August 1, 15 Economics Group Special Commentary Executive Summary Growth in Pennsylvania strengthened in the second half of 1 and has essentially maintained that pace subsequently. Economic gains in the Keystone State remain relatively modest, however, and overall growth still trails the nation. While gains have been moderate, the improvement in employment conditions has been relatively widespread across the state and has been accompanied by a flurry of new commerical building, particularly in the Philadelphia region. Some of the state s fastest growing industries, such as oil and gas, are struggling with lower prices and reduced exploration and production budgets. Although the near-term negative effects are obvious, they are not as severe as what is currently occurring in more oil-dependent states, such as Texas and North Dakota. Furthermore, the longer-run effects of the natural gas industry are likely to be positive, as more infrastructure is built and related industries expand in the state. Healthcare remains a reliable growth vehicle and the state s sizable pharmaceutical and life sciences industry has finally perked back up, with pharmaceutical manufacturing posting its first sustained year-over-year growth since 8. As we have mentioned in previous reports, demographics are the largest impediment to stronger growth in Pennsylvania. Population growth was negligible in 1. More people moved out of Pennsylvania than moved into it, and an older-than-average population limits the number of children born in the Commonwealth. Without stronger job prospects, the demographic issue is unlikely to reverse itself. Slow population growth not only weighs on demand for local goods and services, but also limits home sales, residential construction and tax revenues. This latter point has left government agencies strapped for cash since the recession hit, and sluggish population growth makes it even tougher to overcome these shortfalls. Government employment in the state continues to decline, though the pace of declines has been moderating. Figure 1 Figure Pennsylvania Gross State Product & U.S. GDP Year-over-Year Percent Change Pennsylvania Nonfarm Employment -Month Moving Averages Mark Vitner, Senior Economist mark.vitner@wellsfargo.com (7) 1-77 Michael T. Wolf, Economist michael.t.wolf@wellsfargo.com (7) 1-86 Misa Batcheller, Economic Analyst misa.n.batcheller@wellsfargo.com (7) 1-o6 Pennsylvania Economic Outlook: August 15 Economic gains in the Keystone State remain relatively modest and overall growth still trails the nation. % % % % - - - - U.S. GDP: 1 @. Pennsylvania GDP: 1 @ 1. 98 99 1 5 6 7 8 9 1 11 1 1 1 - - Nonfarm: Yr/Yr Pct. Change: Jun @ 1.% Household: Yr/Yr Pct. Change: Jun @ 1.1% - 9 9 9 96 98 6 8 1 1 1 Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Securities, LLC - - - This report is available on wellsfargo.com/economics and on Bloomberg WFRE.
Pennsylvania Economic Outlook: August 15 August 1, 15 An abundance of cheap gas still means low input costs for petrochemical producers. Implications of Oil Price Declines Pennsylvania has a sizable energy industry, with plenty of natural gas trapped in the Marcellus Shale play. The huge drop in oil prices over the past year has caused many to focus on the detrimental effects that may be seen in large oil-producing states such as Texas. With such a sizable oil industry in that state, the negative effects are relatively clear. However, in Pennsylvania, which is predominantly a gas-producing state, the effects are somewhat murkier. Natural gas prices have fallen about percent over the past year, which has worked to reduce the number of workers in the upstream business, although prices have remained more stable recently. Natural resources and mining employment has fallen.7 percent over the past year, which likely reflects weakness among coal producers in the state in addition to cutbacks at gas drillers. More cuts may be on the horizon. Noble Energy announced that it is shuttering more of its natural gas rigs located in the Marcellus Shale. Other negative effects are coming through more indirect channels. Halliburton is relocating workers in Indiana County to Ohio to be closer to its customers in eastern Ohio. Antero Resources has spent millions of dollars just to delay or cancel drilling contracts and is holding off on completing 5 wells in the Marcellus Shale. Although production in the state is focused on natural gas, a decline in oil production has also affected Pennsylvania workers. Cutbacks among major oil producers have reduced demand for equipment, such as the helicopters used by exploration companies. As a result, Sikorsky, a major helicopter producer, is shedding more than 7 jobs in Coatesville where the majority of its sales are to the energy industry. In addition, a further decline in oil prices, while natural gas prices remain more stable, erodes the competitiveness of downstream businesses located or expanding in the state. The oil and gas industry, however, is not disappearing. An abundance of cheap gas still means low input costs for petrochemical producers. Royal Dutch Shell has proposed a multibillion dollar ethane cracker in Beaver County that could ultimately employ up to 5 workers in addition to the thousands needed to build the facility. Ethane, which is abundant in the Marcellus and Utica shale plays is currently sent to the Gulf Coast for plastic production. The proposed facility would allow for production near a major source of natural gas. In addition, MarkWest is expanding its Bluestone gas processing plant in Butler County, which should double the amount of natural gas it can process each day. Figure Figure Pennsylvania Natural Resources & Mining Employment, Seasonally Adjusted Natural Resources and Mining: Jun @ 6.K 1,8 1,6 Baker-Hughes Rig Count vs. Oil Prices Oil Rotary Rigs; USD per Barrel Oil Rig Count: Aug-7 @ 67 (Left Axis) WTI: Aug-7 @ $.9 (Right Axis) $18 $16 1, $1 1, $1 1, 8 $1 $8 6 $6 1 1 $ $ 6 8 1 1 1 5 6 7 8 9 1 11 1 1 1 15 $ Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities, LLC Commercial Development More commercial development is cropping up around the state, and in Philadelphia, sizable real estate projects are underway in virtually all commercial real estate sectors: office, retail and industrial. In 1, 1. million square feet of office space was completed and another 1. million square feet is in the planning and proposed phases. More building is underway in the Navy Yard,
Pennsylvania Economic Outlook: August 15 August 1, 15 which has quickly become one of the more popular areas for office development. Somewhat paradoxically, Center City office rents come at a discount to office space farther away from the central business district, such as in West Philadelphia and Lower Merion. However, new office developments have the potential to change the landscape of Center City, most notably the new Comcast tower, which is expected to be completed by 17. There is also likely to be a sizable increase in the number of retailers in the city, thanks to the $5 million redevelopment of the Gallery into an outlet mall that will bring about 15 stores to Market Street East. Such a development should keep more shoppers in the city instead of luring them out to the suburbs where there are large malls and outlet stores. Despite ongoing weakness among manufacturers in the area, there has been considerable growth in the industrial and warehouse real estate market. Through the first half of this year, more than million square feet of space had been completed, about a third more than was completed in all of 1. Dietz and Watson, a food manufacturer, is constructing a, square foot distribution center and adding acres to its current campus in the area. The industrial sector is also picking up in other parts of the state. Not only are there plans for the ethane cracker in Beaver County mentioned earlier, but at least one of the state s steel manufacturers seems to be in better shape. Allegheny Technologies Inc. has finally begun production at its $1. billion facility in Brackenridge. The steel giant should also benefit from the World Trade Organization s ruling against China s tariffs implemented on steel products, such as those made at ATI s Brackenridge plant. Steel companies throughout the United States have long complained of unfair trading practices, which they claim had made an already difficult market virtually impossible. Warehouse and distribution facilities have accounted for the majority of industrial space across the state, benefitting from the region s relatively low costs and proximity to some of the most densely populated areas of the country. Investments in rail and intermodal facilities are also paying off, as intermodal traffic benefits from domestic and international shipments. Retail development should keep more shoppers in the city instead of luring them out to the suburbs where there are large malls and outlet stores. Figure 5 Figure 6 1 Philadelphia Office Supply & Demand Percent, of Square Feet, 1 Pittsburgh Warehouse Supply & Demand Percent, of Square Feet,5 1,5 1%, 1 1, 1 1,5 5 11% 1, 1 1% 9% 5-5 -5 1% Office Completions: Q @ 9, SF (Right Axis) Office Net Absorption: Q @ 1, SF (Right Axis) Office Vacancy Rate: Q @ 1. (Left Axis) 7 8 9 1 11 1 1 1 15-1, -1,5 -, 7% Warehouse Completions: Q @ SF (Right Axis) Warehouse Net Absorption: Q @ 6 SF (Right Axis) Warehouse Vacancy Rate: Q @ 6.% (Left Axis) 5% 6 7 8 9 1 11 1 1 1 15-1, -1,5 -, Source: REIS, Inc., CoStar Realty Information Inc. and Wells Fargo Securities, LLC Housing Market Slowly Reviving Pennsylvania s slowly expanding labor market and poor demographics continue to weigh on the state s housing market. With an aging population and weak population growth, demand for homes will likely remain soft in the near future. Housing construction in Pennsylvania continues to face headwinds. Single-family housing permits have been steadily declining and remain well below prerecession levels. With demand weakening, home price appreciation in Pennsylvania was notably less than the national average over the year. The state s home prices increased. percent above their year-ago levels in June, which is about half the national increase of 6.5 percent. Pennsylvania s home prices are only.8 percent below their prerecession highs, however, compared to national prices, Housing construction in Pennsylvania continues to face headwinds.
