Predicting a slow end to the national recession and a continued choppy ride for stock investors, officials from Wells Fargo on Tuesday put forward a glimpse of optimism in a foundering business climate.
"I believe we have reached or are nearing the trough," said Spencer Eccles, chairman of Wells Fargo Intermountain Banking Region. "The economy remains vulnerable, however, and the recovery will be disappointingly slow."
This year's economic forecast is in stark contrast to last year's report, when Wells Fargo executives said the economy in 2001 would not fall into a recession and broader financial markets could see 15 to 20 percent gains, with the Nasdaq seeing a 30 percent rise.
Instead, the only good news about the markets in 2001 was that they didn't decline to the extent they did in 2000, said Sterling K. Jenson, senior managing director of Wells Capital Management.
The Nasdaq Composite Index fell 21 percent, ending the year below 2,000.
The Standard & Poor's 500-stock Index, already down 10.1 percent in 2000, lost another 13.0 percent, a record decline not seen in the past 27 years, Jenson said.
"One bright point was small stocks, which again strongly outperformed large stocks. The Russell 2,000 small-stock index actually managed to finish up for the year, moving 1 percent higher," Jenson said.
In Utah, the 2002 economic outlook points to minimal job growth, weak gains in personal income and a decline in single-family building permits, said Kelly Matthews, Wells Fargo executive vice president and economist.
Matthews expressed alarm over Utah's rising unemployment rates, calling December's job report the "ugliest and weakest piece of news" in regards to Utah's economy.
In December, the state's jobless rate hit 5.2 percent, a near 10-year high.
Matthews said Utah's unemployment rate this year will remain in the 5 percent area, well below the national average, which is projected to reach as high as 7 percent.
In addition, Matthews said gains in personal income will show a dismal performance, with increases estimated at 3.5 percent, the smallest rise in more than 40 years.
"The 4-plus percent hourly wage increases will be a thing of the past," Matthews said.
The construction sector will continue to see job losses, with total construction value estimated to plunge nearly $600 million this year from $3.90 billion in 2001.
Single-family home building permits are expected to decline 14.2 percent from last year, a drop of 1,900 units. But mortgage rates should continue to remain favorable, Matthews said, hovering around 7.25 percent.
Despite the bad news, next month's 2002 Olympic Winter Games are expected to give Utah's travel and tourism a boost.
And Eccles expressed optimism that the economy will correct itself this year.
"Fundamentally, the American economy has only two problems: supply and demand. There is too much of the former and not enough of the latter," he said, adding that this year's chief task will be rebalancing the two.
While 2001 marked a contraction in the economy from March onward, according to the National Bureau of Economic Research, the new year should show gains in real gross domestic product of 0.25 percent to 1 percent, Eccles said.
Stock investors may expect continued volatility throughout 2002, Jenson said, but "gains in the 10 to 15 percent range for the broad markets" are expected, with the Dow finishing somewhere above 11,000 and the Nasdaq recovering above 2,300.
"Our expectation is for a choppy market through the first half of the year, punctuated by some spectacular runs, which will be disrupted by disappointing declines. . . . By some measures, stocks remain expensive, and the threat of a recurrence of terrorism or of another oil-price surge can't be ruled out. The risk remains that the major stock indexes could suffer a third down year in a row," Jenson said.