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/

Copyright