Bank economists optimistic about U.S. outlook through 1999

Northwestern Financial Review, Feb 6, 1999

A committee of top bank economists that includes Sung Won Sohn of Wells Fargo & Co., says the United States economy will continue to grow briskly despite global economic turbulence.

"The U.S. economy survived significant shocks last year and still turned in an unexpectedly strong performance with low inflation," said Wayne Ayers, chief economist, BankBoston. "We expect that momentum to carry into 1999, but fade somewhat in the second half of the year."

Ayers said the group credited the Fed with calming the nerves of financial markets during its most challenging period late last summer. "At a time when it was sorely needed, the Fed provided both liquidity and confidence to financial markets," said Ayers. "With conditions now more stable and inflation low, we don't expect any change in Fed policy over the next year." Ayers is chairman of the American Bankers Association's Economic Advisory Committee (EAC).

The EAC forecasts that gross domestic product will grow by 2.5 percent in 1999, consumer price inflation will hover around 2 percent and the Fed funds rate will remain steady at 4.75 percent.

The EAC noted that positive, surprise deviations from its consensus forecast are as likely as negative. Low inflation and interest rates have provided healthy momentum in consumer spending and housing activity. Downside risks to the economy stem from the effects of global and financial markets turmoil on exports and the domestic economy.

"The economy also has shown a remarkable ability to adjust to rapidly changing market conditions," said Ayers. In addition, Ayers pointed out that declining oil prices have effectively increased consumer buying power and lowered business operating costs.

At the same time, the committee predicted world economic woes will continue to filter into many aspects of the U.S. economy, placing ever greater strains on certain sectors and regions. The group said the recent turmoil in Brazil signals that international conditions are far from settled. Further deterioration in Latin American growth could affect U.S. performance directly through declining exports and indirectly through its impact on equity markets. "We have already seen manufacturing and agriculture severely hampered by weakened export markets and falling commodity prices," explained Ayers.

The bank economists also forecast that bank lending will continue at a brisk pace. This reflects, they said, the ongoing expansion, the return of borrowers to the banking system in the wake of recent financial market turmoil, and what is expected to be a fertile environment for merger and acquisition activity. Household balance sheets, in general, remain strong, and consumer lending growth will continue at the same pace.

Members of the committee include Ayers, Sohn, Carl Tannenbaum, LaSalle Banks/ABN Amro; Richard Berner, Mellon Bank; William Brown, J.P Morgan & Co.; Mickey Levy, Bank of America; David Littmann, Comerica Bank; and Gregory Miller, SunTrust Banks Inc.

PERSONNEL

Precision Computer Systems of Sioux Falls, S.D., named Steve Graupner as sales territory manager serving community banks in Minnesota, North Dakota and South Dakota. Graupner has 17 years of experience with the financial software industry and 13 years of experience in data processing management.

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