Mattoon explained that 2019 was a growth year for the national economy for the 10th year in a row, which is a record for the United States. This was due to strong consumer spending, but he noted that the rate of growth is slowing. He also pointed out that while the unemployment rate is at a record low of 3.5%, wage inflation is also low. This suggests that while people are working, “there is a large pool of people who are underemployed, and that is tamping down on the wage pressure.”
He also cautioned the unsustainability of federal government spending, and that the national debt level is the highest it has been since World War II. “The tax cut did not create the additional revenue that was anticipated, and we didn't get the revenue bump for the tax cut to pay for itself,” he said. He added, “At some point we’re going to have to cut spending significantly, or increase revenue significantly, and that is a concern we have going forward.”
State of Illinois Outlook
Mattoon explained that while the media has focused on high taxes as the reason for outmigration, the numbers showed that half of those who left Illinois moved to higher tax states, which suggests the problem is more complex, and, “It isn’t a true story that [outmigration] is driven by high taxes, or some other perceived problem, but rather people are taking advantage of economic opportunity and where the jobs are best. It doesn’t mean Illinois can’t do better, but suggests it isn’t a clean story to just blame high taxes.”
Unfortunately for Illinois, the uncertainty of the future is holding back the State’s economy. “If people don’t know what the plan is, they can’t plan against it.” Mattoon explained that the State’s budget is unbalanced, and the State has a large pension liability. In discussing pension solutions, he said that since the Illinois Supreme Court has ruled that cuts to benefits violate the Constitution’s contract clause, the only remaining solution is more revenue. As an aside, he explained that some economists have argued that raising enough money to fully fund the pension system would actually harm the State’s economy more than help it, and that instead the State should aim to create a flat (and predictable) debt payment and wait for the current group of retirees to no longer collect their benefits due to natural declines in the population.
For good news Mattoon highlighted the recently passed capital program for roads, bridges, rail, and state facilities which was well structured with appropriate revenues such as an increase in the gas tax. He also mentioned that while Illinois legalized cannabis, the tax revenue generated from this sin tax is only about one-percent of the State’s general operating fund, so by no means a solution to all our spending problems.
City of Chicago Outlook
Mattoon explained that Chicago underperformed going into the recession and also out of the recession. In other words, “We knew our lane and we knew how to stay in it,” he said. While Chicago is currently underperforming compared to the rest of the nation, the direction is still positive. He also highlighted that Chicago has higher personal income, good investment, is first in the nation for site selection among employers, and others. Bad news for Chicago includes mostly demographics such as an aging population, and the poor fiscal condition of the State of Illinois.
He also boasted that Chicago’s is one of the most affordable Global Cities on the planet, and also has a highly educated workforce, a great transportation system, increased tourism, and the second largest financial sector in the nation. He said, “You won’t get what we have here in Los Angeles or New York” at this affordable level.
“We’re not concerned about a recession in 2020,” he said. However, he pointed out we are balancing the economy with consumer spending, which can easily change.
He also gave some thoughts on Chicago’s real estate boon by explaining that the big developments talked about in the news seem tailored to growing industries, which is good.