Not Low
Inflation remains contained but has begun to ramp up recently
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 31
-6%
-4%
-2%
0%
2%
4%
6%
8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
92 94 96 98 00 02 04 06 08 10 12 14
Food - At Home vs. Away from HomeYear-over-Year Percent Change
Food Away From Home: Jun @ 2.2%
Food at Home: Jun @ 2.4%
Inflation: By Location
Prices in food at home has risen above that of food away from
home in the past year
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 32
-8% 0% 8% 16% 24% 32% 40%
Shortening and cooking oils
Roasted coffee
Pasta products
Processed young chickens
Processed fruits and vegetables
Soft drinks
Bakery products
Confectionery end products
Fresh fruits and melons
Milled rice
Fresh and dry vegetables
Finfish and shellfish
Dairy products
Beef and veal
Processed turkeys
Eggs for fresh use
Pork
Finished Consumer FoodsYear-over-Year Percent Change of 3-Month Moving Avgerage
June 2014
Inflation: By Good
Inflation for soft drinks and confectionary end products have risen slightly over the past year
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 33
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
98 00 02 04 06 08 10 12 14
Food at Home & Beverage PricesYear-over-Year Percent Change of 3-Month Moving Average
Food at Home: Jun @ 2.3%
Non-Alcoholic Beverages: Jun @ -1.3%
Inflation
Consumer price growth for food and beverages has picked up in
past months
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 34
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
2007 2008 2009 2010 2011 2012 2013 2014
Corn Spot PricesDollars per Bushel, Weekly Averages
Corn: Aug-08 @ $3.53
Corn
Corn prices were elevated in 2013 but have recently fallen
Source: IHS Global Insight and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 35
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
2007 2008 2009 2010 2011 2012 2013 2014
Sugar PriceDollars per Pound
Sugar: Aug-08 @ $16.23
Sugar
Sugar prices have continued a downward trend
Source: IHS Global Insight and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 36
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2007 2008 2009 2010 2011 2012 2013 2014
AluminumDollars per Metric Ton
Aluminum: Aug-08 @ $1,968
Aluminum
Prices for aluminum, which remained relatively flat in 2013, have picked up slightly in 2014
Source: IHS Global Insight and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 37
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Inflation and the Real YieldPercent
5-Year Treasury Note Yield: Aug @ 1.7%
Median Inflation Expect. for 5-10 Yrs: Jul @ 2.6%
1996-2009 Average Median Inflation Expectation for 5-10 Years: 2.9%
March 2008
Bear Stearns
October 2013
Debt Ceiling
Raised
Inflation vs. Yields: Negative Real Yields – Three Non-market Buyers
Inflation expectations exceed nominal returns, suppressed interest rates, not free market
Source: Federal Reserve Board, University of Michigan and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 38
0%
2%
4%
6%
8%
10%
12%
14%
0%
2%
4%
6%
8%
10%
12%
14%
47 51 55 59 63 67 71 75 79 83 87 91 95 99 03 07 11
Corporate ProfitsAs a Percent of GDP
Rest of World: Q1 @ 2.4%
Domestic: Q1 @ 9.1%
NAFTA
China
Joins
WTO
Corporate Profits: Increasing Role of Global Profits
Profits as a percentage of GDP are historically high and are
being boosted by profits earned abroad
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 39
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
2000 2002 2004 2006 2008 2010 2012 2014
Federal Budget BalancePercentage of GDP
Budget Balance: Q2 @ -3.1%
Forecast
Fiscal Policy: Difficult Choices/Chronic Imbalance
The nation has entered uncharted waters in fiscal policy—no balance at 2.75
percent GDP growth
Source: U.S. Department of Commerce, U.S. Department of the Treasury and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 40 40
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Real Government Consumption & InvestmentBars = CAGR Line = Yr/Yr % Change
Government Consumption & Investment: Q2 @ 1.6%
Government Consumption & Investment: Q2 @ -0.7%
Fiscal Policy: Restructuring Continues
Over the past year the government sector has
continued to be a drag on GDP as state and local governments
restructure
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
The Coca-Cola Bottlers’ Association 41
8.2%
6.2%
5.2%
5.1%
4.0%
3.0%
2.8%
2.7%
2.2%
2.0%
1.0%
0.8%
0.1%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
China
Indonesia
India
Turkey
Singapore
Russia
Korea
South Africa
United States
Brazil
United Kingdom
Japan
Euro area
GDP Growth Post-Recession Average Annual Percent Change for 2011-2013
Global Growth
The global recovery is being driven by emerging markets
Source: International Monetary Fund and Wells Fargo Securities, LLC
Wamco, Inc. 42
Potential Challenges to the Outlook
Outlook Risks
What are the primary risks to the outlook?
