Three respected economists– Randall S. Kroszner, Norman R. Bobins Professor of Economics; Austan D. Goolsbee, Robert P. Gwinn Professor of Economics; and Carl R. Tannenbaum, AB ’81, MBA ’84, senior vice president and chief economist at Northern Trust Corp.– offered their forecasts at the annual Chicago Booth Economic Outlook 2015. The conference drew more than 900 alumni and business people to the Sheraton Chicago Hotel and Towers on January 15.
With U.S. economic growth hovering around 3 percent, the unemployment rate at 5.6 percent and average monthly job growth of around 250,000, it might seem odd to some that there is such little upward pressure on wages. Kroszner explained that this is due to the fact that the traditional unemployment rate doesn’t account for those who have given up looking for work but still want a job and those who are working part time, but would prefer full-time employment.
“Include those people and you get an 11.2 percent unemployment rate. This provides a different perspective on the state of the labor market, wage pressures and Federal Reserve policy,” said Kroszner, a former Federal Reserve governor.
A particular concern raised at the conference was the threat of deflation around the world, especially in Europe and Japan. A deflationary cycle over seas could have repercussions for the United States, Kroszner warned. Tannenbaum also noted that deflation was looming in Europe and Japan “even before energy prices were cut in half.” The energy plunge could be especially difficult on energy producing nations such as Russia, Venezuela, Brazil, Nigeria, and Iran.
Meanwhile, Goolsbee expressed concern over the stagnating economies in Europe and noted that the European Central Bank is embracing quantitative easing, which is the policy of buying government bonds that helped revitalize the US economy.
“Central bankers will have to decide: Either they will continue to subsidize months at a time to fix successive financial crises in a different countries, or they can withhold support until countries begin to leave the eurozone,” Goolsbee said.
Domestically, Goolsbee forecast some improvements in unemployment and modest growth in wages.
“We should expect more of the same as happened last year, but a bit faster. It will be a decent year, not a great year,” he said.