U.S. Economic Outlook Mark Vitner, Managing Director & Senior

U.S. Economic Outlook Mark Vitner, Managing Director & Senior Economist January 30, 2019

U.S. Review After a strong Q2 and Q3, economic growth appears Economic Outlook Fiscal Policy Monetary Policy Trade Policy Charlotte Economic Outlook to be moderating. While consumer spending has remained strong, slower global growth is reducing factory orders and likely presages slower first quarter GDP growth. The short-term boost from tax reform appears to be fading and smaller refunds may create some headwinds early next year. Government spending remains a powerful tailwind. Opportunity Zones also hold promise. The Fed has once again become data driven as opposed to target driven but appears to be behind the curve. The financial markets now seem to be priced for the Fed to keep interest rates unchanged this The year. Trump Administration’s confrontational negotiating tactics have led to increased uncertainty but may also bring about some much needed changes from China. Trade relations are likely to remain contentious. Charlotte continues to see strong employment and population growth, fueling demand for office space and apartments. The region remains relatively affordable compared to similarly sized metro areas. 2

Economic Growth Real GDP growth remained strong in Q3, led by consumer spending. Business fixed investment weakened substantially, however, and residential investment has now been a drag on growth for three consecutive quarters, reflecting the ongoing slowdown in home sales. Real GDP Business Fixed Investment U.S. Real GDP Real Business Fixed I nvestment Bars CAGR Line Yr/ Yr Percent Change Bars CAGR 10% 10% Line Yr/ Yr Percent Change 30% 30% GDP - CAGR: Q3 @ 3.4% 8% GDP - Yr/Yr Percent Change: Q3 @ 3.0% 6% Forecast 8% 20% 20% 6% 4% 4% 2% 2% 0% 0% - 2% - 2% - 4% - 4% - 6% - 6% - 8% - 8% Forecast 10% 10% 0% 0% - 10% - 10% - 20% - 20% - 30% Non- Res Fixed I nvest - CAGR: Q3 @ 2.5% - 30% Non- Res Fixed I nvest - Yr/Yr Percent Change: Q3 @ 6.8% - 10% - 10% - 40% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook - 40% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 3

Employment Situation: Broadening Growth Nonfarm employment growth has maintained its recent strong pace, despite the seemingly low level of available workers. Job growth remains extraordinarily broad-based, and the number of job openings continues to increase across nearly all industries. Wage growth has also rebounded but remains modest relative to prior periods when the labor market was this tight. 600 Nonfarm Employment Job Openings U.S. Nonfarm Employment Change Small Businesses with a J ob Hard to Fill, J ob Opening Rate; 3- MMA Change in Employment, In Thousands NFI B Openings vs. J OLTs Private Openings 5.0% 600 40% Private J ob Opening Rate: Nov @ 4.8% (Left Axis) Hard to Fill J obs: Dec @ 37.0% (Right Axis) 400 400 4.5% 200 200 4.0% 30% 3.5% 25% 3.0% 20% 2.5% 15% 2.0% 10% 0 0 - 200 35% - 200 - 400 - 400 - 600 - 600 - 800 - 800 Monthly Change: Dec @ 312K - 1,000 1.5% - 1,000 Source: U.S. Department of Labor, National Federation of Independent Business and Wells Fargo Securities Economic Outlook 5% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 4

Employment Situation: Tightening Labor Market The labor market has tightened substantially, with the unemployment rate at 3.9%. While the criteria for determining the unemployment rate have not changed, growth in the Gig economy, LinkedIn and the proliferation of online job search platforms have likely changed the way workers engage in the labor market, possibly biasing the unemployment significantly lower than in past business cycles. Unemployment Rates Seasonally Adjusted 18% 16% 16% 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% FOMC Central Tendency for Longer Run Unemployment Rate: Dec @ 3.9% U-6 Unemployment Rate: Dec @ 7.6% 2% 2% 0% 0% 94 96 98 00 02 04 06 08 10 Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 18% 5 12 14 16 18

Employment Situation – Quits and Wage Growth Quit Rate vs Atlanta Fed Wage Tracker The improvement in the labor market has led to a surge in voluntary quits, yet wage increases have not yet accelerated. One plausible explanation is that workers are becoming ‘more fully employed’ by migrating away from temporary jobs to permanent positions more closely aligned with their career goals. Seasonally Adjusted, 3- MMA 2.5% 6.0% 2.0% 4.0% 1.5% 2.0% Quit Rate: Nov @ 2.3% (Left Axis) Wage Tracker: Nov @ 3.9% (Right Axis) 1.0% 0.0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: U.S. Department of Labor, Federal Reserve Bank of Atlanta and Wells Fargo Securities Economic Outlook 6

