Wells Fargo Economists Optimistic About 2007 U.S. Economic Growth
December 21 2006 - 11:00AM
PR Newswire (US)
Recession Unlikely; Interest Rates, U.S. Dollar, Stocks, Energy
Prices and Housing Demand Point to Resurgence in U.S. Economy SAN
FRANCISCO, Dec. 21 /PRNewswire-FirstCall/ -- Most U.S. households
on average have never been better off in the wealth department,
Wells Fargo's senior economists said during the company's annual
economic forecast teleconference earlier this week. The economists
also forecast U.S. economic growth in 2007 despite the current
economic slowdown, Federal Reserve interest-rate increases, home
price declines, higher oil prices, and the war in Iraq. "The
[stock] market's recession fears are overblown and the U.S. economy
will reveal incredible resilience in 2007," said Dr. Scott
Anderson, senior economist for Wells Fargo & Company. "The
drivers that had been pulling down the U.S. consumer and economy in
the first half of 2006 -- such as rising energy prices and interest
rates, sluggish wage growth, and a sharp drop in housing demand --
began to recede or stabilize in the second half of 2006." "We've
still got fiscal juice," said Dr. Jim Paulsen, chief investment
strategist of Wells Capital Management. "We've had mortgage rates
come back down in the last half of the year. We've had gas prices
come down. Liquidity is growing over nine percent year over year.
We have a weaker dollar. All of that is juice for growth next
year." "The decline in home prices hasn't yet resulted in a
decrease in consumer confidence and spending, or a general decline
of household wealth and it's unlikely to occur next year," said
Anderson. "The housing slowdown has been offset by strong stock
market wealth, so household wealth continues to grow." Inflation
and GDP Growth Gross Domestic Product (GDP) growth is expected to
rebound as soon as next quarter. Paulsen said he predicts a 3.5
percent growth rate for 2007 based on his expectation that the
housing and auto markets will flatten out. Anderson said growth
will accelerate in early 2007, reaching an annualized quarterly
growth rate of about 2.8 percent, from recent annualized quarterly
rates of around 2.0 percent. "Lowering interest rates under current
conditions is like throwing more fuel to an already burning fire.
What the Fed needs to do today is encourage U.S. consumers and the
government to save, not consume," said Wells Fargo senior economist
Dr. Eugenio Aleman. Labor Market "New legislation on minimum wage
could put pressures on the cost of labor, adding to the already
serious concerns on the labor market," said Aleman. "The strong
movement against immigration could further complicate prospects for
some industries that have thrived under the 'no intervention'
policy by federal authorities." "Job growth appears steady outside
the weakening auto and housing sectors," said Anderson, "and
payroll growth over the past year rose substantially, suggesting a
healthy and tighter labor market." He said that continued job
growth and improved real wage gains will help consumer spending
withstand the lagged effects from Fed rate hikes, high debt-service
burdens and energy prices. Energy The war in Iraq is still
unpredictable and many forces could put more pressure on the price
of petroleum. "Commodity markets are going to go higher next year
with weaker dollar," said Paulsen, "but oil is still overpriced in
relation to other commodities." Consumer Spending Anderson said
there are tentative signs that consumer spending and housing demand
is responding to the improved financial picture. He forecasts a 3
percent growth rate in consumer spending next year, down from 3.1
percent in 2006. Besides higher real wage growth, drop in energy
prices, and easing of financing costs, Anderson sees little
prospect for major wealth loss in average households. Some
economists have said home price declines could to lead to a general
decline in household wealth that would put a crimp in consumer
confidence and spending, but Anderson says that level of lost
wealth has not yet occurred and is unlikely to occur next year.
Housing Market Anderson said most of the damage in the housing
market already has occurred and there are signs of recovery --
mortgage purchases are up about 15 percent since the beginning of
November. Existing home inventories have plateaued over the last
four months, and the Wells Fargo National Association of Home
Builders index has held above its September low for three
consecutive months with builders reporting an improved sales
outlook. Investments Paulsen predicts next year will be another
good one for the stock market -- with stock prices likely rising.
He also sees good profit trends, investment liquidity and expects
that long-term Treasury yields will remain at 40 year lows. Global
Economy The economists agreed that the U.S. dollar's steady
depreciation against the country's major trading partners will
become an important theme for next year. "Strong growth in China
and India are contributing to downward pressure on many goods,
however, at the same time, the entrance of these countries' large
populations to the mainstream consumer market are helping push
commodity and petroleum prices up. Thus, the net effect on global
inflation is still uncertain," said Aleman. 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 full recording of the December 19th teleconference until
December 22nd, 2006 by dialing 800-642-1687 (U.S. and Canada) or
706- 645-9291 (international), conference ID #2491783. A webcast of
the call is available at http://registration.mshow.com/314336/
through January 13, 2007. Note: Comments by Wells Fargo's
economists during the teleconference are their own opinions and
should be attributed to them as individuals, not to Wells Fargo
& Company. 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. Wells Fargo & Company is a diversified
financial services company with $483 billion in assets, providing
banking, insurance, investments, mortgage and consumer finance to
more than 23 million customers from more than 6,100 stores and the
internet (wellsfargo.com) across North America and internationally.
Wells Fargo Bank, N.A. has the highest possible credit rating,
"Aaa," from Moody's Investors Service and the highest credit rating
given to a U.S. bank, "AA+," from Standard & Poor's Ratings
Services. Wells Capital Management (WellsCap) is a registered
investment adviser and a wholly owned subsidiary of Wells Fargo
Bank, N.A. WellsCap provides investment management services for a
variety of institutions. For additional information on Wells
Capital Management and its advisory services, please view our web
site at http://www.wellscap.com/, or refer to our Form ADV Part II,
which is available upon request by calling 415-396-8000.
DATASOURCE: Wells Fargo CONTACT: Melissa Morey, Corporate
Communications of Wells Fargo, +1-415-396-4417 Web site:
http://www.wellsfargo.com/
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