Pennsylvania Economic Outlook: August 15 August 1, 15 Multifamily construction has shown signs of strengthening. which are a larger 7. percent below their prerecession peak. In addition, the number of people in Pennsylvania that owe more on their mortgage than their house is worth fell.9 percentage points over the year, from 8. to 7.1 percent in March, considerably better than average. Modest home price appreciation has allowed Pennsylvania to remain relatively affordable in comparison to other Northeastern states. The median home price in Pennsylvania is significantly lower than its bordering states including, New Jersey, New York and Maryland, although the state is slightly more expensive than Ohio. Affordable housing should help attract first-time home buyers and families with lower incomes, everything else equal. Multifamily construction has shown signs of strengthening. Multifamily permits have experienced moderate gains over the past few years. A bright spot in the market lies in Philadelphia, where the apartment market continues to expand and completed 9, units in the second quarter of 15 alone. However, with modest employment gains and few new residents entering the city, the pace of multifamily building in Philadelphia runs the risk of getting ahead of itself. Demand for apartments has so far been fairly strong, however, led by younger households seeking a more urban lifestyle. Although recent activity in the Pennsylvania housing market has shown few signs of improvement, there is some evidence that there is some pent-up demand for for-sale housing. The rental market has been strong relative to population and employment growth, suggesting that tenants are staying in place longer, creating less turnover and lower vacancy rates. Stronger employment gains should eventually nudge some of the renters back into the for-sale market, which would boost prospects for new home construction. Figure 9 Figure 1 18 CoreLogic HPI: PA vs. U.S. Index, =1, Not Seasonally Adjusted United States: Jun @ 18.1 Pennsylvania: Jun @ 168. 18 8 7 6 Pennsylvania Housing Permits of Permits, Annual Rate Single-Family: Jun @ 16,8 Single-Family, 1-MMA: Jun @ 1,7 Multifamily, 1-MMA: Jun @ 8,661 Single-Family Average (1998-):,79 8 7 6 16 16 5 5 1 1 1 1 1 1 8 8 6 6 1 1 9 9 9 96 98 6 8 1 1 1 9 9 9 96 98 6 8 1 1 1 Pennsylvania s well-educated and highlyskilled workforce should attract new business investment to the state. Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Summary and Outlook Pennsylvania s economy continues to grow modestly, with gains held back in the past year by further declines in oil and gas exploration and some slowing in the state s factory sector. In the near term, Pennsylvania will likely continue to trail the nation and its own long-run growth pace, reflecting the state s older population and slower population growth in general. Moreover, additional negative shocks to the energy industry, slower foreign demand for steel and other raw materials, and cost-cutting in the healthcare industry all have the potential to restrain growth further. A dearth of migrants to the state has hurt firms that rely on local demand to grow their businesses and exacerbated the budgets of local governments throughout the state. The longerrun prospects for Pennsylvania look more promising. The recent industry-specific weakness will eventually subside, especially in the energy sector. In addition, Pennsylvania s well-educated and highly-skilled workforce should attract new business investment to the state. Promising industries include life sciences, engineering and healthcare. Furthermore, Pennsylvania s relatively low costs of living should eventually slow or reverse the outflow of residents.