GDP Cyclicality Consumer spending on durable goods, housing, capital spending and nonresidential structures collectively account for 20% of GDP but over 100% of the decline in GDP during recessions. We have seen less of a boom in the most cyclical parts of the economy during this cycle, which may push a correction further out and ultimately make that correction less severe. Cyclical Components vs. Rest of GDP Year- over-Year Change of 4- Qtr Moving Average of Real GDP 15% Cyclical defined as residential investment, structures, equipment and consumer spending on durables 10% 10% 5% 5% 0% 0% - 5% - 5% - 10% - 10% - 15% Cyclical Components - 15% Remainder of GDP - 20% - 20% 04 05 06 07 08 09 10 11 12 13 14 Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 15% 7 15 16 17 18

Inflation PCE Deflator vs. Core PCE Deflator Year- over-Year Percent Change 5% 5% PCE Deflator: Nov @ 1.8% "Core" PCE Deflator: Nov @ 1.9% 4% The Fed’s preferred measure of inflation—the core PCE deflator—has finally reached its 2% target. With growth cooling off, pipeline inflationary pressures appear to be lessening, and inflation expectations have fallen in recent weeks. 3% 3% 2% 2% 1% 1% 0% 0% - 1% - 1% - 2% - 2% 05 06 07 08 09 10 11 12 13 14 Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 4% FOMC's 2.0% I nflation Target 8 15 16 17 18 19

Consumer Confidence Despite a recent dip, consumer confidence is incredibly strong. Consumers are much more upbeat about current conditions than future conditions. The Conference Board’s survey closely tracks labor market conditions, which are the strongest they have been in decades. Consumer Confidence I ndex Conference Board 160 160 140 140 120 120 100 100 80 80 60 60 40 40 Confidence Yr/Yr % Chg: Dec @ 4.1% Confidence: Dec @ 128.1 12- Month Moving Average: Dec @ 130.3 20 0 0 87 89 91 93 95 97 99 01 03 05 Source: Conference Board and Wells Fargo Securities Economic Outlook 20 9 07 09 11 13 15 17 19

Small Business Optimism Both the Wells Fargo and NFIB surveys of Small Business Confidence have recently risen to all-time highs. More businesses are looking to expand. Finding and retaining workers has become a greater challenge, while concerns about taxes and regulations have receded. Small Business Optimism Small Business Challenges Wells Fargo Small Business Survey Small Business Owners' Most I mportant Challenges Percent, Q4- 2018 Overall Situation 140 140 Hiring and Retaining Quality Staff 18% 120 120 Attracting Customers/New Business 100 100 Taxes 9% 9% 80 80 Government Regulations 60 60 Financial Stability/Cash Flow 40 40 20 20 0 8% The Economy 7% Working for Self 7% Competition 0 - 20 10% 6% Government (general) 5% Healthcare/ Costs of healthcare 5% - 20 Overall Situation: Q4 @ 129 - 40 - 40 04 05 06 07 08 09 10 11 12 13 14 15 16 17 0% 18 Source: Gallup, Wells Fargo Bank and Wells Fargo Securities Economic Outlook 10 4% 8% 12% 16% 20%

Interest Rates Federal Funds Target Rate Upper Bound, Percent 7.0% 7.0% Federal Funds: Q4 @ 2.50% The Fed appears to be rethinking the pace at which it will seek to ‘normalize’ interest rates. Recent statements by Fed Chair Jerome Powell emphasized maintaining flexibility in light of tightening financial conditions and lingering uncertainty surrounding trade policy. 6.0% 6.0% 5.0% 5.0% 4.0% 4.0% Forecast 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities Economic Outlook 11

Rates Forecast Wells Fargo Rates Forecast Through 2020 4.5% The yield curve has flattened and while we expect it to steepen over the next few quarters, an outright inversion is possible if the economy weakens more than is currently expected. 4.5% 4.0% 4.0% 3.5% 3.5% 3.0% 3.0% 2.5% 2.5% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% Q4 2020 Q4 2019 0.5% 0.5% Q4 2018 0.0% 0.0% Source: Bloomberg LP and Wells Fargo Securities Economic Outlook 12

