Wells Fargo sees healthy economy on tap for 2007

Filed under: Banking & Finance |

Wells Fargo economists predict healthy economic growth in 2007, and if that weren’t enough good news, they also say U.S. households on average have never been better off in the wealth department.

Growth is predicted despite the current economic slowdown, Federal Reserve interest rate increases, home price declines, higher oil prices and the war in Iraq.

The economists also said stock market recession fears are overblown and that the U.S. economy will reveal incredible resilience in 2007.

Scott Anderson, senior economist for Wells Fargo said the drivers that had been pulling down the U.S. consumer and economy during the first half of 2006 — rising energy prices and interest rates, sluggish wage growth and a sharp drop in housing demand — began to recede or stabilize during the second half of 2006.

Inflation and GDP growth

Gross Domestic Product growth is expected to rebound as soon as this quarter.

The banks’ economists predict a 3.5 percent growth rate for 2007, based on expectation that the housing and auto markets will flatten. Growth is expected to accelerate in early 2007, reaching an annualized quarterly growth rate of about 2.8 percent, from recent annualized quarterly rates of about 2 percent.

Labor market

Legislation increasing the minimum wage could put pressure on the cost of labor, adding to already serious concerns about the labor market, the economists said. The strong movement against immigration could further complicate prospects for some industries that have thrived under the “no intervention” policy by federal authorities.

Energy

The unpredictability of the Iraq war could put more pressure on the price of petroleum, economists said.

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.

In addition to higher real wage growth, a drop in energy prices, and the 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 that most of the damage in the housing market already has occurred and that there are signs of recovery — mortgage purchases are up about 15 percent since the beginning of November.

Existing home inventories have plateaued during 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

Anderson predicts that 2007 will be another good year for the stock market — with prices likely rising.

He also sees good profit trends, investment liquidity and expects that long-term Treasury yields will remain at 40 year lows.

Hybrids still qualify for tax credit

The Internal Revenue Service has announced that purchasers of qualified Ford Motor Co. vehicles may continue to claim the Alternative Motor Vehicle Credit.

The announcement comes after the IRS concluded its third quarterly review of the number of hybrid vehicles sold.

Ford sold 4,626 qualifying vehicles to retail dealers during the third quarter 2006. The credit amount, and make and model of qualified vehicles sold are:

  • Ford Escape 2WD, Model Years 2005, 2006 and 2007 — $2,600
  • Ford Escape 4WD, Model Years 2005, 2006 and 2007 — $1,950
  • Mercury Mariner 4WD, Model Years 2006 and 2007 — $1,950

This brings the total number of Ford qualifying hybrids reported to date to 16,511.

Purchasers of Ford’s qualified vehicles may continue to rely on the previously issued IRS certifications concerning the vehicles’ qualification for the credit.

Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle.

For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit.

For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter. More information about hybrid vehicles and other alternative motor vehicles can be found on the IRS’s web site at IRS.gov.

FDIC offers security help

How a financial institution can create an effective incident response program to mitigate a data security breach is reported in the Federal Deposit Insurance Corp.’s winter 2006 edition of Supervisory Insights, released this week.

The edition also gives an update on CRE lending nationwide, with a look at best practices in CRE concentrations, particularly for identifying, monitoring and controlling risk in this lending area

Because security breaches and other Web-related crimes can damage the reputation and relationships of all types financial institutions, an incident response program can mitigate risk and assess the damage of these crimes, FDIC officials say.

Rob Larimer is managing editor of the Colorado Springs Business Journal.