Chicago Fed economist ‘optimistic’ about U.S. recovery

MAQUOKETA - The senior economist at the Federal Reserve Bank of Chicago is optimistic that the nation will continue to recover from the worst economic recession since the 1930s.

William Strauss, speaking to about 150 people attending an economic summit at the Comfort Inn in Maquoketa, said he expects the United States economy to expand at a solid pace this year and in 2012.

“Financial conditions are improving and that's why I believe growth is going to be stronger and slightly above trend,” Strauss said. “Employment is going to improve, but not enough to get us out of this slack labor market. I think we can continue to be aggressive with our financial policy because the slackness in the economy will lead to a relatively contained inflation rate.”

Strauss said manufacturing is expected to continue to grow at a solid pace this year and next year, primarily driven by exports. He said auto sales are forecast to continue growing and automakers like Volkswagen and Chrysler have announced major capital investments in new and existing manufacturing plants.

“I believe the housing market will start to edge higher, but I also expected that to happen early in 2010 when I made my forecast in November 2009,” Strauss said. “I believe the housing market has bottomed out, but there's a risk that more recent numbers indicate a continued weakness. I don't think those numbers are suggestive of weakness further out.”

The Commerce Department on Wednesday reported that new home sales plunged 16.9 percent in February to a low of 250,000 units. That's the slowest pace since 1960.

Strauss said the tax break that caused a brief surge in the housing market last year was not successful in jumpstarting that sector of the economy because homebuyers merely shifted the timing of their purchase. When the tax breaks expired, the housing market resumed its slump despite low mortgage interest rates and an abundance of available homes at depressed prices.

Strauss said budget cuts at the federal and state level likely will be a “drag” on the overall economy. While he is encouraged to see citizens becoming concerned about the impact of budget deficits and long-term debt, Strauss said it will take bipartisan efforts to rein in spending and “get our financial house in order.”

Strauss said Japan faces a challenge recovering from the worst earthquake in its history and the tsunami that followed, claiming more than 9,500 lives and causing an estimated $300 billion in damage. He noted that the island nation's national debt is 200 percent of its gross domestic product and its aging population means fewer workers in the years to come.

Strauss, while cautioning that as a Fed economist he would not comment on Obama Administration policy, said U.S.-South Korea Free Trade Agreement that has languished without Congressional approval since it was signed in 2007 needs to move forward.

“Liberalization of trade is generally favorable for both countries,” he said. “From our standpoint, it's important to just get it done.”

Strauss said China will become an increasingly important market for American exports, particularly in the area of agricultural commodities. He said prices are rising rapidly in China, which the central government is trying to control, but it's also trying to improve the living standard of its citizens.

Strauss was making a return appearance as keynote speaker at the 8th Economic Summit, sponsored by Ohnward Financial Advisor Services, Maquoketa State Bank, First Central State Bank, Ohnward Bank & Trust and Gateway State Bank.