Commodities Baker-Hughes Rig Count vs. Oil Prices Oil Rotary Rigs; USD per Barrel 1,800 180 Oil Rig Count: J an-11 @ 873 (Left Axis) 1,600 Oil prices have tumbled in recent weeks, reflecting increased U.S. production and slower global growth. 160 WTI : J an-11 @ 51.62 (Right Axis) 1,400 140 1,200 120 1,000 100 800 80 600 60 400 40 200 20 0 0 05 06 07 08 09 10 11 12 Source: Bloomberg LP and Wells Fargo Securities Economic Outlook 13 13 14 15 16 17 18 19

Housing Market Housing Starts Even with demand cooling off, we see single-family housing starts rising modestly in 2019. Overall homebuilding is still lagging household formation and there are too few homes available in markets where population and employment are growing rapidly. Apartment construction is pivoting toward more affordable units. 2.4 Multifamily Starts 2.1 Multifamily Forecast Single-Family Forecast 1.8 1.8 1.5 Forecast 1.5 1.2 1.2 0.9 0.9 0.6 0.6 0.3 0.3 0.0 0.0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 2.1 Single-Family Starts 14 Thousands Millions of Units 2.4

Home Prices The recovery in home prices varies considerably throughout the country. Prices have risen fastest in rapidly growing tech-driven markets, mostly in the West. Several large East Coast markets have slowed, reflecting less foreign buying and possibly the impact of tax reform. Home Prices Regional S&P CoreLogic CS Home Price I ndex S&P CoreLogic Case-Shiller Home Prices Year- over-Year Percent Change, NSA Index, J anuary 2000 100 240 240 220 220 200 200 180 180 160 160 140 140 120 National HPI : Oct @ 206.0 Composite- 20 City: Oct @ 213.9 Composite- 10 City: Oct @ 227.7 100 Las Vegas San Francisco Phoenix Seattle Denver Tampa Detroit Atlanta Minneapolis Los Angeles Boston Charlotte Portland Cleveland Miami Dallas San Diego Chicago New York City Washington, D.C. 120 C- 10 C- 20 National HPI 100 4.7% 5.0% 5.5% 0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: S&P Case-Shiller and Wells Fargo Securities Economic Outlook 12.8% 7.9% 7.7% 7.3% 6.9% 6.4% 6.0% 6.0% 5.9% 5.5% 5.4% 5.0% 4.9% 4.8% 4.8% 3.9% 3.8% 3.3% 3.1% 2.9% 15 2% 4% 6% October 8% 10% 12% 14% 16%

NAHB Homebuilder Confidence The NAHB index rebounded modestly in January after posting its largest twomonth drop since 2001. NAHB vs Rates Expected Sales NAHB Expected Single-Family Home Sales vs. SF Starts NAHB/ Wells Fargo Housing Market I ndex vs. Mortgage Rate Diffusion Index, Rate NAHB Housing Market Index 90 100 12% NAHB Housing Market I ndex: J an @ 58 (Left Axis) 30- Year Mortgage Rate: J an @ 4.4% (Right Axis) 80 1,000 11% 70 10% 60 9% 50 8% 40 7% 30 6% 20 5% 10 4% 90 900 80 800 70 700 60 600 50 0 3% 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 40 19 400 14 Source: Freddie Mac, NAHB and Wells Fargo Securities Economic Outlook 500 I n the Next 6 Months: J an @ 64.0 (Left Axis) Single-Family Housing Starts: Nov @ 824K (Right Axis) 16 15 16 17 18 19

Household Equity and Turnover Housing turnover has slowly risen back near its long-term norm. We suspect many current homeowners are opting to remain in homes that they refinanced at near generational low mortgage rates. The rise in home equity provides a much needed cushion for Baby Boomers. Turnover Equity Home Equity and Mortgage Debt Housing Turnover Trillions of USD 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% Thousands New and Existing Sales Divided By Houshold Stock 28 25 28 Equity: 2017 @ 14.4T Mortgage Debt: 2017 @ 10.1T 25 23 23 20 20 18 18 15 15 13 13 3% 10 10 2% 2% 8 8 5 5 1% 1% 3 3 0 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 0% 1968 0% Source: Department of Commerce, CoreLogic, Inc. and Wells Fargo Securities Economic Outlook 0 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 17

