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Tucker Hart Adams Releases 2007 Economic Forecast; Economist Projects Current National and State Economic Expansion to Slow; Potential for Recession Based on High Consumer Debt and Rising Interest Rates

DENVER--(BUSINESS WIRE)--Sept. 12, 2006--Colorado's economic growth will slow in 2007, as a late-year recession interrupts a five-year period of national economic expansion, according to the "U.S. Bank 2007 Economic Forecast," prepared by Tucker Hart Adams, Ph.D., U.S. Bank's Rocky Mountain Region chief economist.

"Consumer financial stress in the face of rising interest rates, along with the potential for housing prices to flatten or fall are the big threats to the Colorado economy in 2007," Adams writes in the annual forecast. "There is a 75 percent probability that a national recession will be underway before the end of 2007 - driven by falling consumer spending. The onset of the Colorado recession may lag the national contraction, pushing the worst of the state's problems into the first half of 2008. The local recession will not be longer or feel more severe than nationally, however, as there is nothing comparable to the technology boom and bust of the last business cycle to make Colorado more vulnerable than other parts of the country. Nevertheless, the more severe the national recession, the worse the downturn will be in Colorado."

Numerous indicators warn of the potential for disruption of a current stable economy that could lead to the projected recession, according to Adams' forecast. These changing factors include slowing economic growth, accelerating inflation, rising interest rates, a declining stock market, a softening housing market, slow recovery in job growth and a lack in wage gains. High consumer and government debt, future energy prices and foreign acquisition of United States debt also are variables that could alter the balance of the economy - currently in a stable position that has allowed for five consecutive years of national economic expansion.

Nationally, the U.S. economy can expect a recession to occur in the second half of the year, with annual output growth slowing to 2.1 percent, according to Adams' forecast. A 12.3 percent decline in U.S. housing starts and a 2.4 percent drop in automobile and truck sales are projected for 2007.

The national unemployment rate will move back above five percent, while inflation will average 3.5 percent for the year, down slightly from 2006 as energy prices stabilize. The 90-day Treasury bill rate will average 4.7 percent, down slightly as the Federal Reserve cuts interest rates in an attempt to avoid a recession, Adams' forecast states. However, long-term interest rates will remain high. The 10-year Treasury note rate will average 5.7 percent and the 30-year conventional mortgage interest rate will average 7.3 percent.

In Colorado, following a robust 2006 in the energy, defense and tourism sectors, population growth will increase 1.7 percent in 2007. Employment totals in the state will rise by 1.4 percent, or 31,842 jobs, after a 2.2 percent gain in 2006. The state unemployment rate will increase in the second half of the year to average 4.8 percent, according to Adams.

Adams' forecast calls for an increase in personal income of 5.3 percent in Colorado in 2007, with per capita personal income rising by 3.6 percent to $41,042. This will outpace the Metro Denver inflation rate, providing a small improvement in the average standard of living.

Colorado housing permits will decline for the third consecutive year, by 11.2 percent in 2007, according to Adams, as both residential and nonresidential construction will feel the effect of higher interest rates and an oversupply of product. Flat to declining home prices will encourage consumers to increase personal savings, leading to a decrease in consumer spending.

State retail sales growth will slow to 2.1 percent in 2007, as "consumers take a hard look at their precarious financial position and cut back on spending," according to Adams' forecast. Inflation in the Denver and Boulder markets will average 3.2 percent, down from 3.5 percent in 2006. Oil prices will remain high for Colorado consumers, but prices are unlikely to accelerate at the pace they maintained during the previous two years.

When predicting the length and severity of a recession in 2007, Adams notes, "Colorado is not facing a long, serious recession such as we had in the last half of the 1980s. However, if inflation and interest rates are higher than we project, consumer spending will fall further than in the forecast and the recession will worsen."

U.S. Bancorp (NYSE:USB), with assets of $213 billion, is the 6th largest financial services holding company in the United States. The company operates 2,434 banking offices and 4,966 ATMs in 24 states, 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. 12.

Interviews are available with Tucker Hart Adams beginning at 9:30 a.m. MT today.

CONTACT: U.S. Bank Economist
Tucker Hart Adams, Ph.D., 303-585-5060 Direct
303-329-9218 Cell
or
Marketing
Adrina Angel, 303-585-4126 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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