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Exhibit 34: US GDP per Hour Worked We expect a rebound in productivity growth from generational lows. % YoY 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Data through 2015. Source: Investment Strategy Group, OECD. Exhibit 35: Goldman Sachs US Current Activity Indicator Economic activity accelerated in the second half of 2016. Annualized % Change 3.0 25 z5 1.6 0.0 + Average: January—-May Average: June-November November Reading Data as of November 2016. Note: The current activity indicator is the first principal component of real-activity indicators, expressed in GDP-equivalent units. This is the growth signal in the main high-frequency indicators for the US economy. Source: Investment Strategy Group, Goldman Sachs Global Investment Research. near zero and inflation expectations still below levels compatible with its inflation target, the Federal Reserve is likely to hike rates two or three times in 2017, below the historical average pace. On this point, it is worth remembering that the Federal Reserve originally projected four hikes by the end of 2016, yet enacted only one in December. Thus, even if the Federal Reserve does raise rates three times this year, it will have delivered those four hikes over two years instead of just one. Lastly, although a recession created by an external shock is always a risk, the probability we place on a hard landing in Europe and/or China or a destabilizing increase in oil prices is not currently high enough to alter our base-case view. Indeed, even with the recent cut in oil production coordinated between OPEC and non-OPEC members, the size of today’s oil-supply glut and the historical tendency for producers to exceed their quotas greatly reduce the risk of a price spike (see With none of the typical signs of economic contractions flashing red, we accord a 15% probability of a recession in 2017. Section III, Global Commodities). With none of the typical signs of economic contractions flashing red, we accord a 15% probability of a recession in 2017, roughly in line with historical average risk. Against this backdrop, we expect US real GDP growth to accelerate from last year’s moderate 1.6% pace, reaching 1.9-2.7% in 2017. There are three key drivers to this story: fading headwinds, a resilient US consumer and supportive policy. We discuss each below. Fading Headwinds The combination of falling oil prices and a rising dollar that began in mid-2014 has been a meaningful drag on US growth, with energy-related capital spending falling by more than 60% over this period. In addition, exports have softened, the S&P 500 has suffered almost two years of contracting profits, and inventories throughout the supply chain have ballooned as activity has slowed. Such broad-based weakness has rarely occurred outside a recession. The silver lining to last year’s slowdown, however, is that growth is now poised to improve from depressed levels. A modest recovery in oil prices and stabilization of the dollar enabled US economic activity to accelerate notably in the second half of last year (see Exhibit 35). This boost will be aided 40 | Goldman Sachs | JANUARY 2017 HOUSE_OVERSIGHT_014573