Regional Commentary

MSA Population 15 Fastest Growing Large Metro Areas in 2017 Year- over-Year Population Growth, Among 50 Largest MSAs Austin, TX Orlando, FL Raleigh, NC Las Vegas, NV San Antonio, TX Charlotte, NC Raleigh and Charlotte were two of the fastest growing metro areas by population in 2017 behind strong job growth and affordable cost of living. Dallas, TX Phoenix, AZ J acksonville, FL Tampa, FL Nashville, TN Seattle, WA Columbus, OH Atlanta, GA Houston, TX Salt Lake City, UT 0% 1% Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 19 2% 3%

North Carolina Employment Growth by MSA North Carolina J ob Growth by Metro Year- over-Year Percent Change, 3- Month Moving Average, Dec 2018 3- Month Moving Average Percent Change 2.0% Recovering Expanding Population Size Less than 200,000 200,000- 500,000 1.5% More than 500,000 Winston-Salem 1.0% Burlington Wilmington Hickory Fayetteville 0.5% Jacksonville Raleigh-Cary Charlotte Goldsboro Greensboro 0.0% Rocky Mount Greenville - 0.5% Durham-Chapel Hill Contracting - 1.0% - 0.5% 0.0% Asheville 0.5% Decelerating 1.0% 1.5% 2.0% 2.5% Year- over-Year Percent Change Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 20 3.0% 3.5%

North Carolina Employment North Carolina employment growth picked up again in 2018, led by the surging information and profession & business services sectors. Nonfarm Employment Employment by Industry North Carolina Nonfarm Employment North Carolina Employment Growth By I ndustry 3- Month Moving Averages Year- over-Year Percent Change, 3- MMA 6% 6% 4% 4% 2% 2% 0% 0% - 2% - 2% - 4% - 4% - 6% - 6% Total Nonfarm December 2018 Trade, Trans. & Utilities Government More Educ. & Health Services Prof. & Bus. Svcs. Number of Employees Manufacturing QCEW: Yr/Yr Pct. Change: J un @ 2.2% Nonfarm Employment: Dec @ 2.1% 3-Month Annual Rate: Dec @ 1.3% - 8% Leisure and Hospitality Financial Activities Construction Other Services - 8% - 10% I nformation Nat. Res. & Mining - 10% 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 - 5% Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook Less 21 - 4% - 3% - 2% - 1% 0% 1% 2% 3% 4%

North Carolina Housing Market Single-family housing permits have trended upwards over the last few years, but remain well below their prior peak as well as their long run average. Multifamily permits, however, have equaled their previous pace, with apartment construction leading the way. The state numbers do not include permits for Charlotte’s booming South Carolina suburbs. Housing Permits Home Prices North Carolina Housing Permits Core Logic HPI : NC vs. U.S. 120 120 Single-Family: Oct @ 46,896 Single-Family, 12- MMA: Oct @ 48,231 Multifamily, 12- MMA: Oct @ 21,520 100 Year- over-Year Percent Change Thousands Thousands Thousands of Permits, Seasonally Adjusted Annual Rate 100 Single- Family Average (1998- 2003): 62,968 80 80 60 60 40 40 20 20% 20% 16% 16% 12% 12% 8% 8% 4% 4% 0% 0% - 4% - 4% - 8% - 8% - 12% 20 - 12% United States: Nov @ 5.1% North Carolina: Nov @ 4.9% - 16% 0 0 90 92 94 96 98 00 02 04 06 08 10 12 14 16 - 20% 18 - 20% 90 Source: U.S. Department of Commerce, CoreLogic, Inc. and Wells Fargo Securities Economic Outlook - 16% 22 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Charlotte Employment Charlotte job growth leads the nation and the rest of the state. Nearly every industry in the metro area is growing, with the professional & business services sector leading gains. Nonfarm Employment Employment by Industry Charlotte MSA Nonfarm Employment Charlotte MSA Employment Growth By I ndustry Year- over- Year Percent Change, 3- MMA Year- over- Year Percent Change of a 3- MMA 6% 6% 3% 3% December 2018 Total Nonfarm Trade, Trans. & Utilities Prof. & Bus. Svcs. Government 0% Leisure & Hospitality 0% Educ. & Health Services - 3% More Manufacturing - 3% Number of Employees Financial Activities - 6% Construction - 6% Charlotte: Dec @ 2.2% Less Other services United States: Dec @ 1.7% North Carolina: Dec @ 2.1% I nformation - 9% - 9% 91 93 95 97 99 01 03 05 07 09 11 13 15 - 2% 17 Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 23 - 1% 0% 1% 2% 3% 4% 5% 6%

