Recovery should return, economist tells Santa Rosa business leaders

The economy has hit a bump on the road to recovery, but growth should return later this year, Wells Fargo's senior economist told business leaders Thursday at a conference in Santa Rosa.

"We think the economy will be regaining momentum later in the year and into 2012," said Gary Schlossberg, who analyzes financial markets for Wells Capital Management.

But plenty of challenges remain, including inflation, federal deficit and phaseout of government stimulus, he said.

"This hasn't been a strong recovery. The financial markets are far from normal," Schlossberg said. "They're more vulnerable to these shocks."

His presentation, co-sponsored by North Bay Business Journal, marked the 30th anniversary of Santa Rosa's cultural arts center, which was renamed Wells Fargo Center for the Arts in 2006.

After a run of job growth and stock market gains earlier this year, the U.S. economy has hit a "soft patch,"

he said. Higher energy and food prices, combined with the economic ripple effects of earthquake and tsunami in Japan, have put a squeeze on spending.

"Earlier this year we were beginning to see signs the economy was growing on its own," he said. "Now we're starting to see consumer spending wind down a little bit."

Consumers drive the economy, he said, representing 65 percent to 70 percent of total domestic spending.

But the conditions that sparked the latest downturn are already starting to ease, Schlossberg said. "We don't see growth slowing quite as much," he said.

Wall Street ended a six-day slide Thursday after the U.S. reported a second straight month of record exports.

But new claims for jobless benefits are up and forecasters Thursday said unfavorable weather could keep food prices high through 2012.

The housing market has yet to recover from its slump, although it's becoming easier to find credit, Schlossberg said.

"We're finally seeing banks lending more and people willing to borrow," he said.

Meanwhile, the financial markets are closely watching the debates in Washington over tax hikes and budget cuts, Schlossberg said. "There's a lot of uncertainty," he said. "It's not a very pleasant set of choices."

Sonoma County has stronger job gains than the rest of the country, Schlossberg said, with improvement in technology, health care, business services and tourism.

"The local economy is doing reasonably well," he said.