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Half Full Since the trough of the global financial crisis in March 2009, US equities have returned nearly 300%, producing one of the longest bull markets in the post-WWII period and outperforming all other major developed and emerging market country equities. US equities have also exceeded their pre-crisis peaks of October 2007 and March 2000 by 75% and 103%, respectively, on a total return basis. This bull market has exceeded all other bull markets but one in length and exceeded all but three in magnitude. US economic growth has also exceeded that of most other recoveries in length. This recovery is the fourth-longest recovery in the post-WWII period? and if, as we expect, the US economy avoids a recession in the first half of 2017, this recovery will become the third-longest. While many critics correctly point out that it is the slowest recovery since WWII, it has actually created more economic growth than some of the stronger recoveries that lasted for shorter periods. On a cumulative basis, this recovery ranks sixth out of the last 10 recoveries with respect to GDP growth. What this recovery has lacked in strength, it has partially made up for in length. The slow but steady growth has also exceeded that of all other major developed economies, and US GDP per capita has increased more than the GDP per capita of any major developed or emerging market country. This recovery has created over 15 million jobs. The unemployment rate decreased from a peak of 10.0% in October 2009 to 4.6% in November 2016 and is now below its long-term average of 5.8%. Even the broader U6 measure, which adds the underemployed (such as part- time and discouraged workers) to the number of unemployed, has fallen from a peak of 17.1% to 9.3%, and stands below its long-term average of 10.6%. Unemployment claims are not only lower than they were during pre-crisis troughs but also at their lowest since 1973; they are also the lowest on record as a percentage of the labor force (see Exhibit 1). As a result of more robust employment, wages have increased as well. Wage growth, as measured by the Atlanta Federal Reserve Bank Wage Growth Tracker (which, in our opinion, is a better gauge of the employment backdrop than average hourly Exhibit 1: US Initial Unemployment Claims as a Share of the Labor Force Claims as a share of the labor force are at record lows. Monthly Average (%) 07 0.6 05 4 0.4 5 0.3 0.2 5 01 5 0.0 - 1967 1975 1983 1991 1999 2007 2015 Data through December 2016. Source: Investment Strategy Group, Datastream. Exhibit 2: Corporate Profits as a Share of US GDP Profits have been higher than current levels only 17% of the time since 1950. % of GDP Corporate Profits “r--- Historical Average 4 . 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 Data through 03 2016. Note: Showing US corporate profits with inventory valuation adjustment and capital consumption adjustment. Source: Investment Strategy Group, Datastream. earnings, since it is not affected by the changing composition of the labor force as new entrants are hired at lower wages), has picked up from a low of 1.6% year-over-year growth in May 2010 to a high of 3.9% in November 2016—just below the 4.4% peak of September 2007. More robust employment and better wage growth have, in turn, led to a steady increase in consumer confidence, reaching levels last seen in August 2001, as measured by the 6 | Goldman Sachs | JANUARY 2017 HOUSE_OVERSIGHT_014539