Pennsylvania Economic Outlook: August 15 August 1, 15 Philadelphia After strengthening earlier in the recovery, Philadelphia has seen job growth moderate more recently. Much of the pullback can be attributed to professional & business services. The sector posted relatively strong gains earlier but is now seeing a modest decline. Manufacturing and government payrolls have experienced perennial losses, while financial activities employment is moving sideways. The prominence of the slow but steadily growing education & health services industries is another explanation for the relatively slow growth in the metro area, although this sector also shields Philadelphia during downturns. Despite the recent slowdown in growth, there is plenty of activity to keep the metro area moving in the right direction. Commercial development is on the rise again, with the Navy Yard undergoing a huge redevelopment project. Meanwhile, the impending outlet mall should bring shoppers to the Gallery space, and Comcast is building its new tower just west of City Hall. These developments should also bring with them new jobs from direct hires as well as jobs in surrounding retail and leisure & hospitality establishments. Leisure & hospitality employment is already up a large. percent from a year ago. Manufacturing may also reverse course, as Dietz & Watson a food manufacturer, adds about 15 jobs to its operations in the northeastern part of the city. Multifamily building is now hovering close to the high seen before the Great Recession, as the apartment market in the city is booming. The for-sale market, however, has struggled. Home prices have yet to see much of a rebound, though they are in line with the national average in terms of how far they remain below their prerecession peak. Slow population and employment growth will limit the extent of any future recovery in single-family permits, as they are currently near their long-run norm. Philadelphia should post modest gains moving forward. Fiscal issues remain a potent headwind to overall economic growth. High educational attainment and the area s renowned research institutions remain powerful draws but several of the largest employers are in slower growing sectors. 1% Unemployment Rate: Jun @ 5. 1-Month Moving Average: Jun @ 5. % 91 9 95 97 99 1 5 7 9 11 1 15 Educ. & Health Services Trade, Trans. & Utilities 5 15 1 Leisure and Hospitality 5 Philadelphia MSA Unemployment Rate Prof. & Bus. Svcs. Government Financial Activities Manufacturing Other Services Information Seasonally Adjusted Philadelphia MSA Employment Growth By Industry Total Nonfarm Year-over-Year Percent Change, -MMA More Number of Employees Less June 15 Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC 1% % -% - -1% % 1% % Philadelphia MSA Housing Permits of Permits, Seasonally Adjusted Annual Rate Single-Family: Jun @ 7, Single-Family, 1-MMA: Jun @ 6,118 Multifamily, 1-MMA: Jun @ 6,9 Single-Family Average (1998-): 15,87 9 9 9 96 98 6 8 1 1 1 5 15 1 5 5
Pennsylvania Economic Outlook: August 15 August 1, 15 Pittsburgh 1% Pittsburgh MSA Unemployment Rate Seasonally Adjusted 1% The Pittsburgh economy has picked up significantly in recent months with total employment rising to a 1.6 percent year-over-year pace. Despite price declines, the natural gas industry continues to make gains. Meanwhile, some of the strongest gains have been felt in healthcare and the well-paying professional & scientific services industry. Despite the recent uptick, the unemployment rate remains a bit below the national average and total employment gains are sufficient to keep the unemployment rate trending lower. The largest impediment to growth remains the public sector. Although the final decision has yet to be reached regarding Shell s proposed ethane cracker in Beaver County, the petrochemical giant is moving ahead with land purchases in the area now that it has cleared the first of its regulatory hurdles. If the ethane cracker goes ahead as planned, it could ultimately employ up to 5 workers after requiring thousands to build the facility. There are still plenty of risks present in the region s natural gas industry. Recent price declines may work to reduce longer-term production, while a drop in oil prices reduces the relative profitability of domestic petrochemical producers compared to their European and Asian counterparts. The healthcare industry is one of the largest employers in the metro area and is expanding rapidly, with payrolls jumping.9 percent