Utah ranked among the top five fastest growing states in the nation in 2005, and robust growth is expected to continue this year but at a slower pace, Wells Fargo officials said.

Housing construction, which has been booming in Utah in recent years, is expected to cool as interest rates trend higher, while crude oil volatility and in turn, higher gasoline and natural gas prices, could eat into consumer spending. The federal funds rate, currently at 4.5 percent, is expected to climb to around 5.5 percent this year.

Those factors could slow growth in the gross state product, or the value of Utah's industrial output, to between 3.5 percent and 4 percent in 2006, down from 5.8 percent last year, Gary Schlossberg, senior economist for Wells Capital Management said Wednesday at a keynote address of the bank's 2006 economic forecast at the Provo Marriott.

"But that's still very good growth and slightly above the national average of 3 percent to 3.5 percent for 2006," he said.

Higher interest rates on credit cards and loans, and higher energy prices may slow discretionary spending, but Utah is still expected to rank among the top 10 growth states nationwide for 2006, said Sterling Jenson, Wells Capital's regional managing director.

Utah's economy is expected to grow 4 percent this year, down from 6 percent last year, in line with a slower national economy, Jenson said at a corresponding Wells Fargo economic forecast in Salt Lake City Wednesday.

"Utah has some of the nation's lowest labor costs, but also a high-quality workforce. Housing affordability is better and there's a lot of infrastructure and business support," he said.

"It's a desirable place to live, ski, golf. It has favorable tax laws for businesses, good health care amenities at the University of Utah, a good technology base, and strong job growth, which in turn attracts more in-migration."

Schlossberg agreed, saying Rocky Mountain states including Utah are still attracting net in-migration growth because of their healthy economies. In 2005, employment growth in the Provo-Orem area was 4.6 percent, more than double the national average of 1.7 percent.

"Someone also forgot to tell Provo that the boom in technology ended in the 90s. That growth in technology is still continuing in Provo, and it's reflected in Micron's recent joint venture with Intel and the hundreds of jobs to be created over the next year or two," Schlossberg said.

In November, Micron and Intel entered into a $5.2 billion joint venture to make NAND flash memory chips at Micron plants in Lehi, Boise, Idaho and Manassas, Va.

Hundreds of jobs may be added over the coming months to the 500-worker plant in Lehi, which is expected to transition from testing computer chips to making NAND products by early 2007.

Schlossberg also cited robust job growth in construction, information processing, professional and business services, tourism and high-tech services in Provo-Orem.

For instance, construction employment in the area jumped 15.1 percent, while the state saw a 13.5 percent increase.

Total construction value in Utah jumped 27 percent to $5.5 billion in 2005 from a year ago, Jenson said. Of that amount, residential construction value accounts for $3.9 billion, up 28 percent, while non-residential construction grew 13 percent to $1.4 billion.

"But for 2006, residential housing starts in Utah should be down 5 percent to 6 percent because of higher interest rates.

"But commercial and industrial starts could pick up the slack, in part because of the LDS Church's construction activity in the downtown Salt Lake area," Jenson said.

Barring any major geopolitical events, Wells Fargo officials also see fuel prices moderating from current highs as oil rig drilling activity increases across the nation.

"We're seeing evidence of Utah households responding to higher fuel costs by driving less, heating less, and being more efficient. And if oil prices stay high, we should also see more enduring efforts to explore alternatives, like tar sands and oil shale," Schlossberg said.

Sterling agreed. "In the Vernal basin area, oil shale production could start in a few years, depending on whether the oil companies get through the regulatory and environmental hurdles to bring production online," he said.

But even with gasoline prices averaging above $2 a gallon today, motor fuel was still more expensive in the early 1980s when adjusted for inflation, averaging around $2.79 a gallon in 1981, he said. "It's more a nuisance than anything else. It could impact clothing and groceries' sales, but it won't cause a recession."

Grace Leong can be reached at 344-2910 or gleong@heraldextra.com.

This story appeared in The Daily Herald on page A1.