Illinois in recession? That could be just the beginning of our woes
The Chicago area economy likely will be buoyed during a recession by local companies that offer consumer staples, food and health care. But be prepared for the worst, experts said Friday.
Such consumer staples dominate the Daily Herald's Chicago Index, a composite of 35 companies that dipped 23 points, or 3 percent, on Friday to land at 765. That was a softer landing than the Dow's 312-point drop or the New York Stock Exchange's 244-point slide.
"While Chicago corporations aren't escaping from the difficulties of the stock market or the economy, they do offer a cross section for the city that won't be as dramatically impacted as others nationwide," said Thomas Rowen, director of institutional portfolio management for Fifth Third Bank in Chicago.
Companies that offer food, like Kraft, Sara Lee and McDonald's, as well as others in health care, like Abbott Laboratories and Baxter International, provide human basics and a more solid foundation, Rowen said.
While we do have UAL's United Airlines and Tenneco Inc., both hurting from the auto and fuel industries, they still aren't the "toxic names" like Lehman Brothers, AIG and others that rocked the stock market, he said.
"Both in terms of financial industries and credit downturns that impacted the economy and markets nationwide, we're still ahead of the curve," Rowen said. "We could even come out of this ahead of the rest of the United States and international economies."
Other experts weren't as positive and felt Illinois was at the edge or already in a recession and possibly headed for worse. Moody's economy.com issued data this week that said Illinois was one of 27 states already in a recession.
"There are a few that think we'll dodge the bullet, but it's apparent that we are moving into a recession," said J. Fred Giertz, economist with the University of Illinois.
"We (Illinois) will likely mirror much of the nation when it comes to more mergers and acquisitions."
The first round of mergers will directly impact the financial sector. The second round, as a result of those mergers, will cause a small, but wider, reduction in employment, Giertz said.
Illinois could follow the nation in the next few years into a hyperinflationary period and then deflation, or depression, around 2010 or 2012. But don't expect the soup kitchen image that was the signature of the Great Depression, said Mark Kollar, chief executive officer of Rosemont-based Kollar Financial Strategies.
"It's like the United States is going through a Chapter 11 bankruptcy," Kollar said.
You'll likely see a lot of consolidation. He expects the mergers and acquisitions to lead to unemployment doubling by 2012 and housing values dropping to 1996 levels, possibly around 50 percent.
"If no one is buying widgets, and no one is taking trips or buying that new TV, and plan to keep things as is, then the widget maker won't produce more widgets and will end up getting rid of his employees, and then those people won't be able to buy anything," said Kollar.