Economist J. Fred Giertz says that Illinois would likely fare better than the nation if the sagging U.S. economy plunges into a recession.
CHAMPAIGN, Ill. – Illinois would likely fare better than the nation if the sagging U.S. economy plunges into a recession amid a worrisome housing market slump and sub-prime loan crisis, a University of Illinois economist says.
“A recession in 2007 or early 2008 might have a relatively light impact on the state since real estate problems are not as severe here as in several other states,” economics professor J. Fred Giertz said. “Illinois has also not suffered as much as Michigan from the slowdown in the automotive industry.”
The state’s travel industry, a vital cog in the Chicago-area economy, also remains strong, in contrast to the nation’s last recession in 2001 when terrorism fears caused a sharp decline, said Giertz, the interim head of the U. of I. economics department.
Giertz doubts dire forecasts by some analysts that the nation’s sluggish economy will lapse into a recession, instead agreeing with other observers who predict the slowdown will end with “a soft landing, not a crash.”
“Experts are notoriously inaccurate about predicting recessions. The old joke is that forecasters have predicted six of the last two recessions,” said Giertz, a professor in the Institute of Government and Public Affairs.
Giertz says recessions have occurred about once every 10 years over the last three decades. The nation’s economy is ending its sixth year of expansion since the 2001 recession, a recovery that weathered terrorism worries, natural disasters, corporate accounting scandals and a slowdown in the auto industry.
“The question now is whether the economy can do the same with the sub-prime loans and housing market problems. The odds are that we will, but it’s not a slam dunk,” Giertz said.
Because of sometimes-conflicting economic data, experts are divided over the prospects of another recession. Sales of existing homes slid 19 percent in September, for example, while new home sales logged a surprising 4.8 percent increase.
Giertz says recessions are not only hard to predict, but that it’s sometimes just as hard to tell when the economy is really in one. The nation’s last recession began in March 2001, but a government agency that determines when recessions begin and end did not determine the economy was actually in one until late November 2001.
“By that time, the recession had ended and the economy was expanding again,” Giertz said.
Giertz says the last three recessions have had varied impact in Illinois, which was harder-hit than the nation in 1980-81, but fared relatively well in 1990. The 2001 recession again had a more severe impact, he said, with the state recovering more slowly than the rest of the country.
Editors note: To reach J. Fred Giertz, call 217-244-4822 or 217-244-3108; e-mail jgiertz@illinois.edu.
