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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