Charlotte Unemployment Charlotte MSA Unemployment Rate Seasonally Adjusted 14% 14% Charlotte: Nov @ 3.3% United States: Dec @ 3.9% 12% 12% 10% Charlotte’s unemployment rate has fallen to well below the national rate, despite peaking at a much higher level in the aftermath of the financial crisis. 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% 90 92 94 96 98 00 02 04 06 08 Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 24 10 12 14 16 18

Charlotte Housing Market Apartment construction has been incredibly strong during the past few years, with much of the development in and around downtown. Single-family permits posted consistent gains, but remain below their long-run average still. Home prices are rising solidly but Charlotte remains affordable relative to the nation and comparably sized areas around the country. Housing Permits Home Prices Charlotte MSA Housing Permits Home Price I ndex: Charlotte MSA 35 35 Single-Family: Oct @ 14,832 Single-Family, 12- MMA: Oct @ 14,965 30 Index, 2000 100, Not Seasonally Adjusted 220 Thousands Thousands Thousands of Permits, Seasonally Adjusted Annual Rate Single- Family Average (1998- 2003): 17,908 25 Charlotte: Nov @ 168.0 200 30 Multifamily, 12- MMA: Oct @ 8,769 220 United States: Nov @ 205.1 200 180 180 160 160 140 140 120 120 100 100 25 20 20 15 15 10 10 5 80 80 60 60 5 0 0 90 92 94 96 98 00 02 04 06 08 10 12 14 16 40 18 Source: U.S. Department of Commerce, CoreLogic, Inc. and Wells Fargo Securities Economic Outlook 40 90 25 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Charlotte Population Charlotte MSA Population Growth In Thousands 80 80 Charlotte MSA: 2017 @ 49.8K Charlotte population growth has accelerated in recent years, reflecting strong job growth and the region’s desirable quality of life. Both young and older residents are relocating to the region, with retirees clustering in Charlotte’s South Carolina suburbs, while younger residents prefer in-town and downtown submarkets. 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 26

Charlotte Population Cities that Gained the Most Workers LinkedIn Population Gain per 10,000 LinkedIn Members Austin Denver Charlotte Nashville Migration, particularly among Millennials, has largely been to more affordable metro areas, often with growing tech industries. Seattle Las Vegas Tampa Raleigh Phoenix J anuary 2019 Portland 0 20 40 Source: LinkedIn and Wells Fargo Securities Economic Outlook 27 60 80 100 120 140

Charlotte Home Prices Home Price I ndex: Charlotte MSA Index, 2000 100 180 180 Nominal Prices: Nov @ 168.0 Real Prices: Nov @ 170.0 On a real basis, Charlotte home prices have only recently matched their prior peak. 160 160 140 140 120 120 100 100 80 80 60 60 40 40 90 92 94 96 98 00 02 04 06 Source: CoreLogic, Inc. and Wells Fargo Securities Economic Outlook 28 08 10 12 14 16 18

Charlotte Home Prices Charlotte Price/ I ncome Ratio of CoreLogic HPI/ Median Family Income, Indexed J an 1998 1 1.20 1.20 Charlotte Prices/ Median I ncome: Q3 @ 1.09 Home prices have risen relative to income earned in Charlotte, partly reflecting the inflow of new residents, which have been disproportionately college educated and many of which have relocated from higher cost parts of the country. 1.15 1.15 1.10 1.10 1.05 1.05 1.00 1.00 0.95 0.95 98 00 02 04 06 08 10 12 14 16 Source: CoreLogic, Inc., U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 29 18

Charlotte Negative Equity Charlotte MSA Homes with Negative Equity Percent of Single- Family Homes with Negative Equity 25% 25% Negative Equity: September @ 2.6% Rising property values have helped reduce the share of homes with negative equity. 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% 10 11 12 13 14 Source: CoreLogic, Inc. and Wells Fargo Securities Economic Outlook 30 15 16 17 18

