There wasn't a lot to dislike in First Security Corp.'s annual economic forecast Tuesday as executives of the bank holding company predicted a rising stock market, healthy corporate profits, no runaway inflation and further gains for Utah's high-tech business sector.
"The U.S. economy is being propelled by a technology-driven productivity boom that shows little strain and no sign of ending," Spencer F. Eccles, chairman and CEO of the Salt Lake-based bank holding company told those gathered at the Marriott Hotel downtown for the company's annual forecast breakfast.
"The 1990s were the strongest capital-spending cycle in at least 50 years," said Eccles. "Current jobless rates have fallen to levels not experienced in more than 30 years (with) only eight months of recession. Perhaps the best news of all is that we are just scratching the surface of the so-called 'Internet economy.' "
Which should help propel the stock market above its already lofty levels, said Sterling K. Jenson, president and CEO of First Security Investment Management Inc.
Jenson said the Dow Jones Industrial Average has the potential of finishing the first year of the new millennium at 13,200 which would be a 15 percent return and another year of double-digit gains for the closely watched average of 30 big companies.
But Jenson warned that the path to a new record Dow will be no less bumpy that it was last year.
"Volatility will remain commonplace with potential violent swings in the late summer, early fall period due to rising rates and a heated political environment," stemming from the presidential election.
Moreover, Jenson cautioned that his forecast depends on corporate earnings growth of 13 percent, no big unexpected jump in inflation, only a moderate rise in interest rates — two more Federal Reserve increases are built into the forecast — and a favorable government policy environment.
"Risks to our forecast are abundant," said Jenson, noting that interest rates must remain below 7 percent or all bets are off.
"If global economic growth creates excessive demand for goods, which percolates into rising inflation, the Fed may react beyond our expectations, causing bond values to sink further and yield rates to rise above our forecast. This would cause a swift correction in stock valuations."
Jenson said First Security still favors technology stocks as investment even though many of the new start-ups won't survive long enough to ever turn a profit.
"In all other sectors, the corporations that adjust to the new ways of e-commerce and take a leading role in providing goods and services over the Net will thrive in the new economy. Those that are slow to change will be left in the dust heap of history."
Jenson also made the daring prediction that by the end of this century the Dow will be at 1 million but added that "I won't be around to answer for that one."
In his appraisal of the Utah economy in 2000, First Security chief economist Kelly K. Matthews expects the local growth rate to further stabilize this year, nearly duplicating 1999.
Currently, the construction industry and its 7.0-percent jobs growth is the state's fastest-growing sector with three times as many people employed in that sector last year as in 1989. But several large projects, including the I-15 reconstruction, will come to an end over the next two years, slowing growth in that industry .
But Matthews expects growth in such high-tech companies as Gateway, Iomega, Intel, Micron and Novell to pick up the slack.
Still, he looks for the state's very tight labor market to ease a bit this year, particularly for the higher paying jobs. Average wage gains last year actually narrowed, rising 3.6 percent following a 4.4 percent gain in 1998 and 4.8 percent in 1997. If that trend continues, as expected, it will make it easier for local business to hire and retain qualified employees.
The 2002 Winter Olympics will continue to be an important part of Utah's economy over the next two years, noted Matthews, with a $1.45 billion-plus Olympics budget, along with further growth in tourism, boosting growth.
Other First Security forecasts for Utah this year include:
— The state's population will reach 2.163 million, up 1.5 percent.
— Personal income will grow 5.6 percent to $49.44 billion.
— The state's unemployment rate will average 4.0 percent.
— Some 26,250 non-farm jobs will be created, up 2.5 percent.
— Single-family home permits will drop 5.9 percent below 1999.
— Total construction value will drop 3.2 percent to $3.75 billion.
— Taxable retail sales will rise 5.75 percent, down from 6.5 percent last year.