Attempting to predict the course of the national and local economies in 1991 with recession at the door, the stock market in the tank, venerable financial institutions collapsing, oil prices on a roller coaster and 350,000 American troops in the Persian Gulf ready to go to war . . . frankly, it takes courage.
But First Security Corp. bit the bullet Tuesday and went right ahead with its 23rd annual Business Outlook Symposium, the bank holding company's yearly bout of crystal ball gazing on which many Utah companies form their own strategies for the new year.There are always caveats in such exercises, and this year First Security Chairman Spencer F. Eccles told some 1,000 executives gathered for breakfast at the Marriott Hotel that the outlook has seldom been murkier and that business risks this year will intensify.
"We are definitely adrift in uncharted waters," said Eccles, "entering a recession for the first time in many generations as a debtor nation, with massive domestic and trade deficits, burdened by excessive consumer and corporate debt and a stressed financial system, and looking down the gun barrel of a possible war in the Middle East."
The debate over whether the country will be in recession is over, but will it be long or short, shallow or deep? A good, but unanswerable, question, Eccles noted.
"Despite the almost daily debate, there is really no reliable way, at this point, to accurately forecast the severity of the recession," Eccles said.
As is his custom, Eccles began the 1991 forecast with First Security's predictions of a year ago (another courageous act; most economists prefer to ignore their past projections in favor of new and unsullied guesswork). His grade for the bank's 1990 forecast: "B." Not bad considering the wild card of Saddam Hussein that no one anticipated last January.
Here are First Security's projections for the coming year:
GROSS NATIONAL PRODUCT: Down 1-2 percent, with the recession continuing at least through midyear. Moreover, the recovery will be slow, with economic ma-laise continuing into 1992.
INFLATION: Up 31/2-41/2 percent as measured by the Consumer Price Index, noticeably below last year. Despite the threat of war in the Persian Gulf, Eccles said, the long-run economics of crude oil point to $25-per-barrel oil, not $40.
UNEMPLOYMENT: Between 6-7 percent.
HOUSING STARTS: Weak, averaging 1.0 million to 1.1 million units, with mortgage rates below 10 percent (compared to the last housing recession in 1981-82, when rates averaged more than 15 percent).
AUTO SALES: Around the 1983 volume of 9.0 million to 9.2 million units.
INTEREST RATES: Trending lower, with the treasury bill rate down to 51/2-6 percent. The composite bond rate may slip to 71/4-71/2 percent.
Given that scenario, Eccles said he and his associates believe 1991 will be a year to "keep your foot on a rock and get back to basics."
UTAH OUTLOOK: First Security economist Kelly K. Matthews pointed out that Utah's economy held strong in 1990, while many areas of the country faltered. But in 1991, while remaining among the national leaders, local growth rates will narrow significantly.
Having said that, Matthews stressed that "any perception of a Utah recession at this point would seem premature and unfounded."
Here's how First Security projects the Utah economy to fare in 1991:
INCOME: Growth will slow noticeably from the gains of the past two years (71/2 percent in 1990 and 8 percent in 1989). Hourly wage increases will likely average 3 percent, while total personal income growth is forecast at 6-61/2 percent.
EMPLOYMENT: As with income, non-farm job growth was strong in 1989-90 (up 4.6 percent in each year). Employment growth this year should be a more modest 20,000-23,000 jobs, an increase of 3-31/2 percent. Matthews said most of the increase will come from expansion of existing companies.
PRODUCTION: Utah's real estate and construction industry paid in 1986-89 the price of the overbuilding/declining value/non-payment/foreclosure/liquidation cycle now assailing many areas of the country, so Matthews expects the impact of a national recession to hit lightly in Utah.
Production of petroleum, coal and agricultural products should remain healthy.
SALES: Retail sales will likely slow from 1990's 6-61/2 percent gains to a range of 3-5 percent increases, little more than keeping pace with inflation.
"The 1991 economic environment won't be as easy as the prior two years," Matthews said of his local forecast, "but then no one ever promised us it would be."