Charlotte Delinquency Rate Charlotte MSA Delinquency Rate Percent of Single- Family Homes with Mortgages 90 Days Deliquent Delinquency rates have receded to some of the lowest levels in over 15 years. 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% Delinquency Rate: October @ 1.5% 0% 0% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: CoreLogic, Inc. and Wells Fargo Securities Economic Outlook 31

Charlotte P/E Charlotte Home Price I ndex P/ E Ratio J anuary 1987 100 1.20 1.20 Charlotte S&P Case- Shiller P/E Ratio: Oct @ 1.03 1.15 Home prices relative to the imputed rent used by the BLS have risen past the break-even level, meaning the decision on renting or buying a home is roughly balanced. 1.15 S&P Case-Shiller Charlotte Home Price I ndex Divided by CPI Owners' Equivalent Rent 1.10 1.10 1.05 1.05 1.00 1.00 0.95 0.95 0.90 0.90 0.85 0.85 0.80 0.80 98 00 02 04 06 08 10 12 14 16 Source: CoreLogic, Inc., U.S. Department of Labor and Wells Fargo Securities Economic Outlook 32 18

Charlotte Apartment Rents Charlotte Apartment Average Effective Rent USD 1,200 1,200 Rent: Q3 @ 1095 Charlotte apartment rents have surged, however, reflecting the boom in luxury and lifestyle apartments in and near Uptown. 1,100 1,100 1,000 1,000 900 900 800 800 05 06 07 08 09 10 11 Source: CoStar, Inc. and Wells Fargo Securities Economic Outlook 33 12 13 14 15 16 17 18

Charlotte Apartment Rents Charlotte Rent/ Disposable I ncome Ratio Ratio of Average Effective Rent to Per Capita Monthly Disposable I ncome On an overall basis, Charlotte has seen strong income growth and rent has fallen as a share of after-tax income. 50% 50% 45% 45% 40% 40% 35% 35% 30% 30% 25% 25% Rent/ Disposable I ncome: Q4-2017 @ 26.5% 20% 20% 05 06 07 08 09 10 11 12 13 14 15 16 Source: CoStar, Inc., U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 34 17 18

Charlotte Apartments Charlotte has seen a surge in apartment completions the past few years, which has led to some moderation in effective rents. Much of the new product has been high-end or lifestyle. While absorption remains fairly robust, vacancy rates are up from their year ago level and remain somewhat high at 7.5%. Slower job growth would cut into absorption fairly quickly. Supply & Demand Effective Rents Charlotte Apartment Supply & Demand Charlotte Apartment Effective Rent 12% 4 10% 3 Percent Change 8% Thousands Percent, Thousands of Units 5% Quarter-over-Quarter: Q3 @ -0.4% (Right Axis) Year-over- Year: Q3 @ 2.8% (Left Axis) 6% 4% 3% 4% 2% 8% 2% 2 1% 0% 6% 1 0% - 1% - 2% - 2% - 4% 4% 0 - 3% Apartment Net Absorption: Q3 @ 2,686.0 (Right Axis) Apartment Completions: Q3 @ 2,030.0 (Right Axis) Apartment Vacancy: Q3 @ 7.5% (Left Axis) 2% - 6% -1 05 06 07 08 09 10 11 12 13 14 15 16 17 - 8% 18 - 5% 05 Source: CoStar, Inc. and Wells Fargo Securities Economic Outlook - 4% 35 06 07 08 09 10 11 12 13 14 15 16 17 18

Charlotte Office Charlotte office space remains fairly tight, and asking rent growth remains fairly solid. With all of the growth on the SouthEnd of Uptown, there has been a great deal of effort to update markets near the Square. Suburban development remains somewhat measured but demand has been strong in the SouthPark, Ballantyne, University and Airport markets. Supply & Demand Effective Rents Charlotte Office Supply & Demand Charlotte Office Asking Rent 2 15% 14% Percent Change 10% Millions Percent, Millions of Square Feet 16% 8% 13% 10% Quarter- over-Quarter: Q3 @ 1.5% (Right Axis) Year-over- Year: Q3 @ 7.1% (Left Axis) 8% 6% 6% 4% 4% 2% 2% 0% 0% - 2% - 2% - 4% - 4% - 6% - 6% 12% 1 11% 10% 9% 8% 7% 0 6% 5% Office Net Absorption: Q3 @ 1.3M (Right Axis) Office Completions: Q3 @ 1.4M (Right Axis) Office Vacancy: Q3 @ 8.6% (Left Axis) 4% 3% 2% -1 05 06 07 08 09 10 11 12 13 14 15 16 17 - 8% 18 Source: CoStar, Inc. and Wells Fargo Securities Economic Outlook - 8% 05 36 06 07 08 09 10 11 12 13 14 15 16 17 18

