SNC State of the Economy address: Sunny today, with clouds rolling in

Margaret LeBrun
Posted by of Insight Publications

Wisconsin’s economy is in good shape by just about every measure, from employment and housing to GDP and consumer confidence. But an expected further uptick in interest rates by the U.S. Federal Reserve, combined with global challenges faced by emerging markets, could put the squeeze on some industries — especially manufacturing.

St. Norbert College students and faculty from the Center for Business and Economic Analysis at the Donald J. Schneider School of Business presented this picture to business and community leaders Thursday at the college’s Cassandra Voss Center. Their in-depth look at the current world, national and state economy was upbeat, with a dose of caution.

Emerging markets, in particular Brazil, Russia, India, China and South Africa, have slowed and are beginning to impact the U.S. economy, said St. Norbert senior economics and political science major Brad Lichtfuss. China’s GDP, in recent years at a robust 10 percent to 12 percent annually, has slowed to 6.9 percent and is expected to remain flat through 2020. Meanwhile, the U.S. GDP has been growing at a “healthy” 2 percent to 3 percent.

Plunging oil prices and the dramatically slower pace of production from China are among the factors that will begin trickling down to the state’s economy, according to Marc Schaffer, assistant professor of economics.

“Wisconsin’s unemployment rate is at 4.3 percent — pre-recessionary lows,” Schaffer said. “But with 20 percent of the GDP in Northeast Wisconsin from manufacturing, a slowdown of China’s economy will hit manufacturing in particular.”

While a boon for consumers at the fuel pumps, falling oil prices, now below $30 per barrel, have a negative impact on manufacturing, he explained.

One sector of Wisconsin’s economy in particular has already been hard hit by the plunging price of fuel: mining. To meet the needs of the fracking industry out West, the state’s sand mining industry grew by 257 percent since 2009. (Schaffer said he had to triple check his numbers, the increase was so great.) Since the price of oil has dropped, so too has the fracking industry and in turn, the demand for sand. And, “If mining slows down, manufacturing slows down,” Schaffer said.

The Federal Reserve in Chicago indicates the national and Midwest economies, which bounced back from the Great Recession, have seen slower growth since late 2015. This is due in part to a slowdown in manufacturing, triggered by a stronger dollar and decreased demand for exports.

Meanwhile, median home prices, which have been increasing about 5 percent each year in recent years (with 2015 the best year since 2005 in terms of housing sales), may begin to slow as interest rates gradually rise, said Nicole Kozlovsky, a senior accounting and economics major who presented research on the national economy. “Existing home sales and starts have been increasing at a steady rate since 2011,” she said. Mortgage rates, now at about 4 percent, are expected to increase as high as 5 percent.

For anyone in the market to buy a house, “Any time now is the best time to buy” before interest rates increase, Schaffer said.

Margaret LeBrun

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