Economic pain to continue, expert says

Wells Fargo & Co. Chief Economist John Silvia said Tuesday that he expects the nation's economy to improve in the remainder of the year, but growth levels will remain below 3 percent in 2012.

Silvia predicts U.S. domestic product growth of 2 percent to 2.5 percent for the year. Overall, Silvia remains cautious about middle-class consumer spending and said he expects the problems in the housing market to remain for some time.

"There is no easy way out for the housing problem in many areas, including Las Vegas," he said. "It's going to take several years to work through some of these problems."

He said Las Vegas will prosper and the region will continue to move ahead, but "housing is still going to be an issue two to three years down the road." Silvia attributed the weak housing recovery to a "huge excess of inventory and ... so many people underwater on their houses."

"It's a structural problem that is going to take a lot longer to work out," he said.

Silvia is based in Charlotte, N.C., but was in Las Vegas on Tuesday speaking at the Wells Fargo Securities Third Annual Gaming Conference at the Encore at Wynn Las Vegas. Wells Fargo is the third largest bank in Southern Nevada with $7.37 billion in deposits.

"We have to be more cautious on our credit," he said. "We have to think about institutions and individuals and households who are going to pay us back. We can't depend upon just generating top line revenue growth long term, and not worry about the risks of credit going forward."

Silvia said Las Vegas is benefiting from a modest rebound in the national economy. In terms of Nevada, he said, it's interesting to look at the S&P Case-Shiller data, which show Las Vegas among the top five recovering cities.

"The issue is percentage changes coming off a low base, so that's what's happening in this area, as well as other areas," Silvia said.

Silvia expressed concerns about ongoing financial turmoil in Greece, a slowdown of the Chinese economy and consumer spending, but he said none would cause another recession in the United States.

"The challenge is when you deal with 2 percent to 2.5 percent growth, it doesn't solve a lot of state and local problems," he said.

Those problems, Silvia said, are how to finance public education, infrastructure, road improvements, water issues and public transportation.

"How to come up with the money to pay all the bills," he said. "The challenge in this area is you'd probably want between 3.5 percent and 4 percent growth to really sustain the type of infrastructure rebuilding you need here and you are not there yet."

On a brighter note, give the economy "six months to a year and (Las Vegas) will be OK," Silvia said. He said his job as an economist was to tell people and his board of directors "things they don't want to hear."

"The challenge comes in trying to keep the board of directors' feet on the floor," Silvia said. "We cannot repeat the experiments of 2004 to 2007 in terms of credit quality. We just can't pursue more and more loans and not worry about the long-term credit."

Shareholders do not expect Wells Fargo to be Facebook or Google.

"This is a bank, and a bank makes money by taking in deposits and lending money at a slightly higher difference and making sure people pay the money back," he said. "That's the big challenge."

Contact reporter Chris Sieroty at csieroty@review
journal.com or 702-477-3893.