from a year earlier. The two largest employers in the area are University of Pittsburgh Medical Center and Highmark Health, which collectively employ about 65, workers in Pittsburgh. The housing market in the area is sending some mixed messages. On the bright side, home prices continue to climb further above their prerecession peak and are up 5. percent from a year ago. In addition, multifamily construction is gaining ground. On the downside, single-family construction has fallen to new lows. Pittsburgh s natural resources should propel its economy forward, while a large concentration of health-related companies capitalize on the country s aging population. However, the population in the metro area declined in 1 and will restrain overall growth in the area. Unemployment Rate: Jun @ 5. 1-Month Moving Average: Jun @ 5.1% % 91 9 95 97 99 1 5 7 9 11 1 15 Trade, Trans. & Utilities Educ. & Health Services Leisure and Hospitality 1 8 6 Pittsburgh MSA Employment Growth By Industry Total Nonfarm Government Prof. & Bus. Svcs. Manufacturing Financial Activities Information Construction Other Services Year-over-Year Percent Change, -MMA June 15 More Number of Employees Less Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC % - -1% % 1% % 5% 7% Pittsburgh MSA Housing Permits of Permits, Annual Rate Single-Family: Jun @ 1,8 Single-Family, 1-MMA: Jun @,7 Multifamily, 1-MMA: Jun @ 1,6 Single-Family Average (1998-):,991 9 9 9 96 98 6 8 1 1 1 1 8 6 6
Pennsylvania Economic Outlook: August 15 August 1, 15 Harrisburg Harrisburg MSA Nonfarm Employment -Month Moving Averages Harrisburg s economy has made marked improvements this year. Nonfarm payroll growth has jumped to a. percent year-overyear pace in June thanks to broad-based gains. Several major industries have posted stronger growth, but one of the biggest changes has been in the public sector. The government was once a huge source of job losses but has been adding to payrolls more recently. As a result, the unemployment rate has fallen to a low. percent. The city of Harrisburg had previously struggled with huge debt burdens related to an incinerator. The state government cut spending to reduce costs, but has more recently added to payrolls. In fact, state government employment is now.5 percent higher than a year ago. The federal government has also recently posted sizable growth, but at the local level, which employs far more workers, gains have been much more modest. Harrisburg has become much more than just a state capital that ebbs and flows based on the spending power of the Commonwealth. One of the leaders of growth has been in the transportation and logistics sector. Transportation & warehousing employment has been growing rapidly and is up 6.7 percent over the past year. Norfolk Southern has expanded its presence in the area, with Harrisburg acting as a critical point along the commercial rail line s Crescent Corridor. The solid improvement in Harrisburg s labor market should eventually spill over into its housing market. However, the housing market has been slow to recover thus far. Home prices are still well below their prerecession peak and are growing at just a 1.5 percent year-over-year pace. Residential construction has also been slow to pick up, although there have been some promising developments in the multifamily market. Despite recent gains in the public sector, the government will likely restrain growth in Harrisburg in the longer run as the state continues to grapple with budget issues. Furthermore, below-average population growth and an above-average median age will hold back demand for local goods and services. % - - -Month Annual Rate: Jun @.1% Nonfarm: Yr/Yr Pct. Change: Jun @.% Household: Yr/Yr Pct. Change: Jun @ 1.7% -1 91 9 95 97 99 1 5 7 9 11 1 15 Educ. & Health Services 1 Harrisburg MSA Employment Growth By Industry Total Nonfarm Trade, Trans. & Utilities Government Prof. & Bus. Svcs. Leisure and Hospitality Financial Activities Manufacturing Other Services Information Year-over-Year Percent Change, -MMA More Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC % June 15 - - Number of Employees Less -1-1% % 1% % Harrisburg MSA Housing Permits of Permits, Annual Rate Single-Family: Jun @ 1,6 Single-Family, 1-MMA: Jun @ 897 Multifamily, 1-MMA: Jun @ Single-Family Average (1998-): 1,97 9 9 9 96 98 6 8 1 1 1 1 7
