El Niño Could Add $30 Billion to U.S. Economy

Macroeconomic and Investment Research

El Ni単o Could Add $30 Billion to U.S. Economy January 2016

0.0%

0.0% T (Immediate T (Immediate ) T )+ 1st Quarter T + 1st Quarter

T + 2nd Quarter T + 2nd Quarter

T + 3rd Quarter T + 3rd Quarter T + 4th Quarter T + 4th Quarter

-2

-2 Strong La Nina Strong La Nina Mild La NinaMild La Nina

-1.5 Normal

Normal

-1.5

Mild El NinoMild El Nino Strong El Nino Strong El Nino

El Niño Could Add $30 Billion to U.S. Economy A strong El Niño reduces the chance of harsh winters in the Air Pressure Air Pressure Anomalies Anomalies Sea Surface SeaTemperature Surface Temperature Anomalies Anomalies U.S., according toIndex American Meteorological Society research. measured measured

by Southern

by Southern Oscillation Oscillation (SOI) Index (SOI) measured measured

by Oceanic

by Nino Oceanic Index Nino (ONI) Index (ONI) The result has lower heating 1.5 1.5 costs, -0.9 historically -0.9 1972included 1972 increased consumer spending, reduced travel costs, 1.3 1.3 -0.9 -0.9 1965 1965 more jobs, and less storm damage.

-1.1

1987

1.3

1987

Income from 20% 20%Increased Construction and Employment Savings from less Highway Snow Removal 10% 10% Total Benefits 0% Losses 0% Strong La Nina Strong La Nina Mild La NinaMild La Nina Property Losses from El Niño related Storms

1.3

5% 0% -5% -10%

-2

La Niña La Niña 15% (Avg.=2.4%) (Avg.=2.4%)

Normal Normal (Avg.=1.8%) (Avg.=1.8%)

Mild El Niño Mild El Niño (Avg.=1.9%) (Avg.=1.9%)

0% -5%

-1-0.5

-0.5 0

00.5

0.5 1

9.5

6.7

9.2

29% 5.6 1.8

2.5

0.5 0.4

7.7 15%

15%

21.9 Normal

0.7 0.5

13%

13%

30.0

1997–1998 Inflation-Adjusted for 2015 Normal Mild El NinoMild El Nino Strong El Nino Strong El Nino 2.8 3.8 0.7

1.0

0.4

0.5

Lost sales from Snow Removal and Tourist Industry

0.2

0.3

State Assistance Costs

0.1

0.1

Total Losses

4.2

5.8

Net Benefits

17.7

24.3

10

10

8

8

6 4 2 0 -2 -4 -6 -8

-1.5 -1

6.9

Federal Government Relief

Strong El Niño Strong El Niño (Avg.=4.1%) (Avg.=4.1%)

5%

-2-1.5

Inflation-Adjusted for 2015

U.S. Population-weighted Average Temperature Deviation from Normal (1950-Present)

10%

-10%

29%

1997–1998

Agricultural Losses

Temp. Deviation from Normal (Fahrenheit)

10%

Consumption Contribution to GDP Growth (QoQ SAAR)

Consumption Contribution to GDP Growth (QoQ SAAR)

U.S. Private Consumption Contribution to GDP (1950-Present) 15%

60% 60% Benefits 50% 50% Savings due to the absence of floods and Atlantic hurricanes Savings from 40% 40%less Heating Costs 32% 32% Increase in Consumer Spending 30% 30% Reduce Operating Costs from Airlines and Ground Transportation

The powerful El Niño of 1997 boosted the U.S. economy by 1.9 1.9 -1.6 -1.6 1997 1997 almost $18 billion, equivalent to 0.8% of real 4Q GDP at the 1.6 1.6 -2.3 1982 1982 time.

Our projections indicate that the current El Niño could Year Year in 2015-2016. add $30 billion to the economy

-2.3

70%

Estimated El62% Niño Impact 62% on U.S. ($ Billions)

Temp. Deviation from Normal (Fahrenheit)

-1.1

70%

11.5

1.5 2

NOAA Oceanic NOAA Niño Oceanic IndexNiño (>0.5Index defined (>0.5 as defined El Niño; as <-0.5 El Niño; defined <-0.5 as defined La Niña)as La Niña)

22.5

2.5

-10

La Niña

Normal

La Niña

Normal

El Niño

El Niño

6 4

11/2015

11/2015

2 0 -2 -4 -6 -8

-2

-10

-2-1.5

-1.5 -1

-1-0.5

-0.5 0

00.5

0.5 1

1 1.5

1.5 2

22.5

NOAA Oceanic NOAA Niño Oceanic Index (>0.5 Niño Index defined (>0.5 as Eldefined Niño; <-0.5 as El Niño; defined <-0.5 as Ladefined Niña) as La Niña)

Source: American Meteorological Society, NOAA, Haver, Bloomberg, Guggenheim Investments. Data as of 11.30.15

2/5

2.5

Will El Niño Weather in the What El Niño Will Do to the Weather in U.S.? the U.S.?

In In the Northeast, strong El Niños reduce cold and disruptive weather and lead to better business outlook readings.

T he National Oceanic and Atmospheric Administration (NOAA) predicts that this year’s El Niño will continue through the The Northern Hemisphere’s winter, gradually weakening through spring 2016.

