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Tucker Hart Adams Releases 2008 Economic Forecast

Economist Projects Colorado to Follow National Economy into a Period of Slower Growth and Recession; State Unemployment Rate to Rise with Slowing Job Growth

DENVER--(BUSINESS WIRE)--Sept. 11, 2007--Colorado's economy will mirror national trends in 2008, as a mild to deep recession will be linked to rising interest rates, falling housing prices and stagnant job growth, according to the U.S. Bank 2008 Economic Forecast, prepared by Tucker Hart Adams, Ph.D., U.S. Bank's Rocky Mountain Region chief economist.

"Falling home prices, stagnant income growth with a smaller percentage of the population in the labor force, high levels of debt and rising mortgage payments add to the stress American consumers are under," Adams writes in the annual forecast. "Consumers hold the key to the economic outlook for 2008."

The level of recession felt nationally will depend on how quickly current turmoil in the financial markets can be resolved, according to Adams' forecast. "The odds of a deep versus a mild recession are about equal, with very little chance of escaping a downturn altogether in the next 18 months," Adams writes. However, Adams predicts that as Colorado has not had as much speculative home-price appreciation when compared to other areas of the U.S., the recession should not be as deeply felt in Colorado.

Nationally, annual U.S. output growth is expected to slow to 1.5 percent, which combines 2007 and 2008 growth predictions, due to uncertainty about the exact timing of the recession within this 24-month period, according to Adams' forecast. This includes an estimated 0.5 percent output growth in 2008 due to recession-backed financial market corrections. However, due to strong economies in Europe and Asia, a bright spot on the national economic horizon will be an expansion of the U.S. industrial sector in 2008. Consumer confidence was reported at a six-year high in 2007, but Adams writes, "However, it is interesting to note that the previous high was attained in August, 2001, five months into the last recession." The recent decline in new construction starts will improve nationally in 2008, with permits down 1.4 percent, after a reduction of 22.8 percent in 2007.

The national unemployment rate will rise to 5.0 percent in 2008, after averaging 4.9 percent in 2007. Adams notes that "inflation and interest rates are the most difficult call in this uncertain environment" and forecasts consumer inflation will average 3.0 percent for the year, up slightly from 2007. The Federal Reserve will be slow to move short-term interest rates "unless there is a serious need for global liquidity," Adams' forecast states. Conventional 30-year mortgages will average 6.9 percent in 2008, up from 6.5 percent in 2007, as mortgage credit becomes more expensive and difficult to obtain. Interest rates for 90-day Treasury bills will average 4.8 percent, following a 4.7 percent rate in 2007.

In Colorado, aside from an energy boom on the Western Slope and north central Colorado counties, and agricultural counties involved with a corn-for-ethanol boom, state economic growth was sluggish in 2007 and will follow the lead of the national economy in 2008. Population growth will be 2.1 percent in 2008, as the state will surpass the five million resident mark.

State employment growth will slow to 0.5 percent, or 11,500 jobs, after a 1.5 percent gain, or 35,000 jobs in 2007. The state unemployment rate will also increase to average 4.8 percent as the recession deepens, according to Adams. Adams' forecast calls for per capita personal income to rise by 2.9 percent to $41,976, which is below the Metro Denver inflation rate of 3.1 percent.

The worst effects of the housing recession will have passed by 2008, Adams predicts, but housing permits will fall another 7.1 percent. Adams notes that "with fewer houses, there will be less need for new retail centers and rising office vacancy rates will discourage new office construction."

Adams forecast calls for a reduction in spending by consumers, due to a lack of growth in personal income and rising mortgage payments from changes with adjustable rate mortgage products. Total retail sales in the state will increase by 3.9 percent in 2008, down from a gain of 7.6 percent in 2007.

Additionally, Adams notes a "conundrum" exists when considering the best indicator of the health of the national and state economies - job growth. From 2003 through 2006, the economy created approximately half the number of new jobs of previous job growth periods in the 1980's and 90's, yet unemployment figures remain relatively low. Adams notes that there are many theories of why this puzzling situation exists, including distortion of employment data and undocumented workers. Adams writes that job growth figures, therefore, may not be as strong as reported and could be a factor in leading the economy into the predicted recession in the near future.

U.S. Bank has 135 branches and more than 250 ATMs in Colorado. U.S. Bancorp (NYSE:USB), with assets of $223 billion, is the 6th largest commercial bank in the United States. The company operates 2,499 banking offices and 4,867 ATMs, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the web at www.usbank.com.

The economic forecast will be published on www.ColoradoEconomy.com at 8 a.m. MT, Tuesday, Sept. 11.

CONTACT: U.S. Bank
Tucker Hart Adams, Ph.D., 303-570-1361 - Direct
U.S. Bank Economist
303-329-9218 - Cell
or
Carrie Warren, 303-585-4114 - Direct

SOURCE: U.S. Bank

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding U.S. Bancorp's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.



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