The U.S. economy remains on solid footing, although the Midwest is not keeping up with the pace of national economic growth, a top economist said Thursday as he offered a forecast for the next few months.
“It’s moderate and steady growth. We should be happy. It’s like our kids getting a B in school,” said William Strauss, a senior economist and economic adviser with the Federal Reserve Bank of Chicago.
Strauss analyzes the performance of the Midwest economy and the manufacturing sector for use in monetary policy. He offered his economic forecast Thursday at the Eclipse Center. The presentation was sponsored by First National Bank and Trust Company.
The U.S. gross domestic product, which provides an economic snapshot of the country, grew by 2.3% over the past year. Strauss said the Chicago Fed National Activity Index’s three-month average, reported in August, was just below recent trends.
That statistic, he said, is a positive indicator for the national economy.
“It’s suggestive of growth continuing, albeit on the softer side,” Strauss said.
The Midwest economy lags the rest of the country, he said.
“Manufacturing had been the driving sector for growth in the Midwest up until several months ago,” Strauss said. “A large part of the weakness in productivity growth has been the weak pace of investment, although it had been increasing at a solid pace beginning in 2017.”
He said the probability of a recession in the next two quarters is higher but still remains low.
“It’s a normal year given the challenges we are facing internationally,” Strauss said.
He pointed to the labor market as one of the economy’s greatest strengths. More than 2.1 million jobs were created over the past 12 months, he said.
“The pace of job gains has slowed, but I will put forth the slowness is still regarded to be well above what we should be accomplishing,” Strauss said.
The national unemployment rate remained low at 3.5% in September—historically low for African Americans and Hispanics—and the rate will remain below average at least until 2022, he said.
Wages continue to increase at a moderate rate while benefit cost gains are easing. Inflation is below the federal target of 2%, he said.
Inflation mostly has followed the pattern of energy prices, Strauss said. Energy expenditures remain well below historical averages, and Strauss noted that the United States is importing less oil and exporting more.
Blue Chip forecasts say housing prices will continue their gradual recovery, he said.
Meanwhile, those forecasts say overall vehicle sales will dip this year and in 2020—although manufacturing employment has increased by 117,000 workers over the past 12 months.
Sales of light trucks are at a record high. Strauss said because of low energy prices, seven out 10 vehicles sold are truck products.
Industrial production is forecast to fall this year but increase slowly in 2020, he said.