Pennsylvania Economic Outlook: August 15 August 1, 15 Scranton-Wilkes-Barre Scranton is perking up, with nonfarm payrolls increasing to a favorable. percent year-overyear pace in June. A large portion of this increase can be attributed to the health services sector. As a result of increasing employment, Scranton s nonfarm payrolls are only. percent below their prerecession peak. One of Scranton s largest employers, Tobyhanna Army Depot, is in the middle of an expansive renovation project that seeks to modernize the depot and provide its employees with cutting-edge technology and a highly efficient workplace environment. Developers expect the $15 million renovation to be completed in 17. The large investment signals the organization s commitment to staying in the metro area. The project is also an encouraging sign for employment in the federal sector, which declined a slight. percent over the year. Scranton continues to struggle with population declines. The area had a mild period of growth during the mid-s; however, Scranton has reported decreases in population during the past two years. The lack of growth has had a negative effect on Scranton s tax base, and has created fiscal problems for local governments. The reoccurring issue presents challenges to policymakers hoping to move past budget concerns and grow Scranton s economy. While Scranton s population experienced declines in 1 and 1, there have been modest employment gains in population-driven industries such as leisure & hospitality, retail and healthcare. The growth may reflect stronger-than-reported population gains or an increased proportion of part-time jobs. Ongoing declines in population and softening demand have also held back residential construction. Single-family permits are on a downward trend and are well below their most recent peak. Even with less new supply, Scranton s home prices have fallen.8 percent from their year-ago level. Growth in Scranton should improve modestly in coming years. Population declines should subside as improving job growth encourages more residents to remain in place and pulls in job seekers from surrounding areas. Homebuilding and commercial construction should strengthen modestly. % - - - 91 9 95 97 99 1 5 7 9 11 1 15 1-1 - - - -5 1.6 1. 1. 1..8.6.. Scranton MSA Nonfarm Employment -Month Moving Averages -Month Annual Rate: Jun @.% Nonfarm: Yr/Yr Pct. Change: Jun @.% Household: Yr/Yr Pct. Change: Jun @.% Scranton MSA Population Growth In 8 8 8 86 88 9 9 9 96 98 6 8 1 1 1 Scranton MSA Housing Permits of Permits, Seasonally Adjusted Annual Rate Single-Family: Jun @ 6 Single-Family, 1-MMA: Jun @ 96 Multifamily, 1-MMA: Jun @ 69 Single-Family Average (1998-): 9. 9 9 9 96 98 6 8 1 1 1 Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC % - - - 1.6 1. 1. 1..8.6... 1-1 - - - -5 8
Wells Fargo Securities, LLC Economics Group Diane Schumaker-Krieg Global Head of Research, Economics & Strategy (7) 1-181 (1) 1-57 diane.schumaker@wellsfargo.com John E. Silvia, Ph.D. Chief Economist (7) 1-75 john.silvia@wellsfargo.com Mark Vitner Senior Economist (7) 1-77 mark.vitner@wellsfargo.com Jay H. Bryson, Ph.D. Global Economist (7) 1-7 jay.bryson@wellsfargo.com Sam Bullard Senior Economist (7) 1-8 sam.bullard@wellsfargo.com Nick Bennenbroek Currency Strategist (1) 1-566 nicholas.bennenbroek@wellsfargo.com Eugenio J. Alemán, Ph.D. Senior Economist (7) 1-7 eugenio.j.aleman@wellsfargo.com Anika R. Khan Senior Economist (7) 1-71 anika.khan@wellsfargo.com Azhar Iqbal Econometrician (7) 1-7 azhar.iqbal@wellsfargo.com Tim Quinlan Economist (7) 1-8 tim.quinlan@wellsfargo.com Eric Viloria, CFA Currency Strategist (1) 1-567 eric.viloria@wellsfargo.com Sarah House Economist (7) 1-8 sarah.house@wellsfargo.com Michael A. Brown Economist (7) 1-78 michael.a.brown@wellsfargo.com Michael T. Wolf Economist (7) 1-86 michael.t.wolf@wellsfargo.com Erik Nelson Economic Analyst (7) 1-67 erik.f.nelson@wellsfargo.com Alex Moehring Economic Analyst (7) 1-7 alex.v.moehring@wellsfargo.com Misa Batcheller Economic Analyst (7) 1-6 misa.n.batcheller@wellsfargo.com Michael Pugliese Economic Analyst (7) 1-156 michael.d.pugliese@wellsfargo.com Donna LaFleur Executive Assistant (7) 1-79 donna.lafleur@wellsfargo.com Cyndi Burris Senior Admin. Assistant (7) 1-7 cyndi.burris@wellsfargo.com 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 15 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. 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 7. The FCA rules made under the Financial Services and Markets Act 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. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE