Economist: No dramatic bounce back after recession
DeKALB – William Strauss believes 2013 will look a lot like 2012 in terms of the country’s economic recovery.
Strauss, a senior economist and economic adviser for the Federal Reserve Bank of Chicago, told a room full of DeKalb County notables that they should expect to see modest economic growth in the U.S. economy in the years ahead.
“The economy has been growing, but it’s not impressive,” Strauss said. “Businesses are not feeling the pressure to expand.”
Unlike with earlier recessions, which were followed by a healthy bounce back of economic activity, this recovery continues to be tepid in the United States and much of the world, Strauss said.
“We’re not seeing it this time,” Strauss said.
Strauss’ comments came during the 2013 Economic Outlook Luncheon, hosted by the DeKalb County Economic Development Corp. Listening to his speech in the
auditorium at the DeKalb County Farm Bureau building were about 200 officials from local businesses, governments and schools.
A financial crisis triggered the Great Recession, and banks and other financial institutions have been hesitant to lend money to people and businesses since. Banks, he said, are holding excessive amounts of money that would normally be lent out.
“There is hesitancy to lend out to markets that are still quite imbalanced,” Strauss said, pointing to the housing and commercial real estate markets. He added there were signs of more willingness for financial institutions to lend money, and for people to borrow it.
A number of factors have contributed to the subpar economic growth, Strauss said. He described the country’s political leaders in Washington, D.C. as not being helpful, and people and businesses are not confident.
“General confidence remains quite low for consumers as well as businesses,” Strauss said.
The news is not much better on the unemployment front. Taking into account the country’s population growth, the economy should be creating 100,000 jobs every month, Strauss said.
The economy added 1.8 million jobs in the past 12 months, which Strauss described as being good, but still too slow to recover all 8.7 million jobs that were lost between December 2007 and February 2010.
At the end of 2012, the country’s unemployment rate stood at 7.8 percent, which he described as being no reason to celebrate. And in forecasts by the Federal Reserve and Blue Chip economists, the lowest unemployment drops to is between 6 and 6.6 percent in 2015.
“Even three years from now, our labor markets will be out of balance,” Strauss said.
There were some bright spots in Strauss’s speech. Strauss described how oil prices, when adjusted for inflation, are lower than prices from 30 years ago. The massive increase in the U.S. supply of natural gas because of hydraulic fracturing – commonly referred to as “fracking” – also will generate economic activity later in the future.
Strauss also touched on federal fiscal policies.
“Ever increasingly, we are hearing about the challenges of fiscal policy is imposing on businesses,” Strauss said, adding that a number of business leaders said recently that they held off on certain activities because of the uncertainty on the “fiscal cliff” negotiations.
Federal government expenditures, Strauss said, are the highest they have been since World War II, while tax revenue as a share of GDP has stayed between 15 percent and 20 percent for the same period.
If one were to divide the federal debt among every person in the country, everyone would have to pay $53,000. That would increase depending on the state the person lived in, Strauss said.
Although much of the speech focused on the national economy, Matt Duffy, the executive director of the DeKalb Chamber of Commerce, said he felt confident about the recovery and direction of the local economy after hearing Strauss speak.
“I think we have a lot of momentum going locally here as well,” Duffy said. “I feel like we’re heading in the right direction. Maybe even ahead of some of the numbers he was talking about.”
Dave Patzelt, president of ShoDeen Construction – a real estate developer – said he was hoping to hear from Strauss some kind of plan of action for local political and business leaders.
“What do we do in our small economy here?” Patzelt said. “Something has to change. We can all come back a year from now and hear the same thing again. But what are we going to do? Are we just going to accept it?”