Fed Reports More Good Than Bad In the U.S. Economy

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February 13, 2017
     ELMHURST, IL, February 3, 2017 -- While America’s economy—or Gross Domestic Product (GDP)—grew at only 1.9% in 2016 versus the 3% standard, 2.3 million new jobs were created in the past 12 months (including 227,000 in January), the nation’s unemployment rate of 4.8% remained historically normal (with Illinois at 5.7%, highest in the Midwest), the trade-weighted United States dollar increased 22%, and energy prices for oil and natural gas remained well below their historical norms.
     Those were among the financial statistics that Keynote Speaker William A. Strauss, Senior Economist and Economic Advisor in the Economic Research Department at the Federal Reserve Bank of Chicago, shared with some 325 businesspeople representing Elmhurst and 15 other west suburban chambers of commerce at the 15th Annual Economic Outlook Luncheon held at Ashyana Banquets in Downers Grove on February 3.
     Since the end of the “Great Recession”—which ran from December of 2007 through June of 2009—America’s economy has rebounded slower than desired, but is still doing better than the rest of the world, further strengthening the U.S. dollar.
     While a strong dollar is beneficial for both Americans travelling abroad and foreign imports coming to the U.S., it also creates a burden on consumers abroad wanting to purchase exported American products, generating a trade balance surge resulting in a drop in the GDP.
     The Fed forecasts GDP growth at 1.9% to 2.3% in 2017 and 1.8% to 2.2% in both 2018 and 2019, as opposed to the 3% to 4% growth projected by President Donald Trump’s administration.  In the past seven and a half years, annual growth has averaged only 2.1%, compared to 4.4% and 4.3% following the recessions of 1981-82 and 1974-75, respectively.
     Two factors driving GDP remained static, with the labor force growth only .8% as population growth slowed with lower immigration and productivity gains only 1% to 1.25% as a result of better equipment, improved processes, greater capital investment or a more-skilled workforce.
     After losing 8.7 million jobs from December of 2007 through February of 2010, America’s workforce has added more than 16 million new jobs for a net of 7.3 million jobs, but less than the 9 million expected under normal conditions.
     While the U.S. unemployment rate, which peaked at 10.2% in October of 2009, has fallen to 4.8%, Illinois’s rate of 5.7% in 2016 remained the highest in the five-state Midwest Region.
     Since peaking in 2000, the labor force remained at its lowest level since 1977, with declining participating percentagewise by those ages 16 to 54.  Of those ages 55 and older, 63.8% are still working.  Of those 65 and older, 16% are still employed.
     The Consumer Price Index (CPI), interest rates and rate of inflation all are expected to remain below historical norms at around 2%.
     The Fed raised its lending rate by .25% in December as a hedge against inflation and projects .25% increases twice more in 2017 on the way to historical norms of 3.5% to 4% by 2019.
     Despite the Fed action, the stock market soared to record levels following November’s Presidential election, with the Dow Jones Industrial Average topping 20,100 on January 26.
     Manufacturing lost jobs in 2016 with zero growth, but is projected to grow at 2.5% in 2017 and 2.3% in 2018, thanks to a strong automotive industry coming off a record 17.55 million in 2016 vehicle sales on top of a record-setting 2015, fueled by the light truck market.
     Housing starts totaled 1.168 million in 2016 and are projected at 1.264 million in 2017 and 1.348 million in 2018, all of which are still below the historical norms of 1.4 to 1.5 million.
     Businesses and consumers have benefitted from relatively-low oil and natural gas costs.