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Exhibit 36: Contribution from Change in Inventories to US GDP Growth Inventories should support growth after five quarters of subtracting from GDP. Recession Contribution Percentage Points, 5-Quarter Moving Total 14 5 1981 1986 1991 1996 2001 2006 2011 2016 Data through 03 2016. Source: Investment Strategy Group, Haver Analytics. Exhibit 37: National Association of Home Builders US Housing Market Index The post-crisis high in builder confidence bodes well for US residential investment. Index Level 80 5 70 5 60 1 50 + 40 5 30 4 Q + 2002 2004 2006 2008 2010 2012 2014 2016 Data through December 2016. Note: Based on a monthly survey of NAHB members who rate market conditions for the sale of new homes, as well as the traffic of prospective buyers of new homes. Source: Investment Strategy Group, Datastream. Exhibit 38: US GDP Growth Impulse from Goldman Sachs Financial Conditions Index The persistent drag from tight financial conditions over the last two years should reverse in 2017. Percentage Points, 4-Quarter Moving Average 104 \Forecast 0.8 5 0.6 4 : iT olen. ah. || -0.8 1.0 5 =:2' 4 2012 2013 2014 2015 2016 2017 2018 Data as of 03 2016. Note: The financial conditions index is a weighted average of riskless interest rates, credit spreads, equities and FX, based on effects on 1-year forward US GDP growth. Historical estimates and forecasts by Goldman Sachs Global Investment Research. For informational purposes only. There can be no assurance the forecasts will be achieved. Source: Goldman Sachs Global Investment Research. by inventory restocking, which looks ready to help GDP growth again after five quarters of negative contributions (see Exhibit 36). Similarly, residential investment is set to contribute, reflected in the National Association of Home Builders (NAHB) housing market index reaching a post-crisis high in December of last year (see Exhibit 37). Overall, we expect this momentum to continue as the erstwhile easing in financial conditions provides a growth tailwind throughout 2017 (see Exhibit 38). A Resilient US Consumer The stars are aligned for US consumers in 2017, as they enter the year with rising wages, higher net worth from asset price gains, historically low debt-servicing costs, ample savings and confidence at a 12-year high. They also stand to benefit directly from potentially lower tax rates and indirectly from higher fiscal spending, a topic we discuss in the next section. The above- mentioned factors should mitigate the headwind from higher inflation. Overall, we expect private consumption—a key driver of our GDP forecast— to expand at a pace of approximately 2.5%. Supportive Policy While government policy is always a source of uncertainty, it is even more so in 2017 given potential changes to tax, trade and immigration policies in the wake of last year’s presidential election. Nonetheless, our base case is that policy ultimately supports growth this year, with some fiscal expansion and a measured pace of Federal Reserve rate hikes. Although the final contours of Outlook | Investment Strategy Group 41 HOUSE_OVERSIGHT_014574