Chicago Poised to Weather Slump

After difficult adjustment in early 1980s, city may now fare better than most, economists say

MIDWESTERNERS don't kill messengers of economic pessimism; they just disbelieve them. Case in point: Last month a Rutgers University expert on this region's economy addressed a conference of economic development professionals here. ``She gave a very pessimistic scenario, saying that she thought this recession was going to be very hard and deep and long and bad,'' recalls Wim Wiewel, director of the Center for Urban Economic Development at the University of Illinois at Chicago.

But her listeners ``really weren't buying what she was saying,'' Professor Wiewel says. He ascribes the tenor of her projections to the influence of the East Coast economic climate. When home prices plummet after a meteoric rise, ``your analysis inevitably gets somewhat colored. In the Midwest, things weren't going up quite as fast and high, and I think the fall isn't going to be quite as deep and hard.''

Others are reaching the same conclusion. One economist who has just brightened his forecast is John Pfister, a vice president at Chicago Title & Trust Company.

``I gave six economic projections in the last two weeks,'' Mr. Pfister says. The message was gloomy. ``When I got to the last one, I was in Cleveland talking to a bunch of S&L people. And I started thinking: ... `I don't believe this anymore.' I had talked for two weeks and talked myself out of my own projections.''

Mr. Pfister now believes there will be no national recession. Further, businessmen here tell Wiewel they are not seeing a recession yet.

Although Wiewel himself believes ``things are definitely going to go down'' next year, he is flush with reasons why this city of 3 million residents will fare better than the nation. From office vacancy rates to employment growth to factory utilization rates, ``we seem to be doing better than almost everybody else. At least the Midwest is. It seems that Chicago is partaking of that.''

That's quite a change from the early 1980s. ``We had a terrible time from 1980 to 1986,'' says Richard Peterson, chief economist at Continental Bank in Chicago. Back then the manufacturing sector, once a mainstay of the city's economy, continued its long-term decline, battered by recession and the high value of the dollar.

Today manufacturing provides 18 percent of area jobs, down from almost 40 percent in 1960. Chicago's job balance now closely matches that of the nation. ``That gives us a somewhat better defensive position in the face of a general slowdown in the economy,'' says Lawrence Howe, publisher of Chicago Enterprise magazine.

Mr. Howe believes that employment in the manufacturing sector has hit bottom. William Testa, a senior economist with the Federal Reserve Bank of Chicago, agrees, but adds that manufacturing employment may decline in percentage terms if productivity keeps improving. ``It always has,'' Mr. Testa says.

Chicago benefits not only from its reduced exposure to the manufacturing sector, but also from a more modest exposure to other industries that have had hard landings in other cities. The buffeted financial services industry, for instance, accounts for only 10 percent of area employment, a much smaller dependence than in New York.

Hard times delayed a construction surge that brought massive overbuilding to other cities. Because prices increased more slowly, fewer homebuyers took out mortgages beyond their means. Businesses have been forced to improve their operating efficiencies. ``Companies have really done a good job'' adjusting, and are now in ``pretty good shape,'' says Mr. Peterson, who also thinks the nation and Chicago will skirt a recession.

Adds Testa: ``There haven't been any bubbles here in terms of construction or buildup in financial services or new industries. It's just been a lot of hard work to make the basic industries competitive.'' These industries include metal manufacturing and product warehousing and distribution.

The dollar exchange rate is now very favorable, leading to predictions of a surge in exports of agriculture products, electronics, processed foods, machinery, even financial services. And it will be easier to compete against imports.

However, exports will lag if other countries go into a recession. Europe looks strong, Wiewel says. But Canada is hurting, and that is where half of Midwest exports go.

``The only problems that Chicago faces are really of an incremental nature,'' Testa says. Tourism and conventions have ``continued to be a source of strength for Chicago. We have to be sure the infrastructure is there to serve it.''

It's not, says Kate Haymaker at the Chicago Convention and Tourism Bureau. She says the McCormick Place convention center needs expanding to win larger conventions that are choosing other cities. As it is, some 3.2 million conventioneers and trade show delegates will spend $2.2 billion in Chicago this year.

The state legislature will decide before December on an expansion plan that includes a controversial domed stadium. ``Some groups turning away from us need that space,'' Ms. Haymaker says.

Attracting more conventions is the key to filling downtown Chicago's hotels, says Patty Mayer of the Hotel-Motel Association of Illinois. The current occupancy rate is 62 percent, down from 65 percent last year and under the 68 percent that the industry considers to be a minimum for healthy operations.

New construction won't help the occupancy rate. One Sheraton alone will add 1,200 rooms in 1992, while a handful of others will dump another 1,500 rooms onto the market. The city has 22,701 hotel rooms now, and expects 28,300 by 1993.

The other major challenge for Chicago is to keep students in school and produce a work force competent in basic skills and able to learn on the job. ``The suburban schools for the most part do produce very high quality product,'' says Jacquelyn Harder, coordinator of Cook County's Office of Economic Development. ``It's the city of Chicago, I think, that has fallen down. Everyone recognizes the need to tackle that problem.''

Unemployment among blacks in Chicago runs 18 percent, almost three times the rate for Cook County as a whole. (Forty percent of city residents are black.) Out-of-work blacks represent ``both an untapped resource and a very serious socioeconomic problem. It's one of the most serious problems that the city and the local region has to deal with; there's no question about it,'' Howe says.

A school reform process emphasizing decentralization is now a year old. Says Howe: ``It's going to take time for it to work it's way through the system, but reform and improvement of the Chicago public schools is essential to the long-range economy.''