U.S. Economic Forecast Wells Fargo U.S. Economic Forecast q 4 2 01 8 Actual 2018 Forecast 2017 2018 2019 2020 Actual 2017 2018 Forecast 2019 2020 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1.8 3.0 2.8 2.3 2.2 4.2 3.4 2.5 2.2 2.4 2.4 2.4 2.3 2.1 1.7 1.7 2.2 2.9 2.6 2.2 1.8 2.9 2.2 3.9 0.5 3.8 3.5 3.6 2.4 2.6 2.5 2.4 2.2 2.1 1.8 1.7 2.5 2.7 2.9 2.2 9.6 7.3 3.4 4.8 11.5 8.7 2.5 5.2 2.6 3.5 4.2 4.0 3.7 3.6 2.9 2.8 5.3 6.9 3.9 3.6 Equipment 9.1 9.7 9.8 9.9 8.5 4.6 3.4 5.3 0.3 2.3 3.7 3.1 2.7 2.6 2.1 2.0 6.1 7.4 2.9 2.7 Intellectual Property Products 8.0 6.6 1.7 0.7 14.1 10.5 5.6 6.5 5.8 5.3 4.7 4.6 4.7 4.6 3.7 3.6 4.6 7.3 5.9 4.5 12.8 3.8 - 5.7 1.3 13.9 14.5 - 3.4 3.0 2.5 3.5 4.5 5.0 4.5 4.0 3.5 3.5 4.6 5.4 3.1 4.2 Residential Construction 11.1 - 5.5 - 0.5 11.1 - 3.4 - 1.3 - 3.6 - 3.0 - 1.5 2.0 1.8 1.5 1.5 1.5 1.0 1.0 3.3 - 0.2 - 0.8 1.5 Government Purchases - 0.8 0.0 - 1.0 2.4 1.5 2.5 2.6 2.8 2.3 2.3 1.7 1.2 0.7 0.7 0.3 0.1 - 0.1 1.7 2.3 0.9 - 0.1 0.1 0.0 - 0.9 0.0 1.2 - 2.0 - 0.9 - 0.2 - 0.1 - 0.1 - 0.1 0.1 0.0 - 0.1 0.0 - 0.4 - 0.3 - 0.5 0.0 - 0.8 0.2 1.0 - 0.9 0.3 - 1.2 2.3 0.1 0.0 - 0.2 - 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.2 0.0 177 190 142 221 218 217 190 254 180 170 160 160 150 140 100 90 182 220 168 120 4.6 4.4 4.3 4.1 4.1 3.9 3.8 3.8 3.7 3.6 3.5 3.5 3.4 3.3 3.3 3.3 4.4 3.9 3.6 3.3 2.6 1.9 2.0 2.1 2.3 2.6 2.6 2.2 1.8 2.0 2.2 2.5 2.8 2.7 2.5 2.4 2.1 2.4 2.1 2.6 Real Gross Domestic Product Personal Consumption 1 Business Fixed Investment Structures 2 Net Exports Inventories 2 Nonfarm Payroll Change 3 Unemployment Rate Consumer Price Index 4 5 Quarter- End Interest Rates Federal Funds Target Rate 1.00 1.25 1.25 1.50 1.75 2.00 2.25 2.50 2.50 2.75 2.75 3.00 3.00 3.00 3.00 2.75 1.13 1.96 2.75 2.94 Conventional Mortgage Rate 4.20 3.90 3.81 3.94 4.44 4.57 4.63 4.64 4.55 4.70 4.80 4.90 4.90 4.85 4.85 4.80 3.99 4.54 4.74 4.85 2 Year Note 1.27 1.38 1.47 1.89 2.27 2.52 2.81 2.48 2.75 2.85 2.90 2.95 2.95 2.90 2.85 2.75 1.40 2.53 2.86 2.86 10 Year Note 2.40 2.31 2.33 2.40 2.74 2.85 3.05 2.69 2.95 3.10 3.20 3.30 3.30 3.25 3.25 3.20 2.33 2.91 3.14 3.25 Forecast as of: J anuary 8, 2019 1 C ompound Annual Growth Rate Quarter-over- Quarter 2 Percentage Point C ontribution to GDP 4 Year- over- Year Percentage C hange 5 Annual Numbers Represent Averages 3 Average Monthly C hange Source: IHS Global Insight and Wells Fargo Securities Economic Outlook 37

