Steve Cain, RPBG Director & Writer/Editor
Tuesday, January 6: As the New Year begins, there's a lot of reason to be optimistic about the near future, but also some potential for trouble ahead. First, the good news:
Let's start with the stock market. It's been on a tear all year and, despite running into a little turbulence at the end of 2014, is still near its all-time highs. After hitting 18,000 around the Christmas holiday, the Dow Jones is currently about 17,500.
The reason the stock market has done so well is, well, as Austin Powers would say, the economy finally seems to have gotten its mojo back. The reasons for this are many, but in a nutshell, after years of struggling to bounce back from the deep and ugly recession of 2007-2009, all of the economic indicators finally appear to be lined up and heading in the right direction. The housing market has recovered; interest rates remain low; oil and gas prices have fallen dramatically; the US continues to lead the world in technological innovation; banks are lending again; businesses are starting to hire and expand, if still cautiously; and the American consumer is once again shopping, eating out and generally feeling more optimistic about the future.
Even the Chicago area, long a laggard in the national recovery, is starting to show signs of catching up. The unemployment rate in the Chicago area declined dramatically during 2014 and growth for the metro area economy is projected to expand in 2015 by up to 3.5%, a huge improvement from the 2% (plus or minus) growth that we probably experienced during 2014 (final numbers are not yet tabulated).
Now for that bad news:
Lower oil prices have been a boon to the average American, but a bust for the Oil Patch, stretching from North Dakota to the Gulf Coast, and an outright disaster for oil-dependent countries such as Russia, Venezuela and across the Middle East. Generally speaking, we Americans are not particularly sympathetic toward Russia, Venezuela and the Middle East – but therein lies the problem. These places were already unfriendly to the West. As their economies worsen, antipathies get magnified and political and economic instability grows.
Russia in particular seems to be reverting to old, bad habits, acting increasingly aggressively abroad and autocratically from within. Venezuela is turning into a basket case and the risk of civil war increases. The Middle East is always a tinderbox. Falling oil prices only increase the region's volatility.
Depressingly, all that cheap oil does not seem to be stimulating economic growth outside of the US. Much of Western Europe and Latin America are still struggling to register any economic growth at all. China and the Pacific Rim are doing marginally better, but not as well as they had been or could be.
On a local level, we still have the budget deficits to contend with and even bigger pension fund shortfalls. The credit rating for Illinois ranks dead last of the 50 states. Creditors regard our state finances as sub-par, and that would be putting it kindly.
Overall, things still look pretty encouraging for us here in the US, but there are external risks that could come back to haunt us, as well as local risks particular to the state and the region. The reality is, we are all part of a global world, and no country – not even the United States – is completely immune to what goes on beyond its borders. While we have lots of reason to be optimistic about the economy in 2015, we can never be entirely sure about what's around the corner.
Happy New Year!