SPECIAL REPORT: Chicago Fed Economists See a Lot of 2005 in 2006
Speaking at the annual forecast luncheon hosted by the Chicago Chapter of CoreNet Global this week, two economists with the Federal Reserve Bank of Chicago predicted that, with certain exceptions, the year ahead is going to be a lot like the one past. William Strauss, senior economist & economic advisor at the Fed, offered his thoughts on the national economic picture, while senior economist Richard Mattoon talked of economic patterns in the Midwest and Chicago, and their possible impacts on commercial real estate.
"The U.S. economy will continue to expand, though perhaps a little slower than in 2005," noted Strauss, speaking before a packed lunchtime crowd in downtown Chicago. "We expect growth between 3 and 3.5 percent, unemployment to be steady at around 5 percent, and softer inflation. Energy futures are trending lower at the moment, but even if oil prices stay at their current high levels, $60 to $65 a barrel, that's going to represent little contribution to inflation."
Strauss did not expect a major correction in the U.S. housing market. "Mortgage rates are higher than their recent historic lows and income growth has struggled," he said, "so it's likely that home ownership rates have stabilized."
Regarding the Midwest economy, Mattoon said that one of the traditional mainstays of the region, manufacturing, has recovered better than expected in wake of hard times in the last few years. "The manufacturing sector is doing better than a lot of people think," he said, though it has shed jobs in recent years as the sector has become more efficient to produce high value-added goods that compete on the world market.
In Chicago, he noted that about 52,800 business service jobs have been lost since 2000 following the creation of about 212,000 such jobs in the 1990s, which is probably one factor in the sluggishness of the office market in recent years. These losses represent a more marked contraction in that sector than in other major metro areas, especially on either coast. "No one is quite sure why Chicago lost so many business service jobs," Mattoon said, "but one idea is that the city isn't quite as international as it may want to be, and is still tied strongly to the Midwest, which as had a harder time of it since 2000 than either coast."
