By Brian E. Clark
WisBusiness.com
MADISON – Economic figures aren’t out yet for the fourth quarter of 2008. But William Strauss, a senior economist with Federal Reserve Bank in Chicago, expects them to be ugly.
“There will be steep declines,” Strauss warned a Madison International Trade Association luncheon Wednesday.
The first two quarters of 2009 won’t be very good, either, though the economy has a chance of perking up toward the end of year, he said.
“If you had asked me last August, I would have said we’ll muddle through,” Strauss, who also teaches at the University of Chicago. “But September changed all that and we sank to a new level.
“Still, this is an economic cycle that we will get through, though growth will fall the first half of this year,” he said. “And by the fourth quarter, we should have some muted growth again.”
Jane Mezera, a vice president and corporate trader in the Currency Exchange Department at U.S. Bank in Milwaukee, agreed that 2008 was a tough year. But she said she worries that 2009 will be worse.
“Every asset class is down,” she said. “And no country around the globe is escaping this recession, which is the worst we have seen since World War II. We have lost millions of jobs in the past few months.”
Strauss said the economy is facing “great headwinds” and predicted economic growth in the United States will be the slowest since the 1980s, when the last serious recession occurred.
But he said low inflation and moderating energy prices are positive signs for the economy. He said a one cent drop in prices at the gas pump puts $1 billion in consumers’ pockets.
That means a $2-per-gallon decline for gasoline equals a $200 billion stimulus for the economy, he said.
Strauss said the nation lost more than 2 million jobs in 2008 and predicted more companies will lay off employees in the months to come.
In the Midwest, he said Michigan is in the worst shape because of the lagging U.S. auto industry. That state now has a 10 percent jobless rate and has lost 575,000 jobs — more than 12 percent of its workforce — since 2000.
In the region, Wisconsin and Iowa have the lowest unemployment rates, he said, 5.3 percent and 4.3 percent for November, respectively. The national rate was 6.7 percent and California’s jobless figure was more than 8 percent.
Strauss said consumers, who power two-thirds of the economy, are pinching their pennies because of job losses, huge losses in their 401(k)s (which he jokingly called 201(k)s) and declines in the values of their homes.
California, Arizona, Nevada and Florida have seen housing prices fall by more than 20 percent, but values in Wisconsin have only declined by a few percentage points.
Declines in commodity prices worldwide have hurt the Badger State because heavy equipment manufacturers that call Wisconsin home are now selling fewer monster cranes abroad.
“However, A good sign for our economy is that productivity growth is solid,” said Strauss, who noted that the nation’s trade imbalance is improving because consumers are buying fewer imported goods. “So once we have passed this cycle, we are poised to see gains in our living standard.”
