DeKALB – Although the nation’s economy grew at an average rate in 2016 and is expected to continue that growth over the next few years, it’s hard to say how potential policy changes from the Trump administration on immigration and other issues could factor into economic projections, a Fed economist told local business leaders Thursday.
Senior economist and economic adviser William Strauss with the Federal Reserve Bank of Chicago spoke at the DeKalb County Economic Development Corp.’s annual Economic Outlook Luncheon at Faranda’s Banquet Center and said it’s too early to speculate on these policies.
“We all know this new administration is going to try and push a number of different policies, but for the Federal Reserve Bank to basically try to get a view of how the economy will materialize from them, it’d just be speculating on what gets enacted,” Strauss said. “It’s not until we get some of those legislative policies coming through before we get our pencils out.”
He added that people will be seeing true recovery in regard to economic activity.
Data on the first quarter of 2017 won’t be available until April, but Strauss said that by using the Chicago Fed National Activity Index, a monthly economic breakdown of data, economic activity is looking good and the economy is increasing above the average, or “trend,” rate.
Last year, Strauss said he anticipated a moderate growth in employment, a gradual rise in the inflation rate, a slow rise in vehicle sales and an increase in manufacturing.
All of these projections occurred, except for manufacturing growth.
“A large part of it had to do with the strength of the U.S. dollar,” Strauss said. “This caused international customers to find U.S. goods more expensive, which was enough to make a good growth rate shrink to zero. Goods became around 20 percent more expensive to international buyers.”
Illinois lost manufacturing jobs in 2016, while nearby Indiana and Michigan experienced growth, Strauss said.
Although overall employment opportunities have increased by more than 2.3 million, the growth in some Midwestern states, including Illinois, has lagged behind the rest of the nation.
Illinois also experienced a higher unemployment rate than the nation as a whole in 2016.
The Bureau of Labor Statistics numbers show that the U.S. ended 2016 with an unemployment rate of 4.7 percent, while data from the Illinois Department of Employment Security shows the state of Illinois ended the year at 5.6 percent.
“The fiscal problems the state is facing are really hampering some of that growth,” Strauss said.
However, this strong employment growth has not translated into higher wages for employees, he said.
“Slow productivity growth helps to explain this,” Strauss said. “Employers are not a charity. They will pay you whatever they can afford paying you and still get quality work out of you.”
Light vehicle sales set a record in 2016, beating the previous record from 2015 by 0.4 percent.
Strauss said that the auto industry still should have profitable, productive numbers in 2017, but he was concerned that if numbers went much higher, it could lead to destructive competition between companies.
“I’m very optimistic as far as the outlook,” Strauss said. “The Midwest economy has been growing close to trend and a bit better than the national economy. The risk of recession is, at least in the next six months to a year, very reduced.”