Wells Fargo Economists Predict Steady Economic Growth in 2006
December 19 2005 - 12:06PM
PR Newswire (US)
Wells Fargo Economists Forecast Shift From Consumer-Driven Economy
to Business-Driven Economy; Strength in Global Economy SAN
FRANCISCO, Dec. 19 /PRNewswire-FirstCall/ -- Despite a housing
price slowdown, higher oil prices and Fed rate increases, Wells
Fargo's senior economists forecast steady economic growth next
year. "Consumers are stepping aside and manufacturing and other
business sectors are stepping in," said Dr. Jim Paulsen, chief
investment strategist of Wells Capital Management during Wells
Fargo's first-annual economic forecast teleconference. "The U.S.
business sector is looking very healthy, and this will help
alleviate the slight slowdown in consumer spending and housing. I
believe we're in the early stages of what will be considered a
'manufacturing renaissance period' in the next several years that's
tied to steady trade improvements. We're also seeing renewed
strength in the stock market, and foreign economic growth is
accelerating, which further positions the U.S. economy for a more
sustainable recovery." According to Wells Fargo senior economist
Dr. Scott Anderson, "a housing price slowdown, in part triggered by
the Federal Reserve's policy actions, will become more pronounced
as the year 2006 progresses, placing consumer spending,
credit-quality, and job creation at some risk. The challenges are
mounting for U.S. consumers, restricting their ability to spend."
Anderson also said that, "real earnings are being squeezed by the
spike in inflation, job growth will remain subdued and energy
prices elevated, home equity borrowing and wealth creation from the
housing market will dry up." Other highlights from Wells Fargo's
2006 Economic Outlook: -- Inflation and GDP Growth: The Fed will
win the war on inflation at the expense of modestly slower GDP
growth next year. Anderson said he expects the Fed to increase the
funds rate to 4.75 percent by March 2006 and will hold that rate
steady throughout the rest of the year, building a foundation for
future growth. He said consumer and bond market inflation
expectations have dropped by about a half of a percentage point
since the recent hurricane- induced energy-price spike. -- Housing
Market: Anderson said rising mortgage rates will finally begin to
weigh more heavily on housing demand, while rising inventories,
slowing sales, and fading builder confidence suggests that housing
supply isn't as tight as it once was. The main risk for the economy
next year is the extent to which the housing market downturn could
dampen consumer spending, credit quality and job creation. -- Home
equity: Home equity extraction has single-handedly offset the
negative economic effect of a doubling in oil prices in less than
two years, but this is not likely to be repeated in 2006, said
Anderson. -- Consumer Spending: According to Anderson, a consumer
spending binge has triggered a swell in consumer debt burdens, and
a record trade deficit. Somewhat slower consumer spending will be a
necessary step in stabilizing the U.S. trade deficit. He forecasts
a 3.1 percent growth rate in consumer spending next year, down from
3.6 percent in 2005. -- Investments: For investors, the news is
good. Paulsen said stock prices will likely rise to higher levels
and he sees good profit trends, investment liquidity and relatively
attractive valuations. However, he said bond yields still have a
long way to go to reach the peak of their cycle -- we will likely
see a 10-year Treasury yield at 6% next year. Global Economy The
economists agreed that foreign economic growth is accelerating,
with several foreign markets in the midst of a boom, and the U.S.
economy has a good chance of catching up. "Unlike previous decades,
the recovery of today's U.S. economy depends on what is happening
in the global economy," said Wells Fargo senior economist Dr.
Eugenio Aleman. "This makes the current recovery much more
sustainable and less vulnerable than it was in the past." -- China:
The current Chinese exchange rate policy, though designed to
stimulate capital investment in the country, is undervalued and has
the potential to create a 'worldwide production glut' which could
disrupt the global economy, said Aleman. This is already a problem
in the automobile industry and may become a serious problem for
other industries. -- Mexico: Aleman expects the Mexican economy to
grow over the next year. The manufacturing sector remains dynamic
and will continue to benefit Texas border towns. However, the
Mexican economy could be thrown off if the U.S. stiffens its
immigration policies. -- Europe: The European market is showing
signs of life and the significant currency weakness against the
Euro could affect U.S. trade, added Paulsen. Wells Fargo's
Economists offer their economic analysis at:
https://www.wellsfargo.com/com/research/economics/ and
https://www.wellsfargo.com/com/research/investments/ Reporters can
hear a webcast of the teleconference at
http://audioevent.mshow.com/266051/ through January 13, 2006. The
conference ID is 3164333. Wells Fargo Economists Dr. Jim Paulsen is
chief investment strategist of Wells Capital Management. Paulsen
assesses investment strategies for institutional customers as well
as mutual and collective investment funds. He focuses on national
and global macro-economic trends, specifically investments, and
interest rate forecasting. Dr. Scott Anderson is a senior economist
for Wells Fargo & Company. Anderson analyzes and forecasts
international, national and regional economic trends with a focus
on macro-economic and interest rate forecasting, financial markets,
international economics and the California economy. Dr. Eugenio
Aleman is a senior economist for Wells Fargo & Company. Aleman
analyzes and forecasts international, national and regional
economic trends. He specializes in interest rate forecasting,
international trade and finance, the Texas economy, and Latin
American economies. Dr. Michael Swanson is the company's senior
agricultural economist. Swanson works with agricultural producers
and processors and focuses on competitive strategy and risk
management for a wide variety of crops and livestock. Wells Fargo
& Company is a diversified financial services company with $453
billion in assets, providing banking, insurance, investments,
mortgage and consumer finance to more than 23 million customers
from more than 6,200 stores and the internet (wellsfargo.com)
across North America and elsewhere internationally. Wells Fargo
Bank, N.A. is the only bank in the United States to receive the
highest possible credit rating, "Aaa," from Moody's Investors
Service. Wells Capital Management is a registered investment
adviser and a wholly owned subsidiary of Wells Fargo Bank, N.A. The
content herein is for informational purposes only and we are not
soliciting any action based upon it. Information is the personal
view of the writer, not necessarily reflecting Wells Fargo &
Co. All opinions expressed are subject to change without notice.
The material is based upon information we consider reliable, but we
do not represent that it is accurate or complete and it should not
be relied upon as such. Past performance is not indicative of
future results. DATASOURCE: Wells Fargo & Company CONTACT:
Melissa Morey of Wells Fargo & Company, +1-415-396-4417 Web
site: http://www.wellsfargo.com/
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