Appendix

Economic Outlook Group Publications A Sampling of Our Recent Special, Regional & Industry Commentary Recent Special Commentary Date Title Authors U.S. Macro To view any of our past research please visit: http://www.wellsfargo.com/ economics To join any of our research distribution lists please visit: http://www.wellsfargo.com/ economicsemail Economic Outlook J anuary- 03 J anuary- 02 December- 19 December- 19 December- 17 The Animal Spirits Index Ends 2018 on a Soft Note D.C. Deadline Drama in 2019? Probably. Where the Fed May Be Wrong Population Growth Slows Across the U.S. Corporate Profits: A Problem in 2019? J anuary- 08 December- 21 December- 21 December- 21 December- 21 Raleigh- Durham Economic Outlook Texas Economic Outlook: December 2018 Solid Growth for California Payrolls Another Solid Year For North Carolina J ob Growth Florida Payrolls Continue to Build Momentum December- 11 December- 05 December- 03 November- 30 November- 13 Will Europe's Slowdown Restrain the ECB? J apan: Further Tweaks to Monetary Policy? How Well Equipped Are Major Economies for the Next Downturn? What's Next for Italy's Budget? Our Latest Thoughts on Brexit J anuary- 03 December- 19 December- 18 December- 17 November- 29 Time To Press Pause? Financial Conditions & the FOMC The Fed Hikes, But Acknowledges Risks Leveraged Loans: A Deathknell for the U.S. Economy? FOMC Preview: What Do We Expect? Getting Technical: Managing the Fed Funds Rate December- 07 December- 05 November- 26 November- 07 October- 16 Q3 CRE Chartbook: Outlook Housing Chartbook: December 2018 Does CRE Pose a Risk to the Financial System? Home Sales Remain Soft Q2 CRE Chartbook: Capital Flows Iqbal Bryson & Pugliese Vitner Vitner & Dougherty Bryson, House & Seery U.S. Regional Vitner Vitner Vitner Vitner Vitner & & & & & Dougherty Dougherty Dougherty Dougherty Dougherty Global Economy Kinnaman & Nelson McKenna, Nelson & Kinnaman Nelson & Kinnaman Pugliese, Nelson & Bennenbroek Nelson & Kinnaman Interest Rates/ Credit Market Bryson, House & Seery Bryson Bryson Bryson & Pugliese Bryson, Pugliese & Kinnaman Real Estate & Housing 39 Vitner, Dougherty & Honnold Vitner, Dougherty & Honnold Bryson, Dougherty & Honnold Vitner, Dougherty & Honnold Vitner, Dougherty & Honnold

Wells Fargo Securities Economics Group Senior Economists Economists Jay H. Bryson, Global Economist [email protected] Charlie Dougherty, [email protected] Mark Vitner, Senior Economist [email protected] Erik Nelson, Macro Strategist Sam Bullard, Senior Economist [email protected] Michael Pugliese, Economist [email protected] Economic Analysts Brendan McKenna, Macro Strategist [email protected] Abigail Kinnaman, Economic Analyst Nick Bennenbroek, Macro Strategist [email protected] Azhar Iqbal, Econometrician [email protected] Tim Quinlan, Senior Economist [email protected] Sarah House, Senior Economist [email protected] Economist [email protected] [email protected] Shannon Seery, Economic Analyst [email protected] Matthew Honnold, Economic Analyst Administrative Assistants [email protected] Donna LaFleur, Executive Assistant [email protected] Dawne Howes, Administrative Assistant [email protected] 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 Clearing Services, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Canada, Ltd., Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. 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. is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. Wells Fargo Securities, LLC. and Wells Fargo Bank, N.A. 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 2018 Wells Fargo Securities, LLC. 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. For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 (“the Act”), the content of this report has been approved by WFSIL, an authorized person under the Act. WFSIL does not deal with retail clients as defined in the Directive 2014/65/EU (“MiFID2”). 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. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Economic Outlook 40