Wells Fargo report: Utah's economy faces challenges, but don't panic

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Neither the Utah nor the U.S. economies will tank, despite recession and housing market fears, economists for Wells Fargo Bank said Wednesday in a forecast.

"It's been a difficult couple of days around the world," bank Executive Vice President Kelly Matthews said during a presentation in Salt Lake City. "There's no doubt that we have a very difficult, worrisome situation facing us that will probably last through most of this year."

Utah should be able to rely on steady job growth, which has slowed from 4.5 percent to 3.5 percent but is expected to remain among the most robust in the nation. "It's much better than any other state, and we're a long way from a negative situation," Matthews said.

It is hoped that strength will offset worrisome issues on the housing front, where Matthews is predicting a 7 percent to 10 percent correction in residential prices in 2008. Even though mortgage interest rates are low, there is a growing inventory of houses for sale that buyers increasingly cannot afford.

"There's going to take a certain level of price reduction to clear the market and get those homes sold," said Matthews. "If people wait it out, it's more likely they'll have to lower prices in six months or a year anyway."

Later Wednesday, Jillinda Bowers, president of Salt Lake Board of Realtors, said that when homes don't sell, "our next step is to reduce the price. We have a positive and good market, but with the decline in sales right now, there is a need for more stabilization in the pricing."

Even as Matthews was speaking Wednesday morning, Democratic and Republican leaders in Washington were moving closer to a plan to jolt the U.S. economy out of its slump, including opening new financing windows for some home loans.

Matthews predicted more aggressive action from the Federal Reserve, which on Tuesday cut the federal funds rate from 4.25 percent down to 3.5 percent - the biggest reduction since 1990.

"The Federal Reserve acted appropriately. It has shown it's ready and able to provide liquidity. Now we need both liquidity and consumer confidence."

Matthews and other Wells Fargo economists expect consumer spending - which accounts for about 70 percent of the U.S. economy - to slow. Consumers are struggling with tighter lending standards, higher fuel costs and a drop in housing-related wealth. But they can be partially shielded if wages and job growth remain healthy this year, they said.

The U.S. economy is expected to grow 1.5 percent to 2 percent in 2008, in contrast to average annual growth of 3 percent. But the economists said a recession could be held at bay because softer consumer spending is likely to be offset by strong growth in U.S. exports.

The U.S. dollar is expected to remain weak but not depreciate as much as it did last year, according to the bank's forecast report. And inflation is likely to be around 3 percent this year because the linkage between rising oil prices and inflation has loosened. In addition, energy efficiency has reduced consumption as a percentage of the U.S. gross domestic product.

The bank's chief investment officer, Dean Junkans, said that although some sectors such as energy are experiencing high prices, they are not indicative of an inflationary trend.

dawn@sltrib.com