Skip to main content

Neighbors of Kane County

Valley Industrial Association holds Economic Forecasting Breakfast

Dec 02, 2016 12:06PM ● By Neighbors Magazines

VIA President Cindy Tomei and Senior Economist William A. Strauss

On Tues., Nov. 29 the Valley Industrial Association (VIA) held an Economic Forecasting breakfast at Hotel Arista in Naperville. The VIA is an organization that was established in 1902 to give local manufacturers and the businesses that serve them a place to connect for professional growth. 

VIA President Cindy Tomei introduced featured speaker William A. Strauss. Strauss, a Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago, gave an unbiased presentation on the state of the economy going into 2017. 

Strauss talked about the GDP’s growth of 1.5% in the past year. He pointed out that the U.S. is in its 8th year of economic expansion and that the economy is doing well from a duration standpoint. Strauss noted, however, that the economy could be doing better in terms of its magnitude of gains.

Strauss spoke to the two main ways to grow the economy, which include an increased labor force and increased productivity. Labor force growth is dependent on population growth, which has been relatively low.  Productivity involves adding more and better machines to a system of production, which results in lowering the cost of doing business.

According to Strauss, many sectors of the economy still aren’t “normal,” and there’s room for growth in every economic sector. He mentioned that the forecast calls for a very gradual recovery in housing; 1.25 million homes will be put in place in 2017, a number that should be higher.

Overall, the Federal Open Market Committee (FOMC) expects the GDP to grow around trend for the next three years. Strauss said the GDP continues to expand and that this could be the biggest period of growth since the 1990s. Strauss pointed out that the path of the current recovery is restrained compared with past deep recession cycles and that the GDP will need to grow faster than trend to pull unemployed people into the workforce.

Straus noted that employment has grown by just under 2.4 million jobs over the past 12 months. Conversely, the unemployment rate has fallen to 4.9%. He said that these statistics might also generate optimism, but that nobody believes the labor market is normal. In fact, the labor force participation rate peaked in 2000 and recently fell to a level last seen in 1977. The 55-64 age group is the only age bracket to increase in the workforce between 2007 and 2015. Furthermore, the share of those unemployed for more than 6 months remains significantly high. Although the U.S. is in its 8th year of economic expansion, people aren’t being hired because they lack the necessary skills for available jobs.

Strauss also mentioned that wage and benefit cost continues to increase at a very slow pace. Slow productivity growth helps explain why relatively strong employment growth has not translated into higher wages. According to Strauss, labor has been cheap relative to capital and this has driven down productivity.

On a positive note, Strauss mentioned that oil and gas prices have declined and remained low. Low energy prices are good for the U.S. economy, and expenditures on energy are well below the historical average. Low energy prices mean consumers have more money to spend on goods and services.

Regarding Blue Chip International Consensus Forecasts, the U.S. is doing better than many other countries. Overall, the world is at a trend rate of growth and the U.S. is higher than the world trend rate.

According to Strauss, industrial production is forecast to improve next year, but below trend. The automotive sector has been very high, and Strauss said it’s hard to see it going any higher. With low energy prices light truck sales are higher by 7.2%, while passenger car sales are 8.4% lower. Taken as a whole, vehicle sales rose 5.8% last year, a number which is expected to edge lower in 2017.

Finally, Strauss spoke about the aggressive monetary policy which has kept federal funds near zero since 2008. The federal fund rate is expected to remain below the neutral rate through 2019.