2005: 'uncharted territory'

With oil prices again soaring above $50 per barrel and an uncertain political and economic landscape, Wells Fargo economists said Thursday the outlook for 2005 is "uncharted territory."

At Wells' "Focus 2005" economic forecast in Salt Lake City, the bank's executive vice president and economist, Kelly K. Matthews, called the recent crude oil price increases "unsettling," possibly to both the local and national economies.

"It's hard to know just what ramifications (the higher prices) will begin to have," Matthews said. "When we got close to this level last year — though it didn't last too long — I think if we went back, we could clearly identify a sag in the economy that accompanied those high oil prices."

It is too early to identify a similar sag today, Matthews said. "It's probably too early to start wringing our hands and saying that we've got serious problems."

Indeed, Matthews said, there were bright points in Utah in 2004, and so far in the first quarter of 2005: encouraging job growth numbers; fourth quarter 2004 sales growth of 8.5 percent to 9 percent; and pro-growth/pro-business action by the just-adjourned Utah Legislature.

Looking ahead, Matthews was cautious. Long-term interest rates are creeping higher, which may yet affect home mortgage rates.

"If we keep going in this direction, if oil prices keep going and we get these interest rates higher and consumer confidence gets eroded because of gasoline prices, you could let a little air out of the balloon," he said. "That's a worry, and I hope all of that does not happen. But these oil prices are not my most favorite thing."

Gary Schlossberg, senior economist for Wells Capital Management, said that 2005 will be a year of moderating growth and recovery, which will be increasingly broad-based rather than consumer- and government-driven.

"Overall economic growth we don't think will be quite as strong as what we saw in 2004," Schlossberg said. "We see economic growth settling back a bit to a range of 3 percent to 4 percent, compared to 4 percent to 4.5 percent in 2004."

Even at that rate, Schlossberg said, businesses likely will be more willing to increase hiring and capital spending in 2005 — aided by a weaker dollar, improved competitive position, particularly against Canada and Europe, and increases in inventories and investor spending. The manufacturing sector should see notable growth, Schlossberg said.

In a report distributed to Wells' Utah clients Thursday, Wells Capital predicted that "we are likely to see a continuation of the economic trends that began to develop in 2004. As a result, we anticipate the emergence of a very different economic landscape from that of the past 20 years: one where concerns about inflation trump those about deflation; one where capacity constraints, including potential labor shortages, become an issue; and one where trade moves to the forefront of the economic debate."

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