Williams A. Strauss, Senior Economist and Economic Advisor in the Economic Research Department at the Federal Reserve Bank of Chicago, delivered the luncheon’s Keynote Address before more than 250 businesspeople representing 10 chambers of commerce across DuPage County.
Sponsoring chambers of commerce included Clarendon Hills, Darien, Downers Grove, Elmhurst, Glen Ellyn, Hinsdale, Lemont, Lisle, Westmont and Woodridge. Westmont and Elmhurst started the luncheon a decade ago.
Making his fifth consecutive appearance at this multi-chamber event, Strauss reported that this Great Recession recovery has been slowed primarily by the bottoming out of the housing industry—which fueled America’s “tennis ball” rebound from economic crisis in both the mid 1970s and again in the early 1980s.
While Gross Domestic Product (GDP) increased by a “tepid” 2.4% for 2011—thanks to a 1.5% hike in consumer spending and 0.6% hike in business—that percentage was still less than the average growth rate of 3% and fell well below the more than 5% annual growth rate enjoyed in the 1970 and 1980 recoveries, Strauss reported. Last year, housing starts fell to a post-World War II low.
Strauss reported that GDP grew quarter by quarter throughout 2011, rebounding from last spring’s crude oil hike and the economic fallout from Japan’s tsunami, and closed out the Fourth Quarter with a 3% increase.
GDP is predicted to grow at 2.2% in 2012 and 2.8% in 2013, while the Consumer Price Index (CPI), or rate of inflation, is expected to increase by 2% and then 2.2%.
During this recession, personal savings jump from 1% to 6% of disposable income, but has dropped back to 4% as consumers, whose spending accounts for two-thirds of America’s economy, succumbed to their “pent up demand” and bought new vehicles, high-end goods and state-of-the-art electronics, reported Strauss. This strange savings-versus-spending relationship is referred to as the “paradox of thrift.”
Fueled by the rebounding automobile and steel industries, which fell by 50% and 40%, respectively, manufacturing has recovered 69% of its 20% falloff, including a 6.5% bump over the past 31 months, reported Strauss. In 2011, 78% of the cars and trucks sold in America were built here, as compared to 75% back in 1980, he noted.
According to Strauss, the growth in business came mostly through greater productivity rather than from jobs, although America added two million new jobs in 2011, which dropped the unemployment rate to 8.3%, a 1.7% decrease since 2009. Based on our population growth of 1%, some 1.2 million news jobs are need each year.
While crude oil prices continue to be volatile, with gasoline prices predicted to reach $5 per gallon, total energy costs for homeowners and businesses alike are not expected to skyrocket thanks to lower prices for natural gas and electricity, he stated.
Hard as it is to believe, crude oil prices have balanced out over the past 30 years.
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