Economist: Recession unlikely, economy mixed

By Thomas V. Bona

BusinessRockford.com

Audio: Thomas Bona interviews Rick Mattoon about the local economy

Despite the housing slowdown and high energy costs, an economist from the Federal Reserve Bank in Chicago says a recession is unlikely.

Strong corporate profits, employment rates and gross domestic product numbers give good news to counteract the bad news, Rick Mattoon told the Rockford Chamber of Commerce’s annual Economic Forecast Luncheon on Thursday at Cliffbreakers.

Manufacturers are using less energy to produce more product, while consumers are actually spending a smaller percentage of their household budgets on energy than in recent years, he said.

“If you look at the rest of the economy, we’re doing pretty well,” Mattoon said. “The big issue is containment. If energy and housing problems are contained within the industries we’d expect them to be contained in, the economy will do pretty well in 2008. If they spread further, all bets are off.”

Mattoon said economists, a typically pessimistic bunch, are predicting a 15 percent to 20 percent chance of a recession in 2008.

Chamber President Einar Forsman said Mattoon’s tempered outlook was a welcome change of pace from other forecasts.

“The way he presented all the different analyses was encouraging,” Forsman said. “By encouraging, I don’t mean he was presenting an optimistic outlook, but certainly a lot better than I think we would have assumed from other reports coming out. Some of the things I’ve been taking in from different sources would have led me to feel that we were headed downward.”

The Rockford area has specific concerns, Mattoon said after the luncheon. Its ties to industries that guzzle gas — particularly the domestic auto industry and its supply chain — make northern Illinois more vulnerable to high gas prices.

Meanwhile, homeowners may be feeling pinched by the housing slowdown because, unlike California, Florida, Massachusetts and other trendy parts of the country, there wasn’t a price boom to cushion them.

“If people have been counting on appreciation of their house as being one of the ways in which they accumulate income or wealth over time, if the market even just plateaus or it goes down slightly, people are going to feel less well-off,” he said. That could lead them to spending less on big-ticket items.

The upside for the Midwest? Manufacturers are still making money and cutting their energy costs, meaning that they could more easily weather the storm. The challenge is to get displaced workers — such as the 1,000 being laid off by Chrysler next spring and others losing supply-chain jobs — into available jobs in other fields.

“Job growth has been pretty strong,” Mattoon said. “It’s not an issue as to whether or not these people can be re-employed, it’s whether they can be re-employed at anything close to what their previous wages were. That puts a lot of pressure on the education system, whether people can be retrained.”

Staff writer Thomas V. Bona may be contacted at 815-987-1343 or tbona@rrstar.com.