U of Ideas of General Interest -- February 1999 University of Illinois at Urbana-Champaign
Contact: Mark Reutter, Business & Law Editor (217) 333-0568; [email protected]
ECONOMIC OUTLOOK Growth in service and financial sectors predicted for Illinois
CHAMPAIGN, Ill. -- Uneven growth is forecast for the Illinois economy in 1999, University of Illinois economists say in their annual outlook.
Propelled by strong consumer spending, expansion will be concentrated in the services and financial sectors, a report by the U. of I. Institute of Government and Public Affairs predicted. Because the service sector now dominates the state economy, growth in this field will keep the economy expanding at a steady inflation-adjusted rate of about 2 percent.
Aiding the state's modest growth in 1999 will be the stock market, whose surprising rebound since October has added to the wealth of many Illinois citizens. So long as the financial markets do not undergo wild price swings or last summer's free fall, the improvement in stock valuations will spur consumer spending.
There are two trouble spots. Illinois manufacturing is expected to contract in 1999, though not as sharply as elsewhere in the United States. Furthermore, the flood of foreign imports arising from Asia's economic woes "will reduce sales and limit price increases for Illinois companies," Robert W. Resek, chief author of the U. of I. report, said. Resek credited Illinois companies with a quick response to the Asian crisis. By reducing their inventory and taking immediate write-downs of any business losses, many corporations will ride out the expected manufacturing doldrums this year. As a result, overall manufacturing employment in the state will drop by only by 1 percent this year, Resek predicted.
"A second problem that started abroad is the low price for agricultural commodities," the report noted. "While these prices will hurt profits of Illinois farmers, productivity remains great and there will be little or no impact on total farm activity in 1999."
The state government will end the 1990s in far better financial shape than it began the decade, according to U. of I. economists J. Fred Giertz and Therese J. McGuire.
"Jim Edgar has left the governorship with the state fiscal condition arguably the best in history," Giertz and McGuire wrote. Even though tax revenues are coming in at a slower rate this year as compared to 1998, the economists still predict a healthy $1.2 billion general funds balance when the 1999 fiscal year ends June 30.
Illinois was in the middle of a recession and state tax revenues were far short of expectations when Gov. Edgar took office eight years ago. For most of his first term, Edgar walked the tightrope of managing "a huge overhang of unpaid state bills" without resorting to a major tax increase. The state's current budget surplus reflects both a buoyant state of the regional economy and "strong fiscal discipline exercised by the governor and General Assembly," Giertz and McGuire concluded.
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