Contrary to the forecasts of many economists and despite plunging stock markets around the world, a Wells Fargo executive on Wednesday predicted that the United States will not enter a recession in 2008.
"Real gross domestic product in the United States is likely to remain positive in the next couple of quarters but just barely," said Kelly Matthews, a Salt Lake City-based executive vice president at Wells Fargo, during a breakfast with 170 customers who are leaders in government and business. "That means at the moment, we're not forecasting recession as our most probable outlook."
Matthews said that real gross domestic product in 2008 will grow between 1 1/2 percent and 2 percent, but for the next six to 12 months, Americans will experience the effects of a soft economy, as a result of the housing crisis and lower consumer spending.
Matthews predicted growth in exports will be high enough to stave off a recession, which technically means two quarters of negative GDP growth.
Dean Junkans, Wells Fargo's chief investment officer, said the United States has experienced about 20 recessions since World War II, averaging three a decade.
"The average recession lasts 10 months," he said. "Once you get the data saying you're in one, it's almost done."
Matthews said that in 2007, Utah had low unemployment and high economic growth. "We have been, and continue to be, the absolute No. 1 state economy in the country," he said.
He predicted that in 2008, the state's economy will continue to be the strongest in the United States, but "we will feel the effects of this economic slowdown, just like everyone else."
The main problem in Utah is overpriced housing, he said.
Housing construction permits are down 50 percent, compared with the same time last year. Older houses, meanwhile, remain on the market unsold. In the last quarter of 2007, 25 percent to 46 percent fewer houses along the Wasatch Front sold than during the same period in 2006.
"We have this affordability problem," Matthews said. "If you study the average sales value, you will see that we have not yet begun to reduce home prices very quickly. The answer to this whole situation is to liquidate that overhang."
Housing prices were pushed up, Matthews said, by investors who "flip" houses to make a profit and by the demand created with liberal housing loans to people with questionable credit. Many of those people couldn't make the payments, and in August, there was a "housing crisis" resulting in families losing homes and bank employees losing jobs when profits diminished.
Junkans said that with low interest rates in 2008, people with adjustable mortgages can refinance and lock in a low rate."It's good news for credit-worthy homeowners," he said. "They can refinance 15-year fixed rate under 5 percent,"
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