Tighter monetary policy brings questions for the dollar, inflation and interest rate outlook
Fiscal policy: tax increases and/or spending cuts face unsustainable long-run outlook
Housing: unable to sustain growth on its own if rates rise?
European debt crisis weighs on global growth and global credit allocation over the long-run
Weak employment growth means less-than-expected real income and spending growth for some consumer segments
The Coca-Cola Bottlers’ Association 43
U.S. Forecast
2011 2012 2013 2014 2015
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product 1 2.7 1.8 4.5 3.5 -2.1 4.0 1.7 3.0 1.6 2.3 2.2 1.9 2.9
Personal Consumption 3.6 1.8 2.0 3.7 1.2 2.5 2.6 2.5 2.3 1.8 2.4 2.3 2.6
Inflation Indicators 2
PCE Deflator 1.4 1.1 1.2 1.0 1.1 1.6 1.7 2.0 2.5 1.8 1.2 1.6 2.1
Consumer Price Index 1.7 1.4 1.5 1.2 1.4 2.1 2.2 2.4 3.1 2.1 1.5 2.0 2.3
Industrial Production 1 4.2 1.9 2.5 4.9 3.9 5.5 3.7 4.3 3.3 3.8 2.9 4.1 4.7
Corporate Profits Before Taxes 2 3.1 3.9 4.9 4.7 -4.8 3.6 3.8 4.0 4.0 11.4 4.2 1.7 4.3
Trade Weighted Dollar Index 3 76.2 77.5 75.2 76.4 76.9 75.9 77.3 77.5 70.9 73.5 75.9 76.9 78.7
Unemployment Rate 7.7 7.5 7.2 7.0 6.7 6.2 6.1 5.9 8.9 8.1 7.4 6.2 5.7
Housing Starts 4 0.95 0.86 0.88 1.03 0.93 0.98 1.02 1.07 0.61 0.78 0.92 1.00 1.12
Quarter-End Interest Rates 5
Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.63
Conventional Mortgage Rate 3.57 4.07 4.49 4.46 4.34 4.16 4.35 4.35 4.46 3.66 3.98 4.30 4.46
10 Year Note 1.87 2.52 2.64 3.04 2.73 2.53 2.75 2.80 2.78 1.80 2.35 2.70 3.00
Forecast as of: August 6, 20141 Compound Annual Growth Rate Quarter-over-Quarter2 Year-over-Year Percentage Change3 Federal Reserve Major Currency Index, 1973=100 - Quarter End4 Millions of Units5 Annual Numbers Represent Averages
ForecastActual
2014
ForecastActual
2013
Wells Fargo U.S. Economic Outlook
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, Freddie Mac and Wells Fargo Securities, LLC
Appendix
The Coca-Cola Bottlers’ Association 45
Recent Special Commentary
Wells Fargo Economics Group Publications
To join any of our research distribution lists please visit our
website: http://www.wellsfargo.com/
economics
Date Title Authors
August-05 Taiwanese Real GDP Growth Strengthened in Q2 Bryson
August-05 Slow Growth in Sweden Equals Risk of Deflation Bryson
August-01 Hot or Not? Metro Areas Across the U.S. Vitner & Wolf
August-01 Signs of Firming in Canadian Economy Quinlan
August-01 Argentina Elected for Default Again Alemán
July-31 Interest Rate Weekly: Notes on the Fed's Exit Strategy, Part 1 Silvia, Vitner & Brown
July-31 The State of Agriculture Vitner
July-29 Florida Consumer Sentiment Rises Solidly in July Vitner & Wolf
July-25 British GDP Growth Remained Strong in Q2-2014 Bryson
July-24 Russian Economic & Financial Leverage on the West Bryson
July-24 Are American Wages About to Accelerate? Bryson & House
July-23 Will Credit Help the U.S. Consumer in H2-2014? Alemán & Griffiths
July-23 Financing Growth: Success at the Corporate Level Silvia, Vitner & Brown
July-22 Is the U.S. Manufacturing Renaissance a Siren Song? Quinlan, House & Griffiths
July-21 Fall Wil Likely Bring More Fiscal Follies Silvia & Brown
