How will the Chicago economy be affected by forecasted changes in the US economy as a whole? In this brief report, an analysis is provided of recently published forecasts for the US economy issued by the Federal Reserve Board. These national forecasts are used by REAL in generating forecasts for the Chicago regional economy; hence, changes in national scenarios will have impacts on Chicago forecasts.
Table 1 highlights the national scenarios; IHS Global Insight’s national forecasts are the ones used by REAL to drive the Chicago model; their initial and revised forecasts are shown as well as those for the Federal Reserve Board and subsequent modifications for 2009 and 2010. Both alternative forecasts suggest a decline in GDP in 2009 with recovery anticipated in 2010. However, the recovery in GDP growth is expected to be accompanied by an increase in the unemployment rate.
Table 1: National Scenarios
National Scenario |
2009 |
2010 |
GDP growth
(%) |
Unemployment
Rate (%) |
GDP growth (%) |
Unemployment
Rate (%) |
Global Insight:
Original version |
1.0 |
6.1 |
2.9 |
5.9 |
Global Insight:
Updated version |
-1.0 |
7.7 |
1.7 |
8.2 |
Federal Reserve:
Baseline |
-2.0 |
8.4 |
2.1 |
8.8 |
Federal Reserve:
Alternative |
-3.3 |
8.9 |
0.5 |
10.3 |
Since the Fed’s announced projections are only for GDP growth rate and unemployment rate in 2009 and 2010; the forecasts for other macro-variables are not available to the public. Therefore, we computed the averages of elasticity of each key macro-variable with regard to the growth of GDP for the previous 20 years. Then we estimated the path of national consumption, income and production in 2009 and 2010 by using these average elasticity values. However, the paths of population, price level and financial indicators are assumed to be same as those of HIS Global Insight’s updated projection.
The impacts on the Chicago economy are shown in Table 2 for Gross regional Product (CGRP), total production (CXTOT), total income (CYTOT) and total employment (CNTOT). Table 3 shows the impacts on Chicago’s growth rates for GRP and unemployment. Using the revised Fed forecasts, when entered in the Chicago model, the region’s GRP would decline by almost 3% in 2009 and grow at just over one third of the rate forecast with the original Fed estimate. Unemployment rates would rise to >10% in 2009 and over 11.6% in 2010. Job losses over the original forecasts would exceed 100,000 in both years.
None of these forecasts provides for any mitigating effects due to the stimulus package
Table 2: Impacts on the Chicago Economy
National Scenario |
2009 |
2010 |
CGRP |
CXTOT |
CYTOT |
CNTOT |
CGRP |
CXTOT |
CYTOT |
CNTOT |
Global Insight:
Original version |
302,971 |
701,981 |
217,135 |
4,944 |
306,887 |
709,994 |
218,118 |
4,957 |
Global Insight:
Updated version |
299,699 |
670,529 |
213,345 |
4,884 |
302,766 |
680,913 |
215,009 |
4,913 |
Federal Reserve:
Baseline |
296,885 |
666,428 |
212,764 |
4,867 |
301,337 |
679,608 |
215,013 |
4,907 |
Federal Reserve:
Alternative |
294,483 |
658,890 |
211,281 |
4,839 |
296,177 |
663,474 |
211,900 |
4,850 |
Table 3: Impacts on GRP Growth Rate and Unemployment Rate in Chicago
National Scenario |
|
2009 |
2010 |
GRP growth
(%) |
Unemployment
Rate (%) |
Change in Employment |
GRP growth (%) |
Unemployment
Rate (%) |
Change in Employment |
Global Insight:
Original version |
-0.39 |
6.9 |
- |
1.29 |
6.6 |
|
Global Insight:
Updated version |
-1.22 |
8.8 |
-60,000 |
1.02 |
9.1 |
-44,000 |
Federal Reserve:
Baseline |
-2.15 |
9.7 |
-77,000 |
1.50 |
9.8 |
-50,000 |
Federal Reserve:
Alternative |
-2.94 |
10.3 |
-105,000 |
0.58 |
11.6 |
-107,00 |
Tae-Jeong Kim is a Ph.D. candidate in economics and a Research Assistant in the Regional Economics Applications Laboratory, University of Illinois. tkim35@illinois.edu
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