1982 Severity 2.0%

1997 Severity

1987 Severity

1965 Severity

1972 Severity

Precipitation Outlook forPRECIPITATION 12/2015-2/2016OUTLOOK FOR 12/2015-2/2016

Temperature Outlook forTEMPERATURE 12/2015-2/2016OUTLOOK FOR 12/2015-2/2016 Fahrenheit 3

1.5%

2.6

2 1.0%

1

0.4 Higher Probability 0 of Warmer Weather

Higher Probability of Drier Weather

0.5%

Normal 0.0%

-1

Higher Probability of Wetter T (Immediate ) Weather T + 1st Quarter

T + 2nd Quarter

T + 3rd Quarter

T + 4th Quarter

0.6 -0.1

Normal

Higher Probability -2 of Colder Weather Strong La Nina

-1.5 Mild La Nina

Consumption

Normal

Net Exports

Capital Formation

Mild El Nino

Strong El Nino

Total GDP

Presence of El Niño and Winter Temperature Deviation from Average in NYC Presence of El Niño and Winter Temperature Deviation from Average in NYC (1970-Present) (1970-Present)

Presence Niño Probability of Negative Philadelphia Fed Business Presence ofofElElNiño andand Probability of Negative Philadelphia Fed Business Outlook Readings 2.0% 3 Quarters from the Start of El Niñothe (1970-Present) Outlook Readings 3Qtrs. from Start of El Niño (1970-Present)

Fahrenheit 3

70%

Air Pressure Anomalies measured by Southern Oscillation Index (SOI) 2

Sea Surface Temperature Anomalies measured by Oceanic Nino Index (ONI)

2.6

60%

1.5% 62% 1.0%

50% 1

-0.9

0.4

0 -1 -2

-2.3

0.6

-0.9

1965

-1.1

1.5

1972

-0.1

40%

20% 10% -1.5

-1.6 La Nina Strong

Mild La Nina

Source: Bloomberg, Haver, NOAA. Data as of 11.19.15.

1997 1982 Year

Normal

32%

29%

30%

1.3 1.3

1987

0.5%

Mild El Nino 1.6

1.9

Strong El Nino

0%

0.0% 15%

13%

Mild El Nino

Strong El Nino

-0.5% Strong La Nina -1.0%

Mild La Nina 1982

Normal 1997

1987

1965

1972

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How Will El Niño Impact U.S. GDP? Guggenheim Investments’ Macroeconomic and Investment Research team believes that as the massive El Niño weather pattern gains strength, it should become a boon to the U.S. economy, potentially adding 1 percent to U.S. gross domestic product (GDP) in the first quarter.

1982 Severity

1965 Severity

1972 Severity

1.2%

El Niño’s influence on U.S. GDP should reach its peak in the storm cycle’s third quarter, which corresponds to the end of 2015 and into the first quarter of 2016.

0.2%

0.8% 0.6% 0.4%

0.0%

T (Immediate )

T + 1st Quarter

T + 2nd Quarter

Severe El Niño Events Year

T (Immediate)

T+ 1st Quarter

Air Pressure Anomalies 1982 -2.3 Oscillation Index 0.5% measured by Southern (SOI) 1997

-1.6

1987

-1.1

-0.9

0.3%

-0.9

1972

-0.9

-2.3

1972

T+ 2nd Quarter

0.3%

0.8%

0.2%

0.6%

0.2%

T+ 3rd Quarter

T+ 4th Quarter

0.2% 1987

1.0% 1.5

1.0%

0.7%

0.7%

0.6%

0.6%

0.6%

0.6%

1.3

1965 0.2%

-1.1

T + 4th Quarter

Sea Surface Temperature Anomalies 0.5% measured by 1.2% Oceanic Nino1.5% Index (ONI) 1.5%

0.2% -0.9

1965

T + 3rd Quarter

Shock to U.S. GDP Growth (QoQ SAAR)

Severity Measured by SOI (Negative Indicates More Severe)

-1.6

Source: Federal Reserve Bank of Dallas, IMF, NOAA, Haver, Bloomberg, Guggenheim Investments. Data as of 12.31.15.

1987 Severity

1.4%

1.0%

This El Niño is among the largest in recent decades, roughly on par with the El Niño of 1997. Based on the economic impact of that episode, we estimate as high as a 1 percent boost to Q1 2016 GDP, all else equal.

1997 Severity

1.6%

Milder winters resulting from the El Niño storm pattern have historically boosted consumer spending and manufacturing activity.

Over the past five strongest El Niño weather events, the average total shock to U.S. real GDP growth from the start of the weather pattern to its third quarter was 1 percent, with the largest historical shock of 1.5 percent occurring in 1982.

Mod the

Modeled Impact of El Niño on U.S. Real GDP Growth Since the Start of El Niño (QoQ SAAR, based on the Dallas Fed Model)

0.2%

0.5% 0.5%

1.3

1.9

1997 1982

1.6

Year

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Important Notices and Disclosures This material presented herein has been prepared for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product.

This material contains opinions of the author but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The authorâ&#x20AC;&#x2122;s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Š 2016 Guggenheim Partners, LLC. All Rights Reserved. No part of this content may be reproduced, stored, or transmitted by any means without the express written consent of Guggenheim Partners, LLC. Guggenheim Funds Distributors is an affiliate of Guggenheim Partners, LLC. For more information, visit guggenheiminvestments.com or call 800.345.7999.

CP-ELNINO 20336

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