* Moody’s summary as prepared for COGFA…
Illinois is in decent shape for a state facing a slowdown in manufacturing, poor agricultural conditions, and numerous demographic and fiscal problems. The economy is doing better than it has in some time. Several private-sector industries are strengthening, and greater fiscal certainty and growth in tax revenues have allowed the public sector to recoup some jobs. After declining for most of the year, the unemployment rate dipped to an all-time low of 3.7% in December despite a stable labor force. The tight labor market coupled with a better jobs mix is helping to preserve big gains in average hourly earnings.
Most economic gauges point to a performance gap with the Midwest and the U.S. The comprehensive count of jobs from the Quarterly Census of Employment and Wages indicates nonfarm employment growth over the past year was weaker than suggested in the survey estimates. Income growth in key industries such as healthcare, professional/business services and manufacturing was slower than average in 2019. The U.S. trade war with China has taken a toll on the industrial and agricultural parts of the state.
Falling mortgage rates and relatively high affordability have barely offset the effects of adverse changes to the federal tax code and weak population trends. Multifamily housing has propelled almost all the growth in residential construction during the current business cycle. Single family house prices have climbed just 1.5% over the last year, the smallest gain in the Midwest and half the national increase. Home sales are decreasing, and construction remains sluggish.
An array of factors that juiced industrial production and factory job growth in 2018 have all but played out, including federal fiscal stimulus, customers’ rush to stock up before tariffs took effect, and increased demand for oil extraction equipment. Illinois can keep advancing without a positive contribution from manufacturing, but the rest of the economy will have to do its part. Illinois will be hard-pressed to match the U.S. pace of growth in any industry, but the state will lean increasingly on healthcare and professional/business services to power job and income gains. Transportation/warehousing, a vanguard of job growth during this expansion, will expand more slowly in coming years. Consumer industries such as retail and leisure/hospitality will pitch in a bit less as the shrinking population weighs on demand. Population loss and troubled state finances will limit Illinois’ long-term potential.
* Hannah Meisel…
The report warns lawmakers not to count on another “April surprise” — a $1.5 billion income tax windfall that allowed Pritzker to drop a plan to defer $800 million in pension payments and impose a bevy of new taxes last year. […]
Business leaders and conservatives frequently lament that the cost of doing business in Illinois is too high. But Moody’s said Illinois’ outlook is “tarnished primarily by its budget woes and weak population trends, not its high costs relative to nearby states.”
“Business costs in the state are lower than they are nationally and have trended downward for the past few decades,” according to the report. “Overall costs are similar to those in Ohio, lower than those in Michigan and Wisconsin, but higher than those in neighboring Indiana and Iowa.”
Moody’s analysis found that while businesses in Illinois tend to pay less in taxes and utilities, “labor is on the expensive side” in part because of the “still-high presence of unions.”