Friday, July 20th, 2012

State of Chicago: The Risks of Recovery

This article is part of the State of Chicago.

In comments to previous installments, some folks have highlighted recent positive news for Chicago – job announcements, the decline in unemployment rate, some indications of a housing market uptick, and improved hotel occupancy – as evidence that perhaps I spoke too soon or was wrong about Chicago.

Well, if I’m wrong, I’d happily take that. If Chicago starts back up on a 90s-like upward trajectory, that would clearly be something to celebrate.

On the other hand, there are risks that come with recovery. Few cities go straight down – not even Detroit did that. The national economy has been in the dumps for quite a while. It probably won’t stay there forever. Recoveries in the national economy will no doubt lift Chicago.

The risk is that, if things improve, leaders in Chicago will simply say, “Whew! Glad we made it through that.” And go back to business as usual. It’s not like Chicago was in an absolute sense ever going down the tubes anyway. But what happened is that it was increasingly falling behind other big cities. This is what could easily happen here. A return to a modest upwards trajectory that means things are better than they used to be locally, but on a comparative basis the city is actually falling behind.

As for the recent uptick, I think you can attribute a lot of it to the view I advance that Chicago is not primarily a global city, but instead Capital of the Midwest. Its performance is heavily linked to the performance of the Midwest and the manufacturing industry overall.

And how is the region doing? Pretty well right now. Last year (May over May, seasonally adjusted) Michigan added 47,500 jobs. Ohio added 75,700. Indiana added 61,300. Only Wisconsin lost jobs in the region. Even extremely troubled metros like Detroit managed to add jobs last year (May over May, not adjusted). Detroit added 33,800 jobs or nearly 2% – pretty strong growth. Between 2010 and 2011, metro Detroit grew manufacturing employment by 7.8% – by far the highest of any large city in America. Unemployment rates have dropped sharply in the region. There has also been an energy boom in places like North Dakota and Western Pennsylvania that are sort of in the fringe areas of Chicago’s primary zone of influence.

With the Midwest rebounding thanks to a manufacturing resurgence, and possibly a bit of the energy boom, Chicago is benefiting. It benefits because of the services it provides to manufacturing and other industries in the region (what’s good for Detroit is good for Chicago). It also benefits in other ways such as tourism. The 92% hotel occupancy in June was attributed to more aggressive marketing in the Midwest. That’s no doubt part of it, but also more of those Midwesterners have jobs now that allow them to indulge a visit to Chicago.

So part of the question is: Is the Midwest comeback sustainable? It’s hard to say. Manufacturing is pro-cyclical, so often leads into and out of recessions. Previous strong manufacturing comebacks have been illusory. Some analysts like Richard Longworth suggest that we shouldn’t celebrate too soon. I personally don’t think we’re in for an era of strong and sustained manufacturing growth at good wages in the Heartland, though the energy boom would appear to be the real deal. This should especially help Chicago as the Ohio shale fields come on line.

In any event, as Rahm himself understands, a crisis is a terrible thing to waste. If Chicago doesn’t take this chance to reform now, in the way that governors and mayors or pushing reform across America, it would be a shame.

So my overall view would be this: let’s celebrate successes and good news along the way, but not let that devolve into just using them to develop a marketing spin story about how fantastic things are in Chicago. And above all, don’t take the foot off the gas on reform and the changes that need to be made.

This concludes my discussion of current conditions. Next I’ll turn to addressing a couple of my unique analytical frames that have generated controversy, namely having a diverse economy vs. a specialized one, and the degree to which Chicago is a global city.

19 Comments
Topics: Economic Development
Cities: Chicago
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19 Responses to “State of Chicago: The Risks of Recovery”

  1. the urban politician says:

    I pretty much agree with this whole post.

    Chicago can easily slip back into its old “habits” so to speak.

    In fact, I see that happening very easily. There is really too much of an ingrained culture of interest groups that have always had their way, and save for a game changer like a Scott Walker-esque type of person, those interest groups continue to brim under the surface even as Rahm tries to reshape the mold.

  2. Matt D says:

    Rahm isn’t “reshaping the mold”. Rahm is the prototypical machine politican.

