Monday, October 12, 2009

Illinois Economic Briefing

The following is a briefing report that I have been graciously allowed to publish for you courtesy of its author, respected U of I economist, Dr. Geoffrey Hewings. (There is a graph missing from the version below, basically because I couldn't get it to format the right way). Dr. Hewings offers some very interesting insights as to the state of Illinois' economy, how we got here, and how we get out of here. Give it a read.


Illinois Economic Briefing
September 2009
prepared by
Dr. Geoffrey J.D. Hewings
Director
Regional Economics Applications Laboratory
University of Illinois
www.real.illinois.edu

Challenges, Issues and Opportunities

Illinois’ economic growth remains anemic.

- Through June 2009, the cumulative job growth for Illinois, RMW (i.e., Rest of the Midwest - IA, MO, WI, MI, OH, IN), and the nation compared to January 1990 stood at 7.99%, 9.54%, and 20.65%, respectively. Illinois has been growing at less than half the rate of the US for over a decade and a half and the issue has received no attention.

- Problem in IL is not with the structure of the economy but with our growth rates. We “look” very much like the US economy but on a sector-by-sector basis we grow less rapidly.

Past Governor and Legislators have invested little effort to understand Illinois economy.

- Current state policies have been enacted without a full understanding of the economy, how it has changed and degree to which a Governor’s policies can make a difference.

- Elected officials are under mistaken impression that because the economy is large and complex it will sort itself out.

Need a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis with input from government, public, private sector, unions and other stakeholders with commitment from Governor and Legislators to act on recommendations.

- Census estimates 80 million new residents in US between now and 2050 – how can IL position itself to attract a significant share?
- Over last 15 years, Chicago and Illinois have lost significant revenues as a result of out-migration, especially of retirees. Currently estimate that the state loses $1.5 billion a year from net migration (in minus out) translating into loss of state income and sales tax revenue:

- Result of significant retiree out-migration (Chicago is second only to New York in retiree out-migration).

- Result of fact that average salaries of in-migrants lower than average of the out-migrants.

- If that $1.5 billion were spent in the state an additional 20,000-30,000 jobs would result.

- Illinois needs an integrated transportation system approach (not one in which airport, road and rail planning are separated).

- Evidence from Europe shows strong correlation between location of corporate headquarters and intercontinental airline connections.

- Improvements, via project CREATE, in freight transportation will enhance Chicago’s leadership position in this rapidly growing activity.

- Interstate trade is increasing more rapidly than gross national product.

Human capital is being exported because we are not creating attractive jobs that would keep workers in Illinois.

- Investment in human capital is the most crucial element to economic growth even though returns may not be evident for a decade. Long-term vision required.

- University of Illinois estimated that lifetime benefit from BA degree is close to $700,000 – significant impact on individual welfare but also to Illinois in terms of additional income and sales taxes.

- Illinois currently is a net exporter of skilled labor.

Renewable energy, high speed rail, public transportation, and energy efficiency all have enormous potential to generate significant numbers of high paying, sustainable jobs.

- Investment in renewable energy and energy retrofit will reduce state’s dependency on oil-based products (where a large percentage of the ripple effects “leak” out of the state) AND will also create significant numbers of jobs within state.

- Political turmoil of the last decade has cost the state in terms of:
- businesses relocating out of the state.
- local firms expanding out-of-state plants and operations.
- businesses that explored but did not locate in Illinois.

- Illinois’ gross product exceeds $500 billion yet the state spends virtually no money either to understand or monitor its economy.

Economic Highlights

- Illinois has never fully recovered from the 2001-2002 recession – in contrast, the US recovered by February 2005.

- Illinois has never had a period since the end of World War II in which the recovery of a prior employment peak took more than eight years. Yet, with continued month-to-month employment declines, it is still impossible to forecast recovery of the prior employment peak of November 2000.

- Illinois is 373,300 jobs below its November 2000 peak. If growth in population is added and “equilibrium” labor force participation rates, then that figure increases to a net deficit of 476,300 jobs in Illinois.

- With consensus forecasts suggest continuing job erosion for another 4-6 quarters, Illinois can be expected to begin the recovery with a job deficit in excess of 500,000 jobs.

- A robust recovery of 50,000 jobs a year would still take 10 years to reclaim the November 2000 peak – and Illinois has experienced only one year since 2000 when job growth exceeded 50,000.

· Illinois economy has lost 272,600 jobs in the last 12 months.

· Illinois, RMW, and the nation all lost jobs in June. However, for all three, the job loss rates were smaller compared to the first four months of 2009. Within the rest of Midwest, over 80% of job losses occurred in Ohio and Michigan.

· Since the beginning of the recession in December 2007, Illinois has lost 307,600 jobs, of which 268,400 jobs (87.3%) have been lost since September 2008.

· Through 2008, Illinois lost an average of 11,808 jobs per month. However, for the first five months of 2009 that jumped to an average loss of 27,200 jobs per month.

· Over the last 12 months, Illinois payroll cut 272,600 jobs at a rate -4.57%, the rate is higher than the -4.12% national rate. RMW continued to lose jobs at a rate of -5.12%, its 16th negative month in a row.

· The official unemployment rate may underestimate true numbers of unemployed since labor force participation rates have declines; the Regional Economics Application Laboratory at University of Illinois calculates a shadow unemployment rate that accounts for those who have dropped out of the labor force altogether. For Illinois, RMW and the nation, the shadow unemployment rates were 12.0%, 13.7% and 10.7%, compared to official unemployment rates of 10.3%, 11.0% and 9.5%.

· Illinois has not outperformed ANY of 10 aggregate sectors in the nation over the period of 1990-2009 and only two sectors compared to the Rest of the Midwest.

· If Illinois were able to replace its lost jobs, without any increase in tax rates its coffers would see an annual increase in:

Income tax revenue: $700 million

Sales tax revenue: $500 million


TOTAL ANNUAL
INCREASE
IN
TAX REVENUE $1.2 Billion

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