July-18 California Employment Conditions: June 2014 Vitner & Wolf
July-18 Florida Once Again Leads the Nation in Job Growth Vitner & Wolf
July-18 Job Growth 'Moderates' In Texas During June Vitner & Wolf
July-18 Minnesota Economic Outlook: July 2014 Vitner, Wolf & Miller
July-18 Growth in China Appears to Be Stabilizing Bryson
July-16 Lower Mortgage Rates but Where Is the Demand? Silvia, Vitner & Brown
July-16 Credit, Interest Rates and Policy Inconsistency in the Post-
Great Recession Era: Part UmSilvia
July-15 Cleveland: Things Are Starting to Look Up Vitner & Wolf
July-15 Northeastern States: 2014 Economic Outlook Vitner, Wolf & Miller
July-09 Housing Data Wrap-Up: June 2014 Vitner & Khan
July-08 Middle of the Curve Moves on Better Economic Data Silvia, Vitner & Brown
July-07 Reaching the Tipping Point: Tough Fiscal Policy Choices Ahead Silvia & Brown
July-02 Disappointing GDP Growth, Little Impact on Interest Rates? Silvia, Vitner & Brown
July-01 Better Credit Fundamentals: Rise in Overall Quality Silvia & Miller
June-30 Will Argentina Default on Its Debt Again? Alemán
June-27 Interest Rate Weekly: Is the Fed Behind the Curve? Silvia, Vitner & Brown
June-24 Japan and the Third Arrow of Abenomics Quinlan
June-24 Florida Economic Outlook: June 2014 Vitner, Wolf & Miller
June-24 Arizona Economic Outlook: June 2014 Vitner, Wolf & Miller
June-20 California Employment Conditions: May 2014 Vitner & Wolf
June-20 Florida Employment Declines in May Vitner & Wolf
June-20 Texas Posts Largest Monthly Payroll Gain in Nation Vitner & Wolf
The Coca-Cola Bottlers’ Association
Wells Fargo Securities, LLC Economics Group
46
John E. Silvia … ....................... … [email protected]
Global Head of Research and Economics Diane Schumaker-Krieg ………………… ………[email protected]
Global Head of Research & Economics
Chief Economist
Mark Vitner, Senior Economist……………....………. . [email protected]
Jay H. Bryson, Global Economist …………………....…… …[email protected]
Sam Bullard, Senior Economist [email protected]
Nick Bennenbroek, Currency Strategist ……[email protected]
Eugenio J. Alemán, Senior Economist… …………[email protected]
Anika R. Khan, Senior Economist … . [email protected]
Senior Economists
Zachary Griffiths, Economic Analyst [email protected]
Mackenzie Miller, Economic Analyst [email protected]
Erik Nelson, Economic Analyst [email protected]
Alex Moehring, Economic Analyst [email protected]
Economists
Azhar Iqbal, Econometrician………………… ……………[email protected]
Tim Quinlan, Economist …………………… ……………[email protected]
Eric J. Viloria, Currency Strategist [email protected]
Sarah Watt House, Economist …………… …………[email protected]
Michael A. Brown, Economist ……………… … [email protected]
Michael T. Wolf, Economist ………………… … [email protected]
Economic Analysts
Administrative Assistants
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2014 Wells Fargo Securities, LLC.
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
Important Information for Non-U.S. Recipients
For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority’s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only.
Donna LaFleur, Executive Assistant. [email protected]
Cyndi Burris, Senior Administrative Assistant [email protected]