    The whole fradulent state appeals ruling that claimed he was a Chicago resident, even though the state rule clearly states one can’t hold dual-state residency, shows he’s a fraud.

    The guy wouldn’t even be mayor if not for that appeals ruling, on a court that was stacked with machine appointees.

    Re. the article itself, I don’t disagree with the general sentiment, though I don’t see why anecdotes like monthly hotel occupancy have any relevance. Chicago’s fortunes are dependent on relative long-term trends, not whether Lollapalooza draws 5% more visitors than last year.

    The long-term trends are generally negative in comparison to the other major U.S. cities (population growth, job growth, property values, municipal finances, crime rate, etc.)

  3. @Peter, that’s an interesting report, and certainly good news. However, it relies entirely upon the household survey. That is indeed the source for unemployment data. Generally when people talk about jobs however, they refer to the establishment survey (that’s the one that makes the national headlines each month) not the level of employed in the household survey.

    May 11-May 12 establishment survey Chicago grew jobs by 0.65%. That ranks 9 out of 10 in the ten largest metros in the US. (The 27,900 jobs added are certainly most welcome, however). Chicago ranked 8 out of 12 metros in the greater Midwest with more than one million in population.

  4. Ron says:

    Matt D, your comment is very typical for sore loers such as yourself. Let me guess, Chico supporter? Sore losers are always making claims that someone cheated win they lose. I was in the Military and spent 4 years out of this city so try telling me I’m not a resident and see what happens. Btw, Aaron you’re still a clueless hack no matter how much you try to hide it.

  5. Matt D says:

    Ron, you simply aren’t allowed to have two addresses, per Illinois state election law. You can only have one address for residency purposes.

    If you think the law is unfair, fine. But there’s no question Emanuel should have never been on the ballot. He has no legitimacy whatsoever.

    There’s really no hope of fixing the machine in my lifetime, however. The hope at this point is that he has some radical change in priorities (like caring about crime, schools, and neighborhoods, instead of more subsidized failed downtown projects for his cronies).

    I’m not optimistic, though. He doesn’t want to end TIFs, even though they’re illegal in most states, he has no problem pouring more money into the areas that least need it, and doesn’t seem to care that we’re the new murder capital.

  6. the urban politician says:

    Matt D,

    I disagree that Rahm is not trying to reshape the mold.

    Indeed, he is probably the first Mayor in recent decades who has done anything to challenge the status quo. I certainly don’t think he goes far enough, but we all know that politicans always have to strike a balance. Not everybody can be Che Guevarra running guerilla wars against the establishment.

    Yes, he probably is a machine politician, but that doesn’t necessarily mean he can’t make Chicago more business-friendly and transparent. I find him to be an improvement over Daley, and for it has been nice to be rid of that underlying fear some had that Chicago “needed” Daley. That ended up being a myth too often used to justify many of the inept actions taken during the former mayor’s tenure.

  7. Peter says:

    TUP is correct.

    @Aaron, I’ll let you and the UofC economist debate the employment statistics reported in my post.

  8. Racaille says:

    “As for the recent uptick, I think you can attribute a lot of it to the view I advance that Chicago is not primarily a global city, but instead Capital of the Midwest. Its performance is heavily linked to the performance of the Midwest and the manufacturing industry overall.”

    Not one mention of Chicago’s booming tech sector and financial services. It must be hard to obtain updated information in Rhode Island.

    You say:

    “This concludes my discussion of current conditions.”

    That is a wise decision because you clearly are stuck in 1982. What’s next? The resurrection of Al Capone.

  9. @Racaille, Chicago’s financial sector is not booming. Nor, candidly, does it have a particularly powerful tech sector. Both Richard Florida and Joel Kotkin (not normally known for supporting each other’s views), recently ranked Detroit above Chicago as a tech center, for example. In any case, I plan to address both of these further in subsequent segments.

  10. Racaille says:

    Dear Mr. Renn,

    You say:

    “Chicago’s financial sector is not booming.”

    http://www.worldbusinesschicago.com/data/economy

    Please pay close attention to the trading section.

