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Why Americans are drinking more at home, why both Nieman Marcus and McDonald’s are doing so well, and why the housing market is a personal issue for Federal Reserve chairman Ben Bernanke were among topics explored by Diane Swonk, ’89, when she gave her take on the economy at Chicago GSB Club’s annual membership meeting November 14 at Gleacher Center.
America’s current economic expansion, which has lasted five years as of this month, is going through a “midlife crisis,” said Swonk, senior managing director and chief economist for Mesirow Financial. It’s marked by a slowdown, achieving less than 2 percent growth last quarter, she noted. “The good news is that business investment is picking up, although not what it should be,” Swonk said.
Also on the rise are profits. The current quarter, Swonk predicted, will be the 19th in a row to post double-digit gains, the longest string of double-digit gains ever. One of the most dramatic trends in consumer spending is an increase in personal alcohol consumption at home, the economist said. “Either we’re self-medicating or celebrating in a fancy way to impress clients,” she joked, adding that more likely it’s the high cost of drinks at bars.
The wealthy are spending more conspicuously than ever, creating a three-year backlog in orders for private jets and benefiting retailers like Nieman Marcus and Nordstrom. Those not so well off are patronizing McDonald’s in increasing numbers, to the distress of full-service family restaurants. Swonk explained, “Gas prices have spiked, and if you’re going to cut discretionary spending, you cut out taking the family to dinner once a week.”
A raise in the minimum wage is certain, she said. Already 29 states, including Illinois, have set the figure higher than the federal minimum of $5.15 per hour, and even Wal-Mart is supporting an increase.
Swonk expects the federal deficit to continue falling relative to the gross domestic product. “In the near term, revenues are through the roof.”
She also said she foresaw no move by the Fed to ease interest rates, barring a major slowdown. And she told why Fed Chairman Ben Bernanke is so concerned about the housing market. “He grew up hearing stories in poor areas about the Great Depression,” Swonk said. “It’s a personal issue. Bernanke doesn’t want to see people evicted from their homes.”
Although the economy probably looks better on paper than it feels, she said, “The good news is that the best is ahead of us.” Swonk predicted that the economic expansion will probably make it to 2010.
“The expansion is like fine wine and women,” she said. “We both get better with time.”
—Gary Wisby