Fed officer tells Elgin audience recession is over. Sort of

Is the Great Recession over?

Yes and no, according a high-ranking Federal Reserve officer who addressed an Elgin Area Chamber of Commerce luncheon Tuesday.

William Testa, vice president and director of regional programs at the Federal Reserve Bank of Chicago, said that on paper, it can be argued that the economy is on the road to recovery, with two quarters of consecutive growth, including 5.7 percent in the last quarter of 2009.

"We are looking up a little but," Testa said.

But 3.4 percent of growth was because of businesses producing more to restock their inventories, which typically are pared down when the economy sags, he said.

Before that, five of six quarters had negative gross domestic product, which is one way economists gauge the economy's health.

While Wall Street may believe the recovery is underway, Main Street views it differently because unemployment is still around 10 percent nationally and only projected to decrease to about 9 percent by 2012.

In Elgin, unemployment is around 15 percent.

"There's a difference in perception," Testa said.

Testa is the economics editor of the "Chicago Fed Letter" and chairs the board of trustees of the Illinois Council on Economic Education.

He also is a board member of the Global Chicago Center of the Chicago Council on Global Affairs and the Economic Development Council of Chicago.

He said the recovery for the Chicago area and suburbs will take some time because: Americans lost an estimated $8 trillion in wealth when the stock market crashed, it will take a while to reduce excess inventory of homes and commercial real estate and capital markets are fragile.

Testa also warned that the $11 billion deficit in the state's budget could have Springfield lawmakers looking to raise taxes, which would hinder growth.

"The question in this is environment is who you gonna tax?" he said, borrowing a phrase from the 1984 film "Ghostbusters." "No one knows what the future looks like, but the debt overhang is there."

Testa also said the federal government needs to strike a balance when regulating banks and financial institutions to leave room for growth while safeguarding against another recession but still leave room for growth.