    “Nor, candidly, does it have a particularly powerful tech sector.”

    http://www.myfoxchicago.com/story/17801715/chicago-has-high-tech-job-boom-challenger

    “Florida recently ranked Detroit above Chicago as a tech center, for example.”

    Yes, I understand that the plat du jour.

    Detroit as a tech center? Not even close.

    “In any case, I plan to address both of these further in subsequent segments.”

    I would be more than happy to provide you with updated research material.

  11. Chris Barnett says:

    Racaille, do you not drive an automobile?

    (Metro) Detroit is most certainly a tech center, but certainly not for flashy smartphone apps or for vaporware startups.

    Their gig is development and improvement of very sophisticated manufacturing and vehicle control technologies. Those systems must seamlessly integrate user interface with safety-critical mechanical functions.

  12. the urban politician says:

    Racaille,

    I’m not particularly impressed with the sources you are using to support your arguments

  13. Racaille says:

    “I’m not particularly impressed with the sources you are using to support your arguments”

    That’s because they do not support your narrative.

    It is not clear to me how someone who lives in Rhode Island can have such insight into the status of Chicago. It reminds of of people who left Chicago, move to Arizona, and simply use the online version of the Trib to justify their preconceived notions.

    Clearly there is an element of jealousy and insecurity.

    “Racaille, do you not drive an automobile?”

    No. Because I live in a real city, with a real urban core, and with a real public transit system.

  14. So let me get this straight, you, Racaille (an interesting choice of handles, I must admit), accuse people who aren’t with your booster program of relying on the Trib online for their data, then post claims that rely on a) Fox News (?) and b) Chicago’s own economic development propaganda agency????

    You dismiss multiple independent views of Detroit as a tech center with no evidence at all.

    And you suggest jealousy as a driver. I hate to break it to you, but outside of the Chicago bubble, most people don’t spend much time thinking about Chicago at all. They certainly don’t here on the East Coast.

    Given your handle, I rather think you’re just having a bit of fun with us.

  15. the urban politician says:

    Aaron, I can kind of accuse you of cherry picking here.

    Only a cherry picker will take good news (such as unemployment data for Chicago mentioned above) and decide to throw in a negative spin.

    Yes, there is the Household and Establishment surveys, but the reality is that there are inaccuracies with both. A lot of people laid off from big companies in the last few years in Chicago have become entrepreneurs and started their own businesses. Those won’t be found in the Establishment data, but will be recorded in the Household data. We have seen evidence elsewhere that Chicago has seen a preponderance of small, fast growing companies. With the amount of job losses in Chicago, I would even argue that Chicagoans have been forced to do this even more so than most other big metros, and that can explain the difference in its performance between the two indices.

    Point being, if you are doing remarkably well by at least one measure, then that is something to be celebrated. The very definition of cherry picking is to ignore such measures and only pay attention to those that show failure.

  16. Chris Barnett says:

    Ah Racaille, since you are unfortunately in the few percent of US residents who are non-drivers, I can understand your ignorance of the level of technology necessary to design, build and to run the scores of millions of cars and trucks in the US.

  17. Racaille says:

    @Mr. Renn

    “Racaille (an interesting choice of handles, I must admit”

    Rather clever..n’est-ce pas?

    “Fox News (?) and b) Chicago’s own economic development propaganda agency????”

    I am quite sure that Fox News isn’t a big supporter of Chicago. So given it’s a rather up beat article, it’s quite remarkable.

    It’s only propaganda if it’s wrong or misleading. Could you refute any of it?

    “You dismiss multiple independent views of Detroit as a tech center with no evidence at all.”

    Richard Florida’s new love affair with Detroit is well known. I wouldn’t call two people …multiple.

    “They certainly don’t here on the East Coast.”

    Of course not. And I use to think that San Franciscans were self-absorbed.

    @Mr. Barnett.

    “since you are unfortunately in the few percent of US residents who are non-drivers, ”

    Hate to break it to you, but car ownership is a liability and nothing more.

  18. TUP,

    I’d agree Chicago is doing well on unemployment. That’s totally legit and to be celebrated. I just think we should use the household survey for what most people use it for: unemployment and labor force, not total jobs.

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