Recovery dependent on big industries

Photo by Sylvia Hall

Chicago’s industries and businesses are so diverse and broadly based that its economy is similar to the U.S. economy, according to Tom Bartkoski, director at World Business Chicago.

Which means it’s not surprising that Chicago’s recovery is moving similar to the rest of the country, according to William Testa, vice president at the Federal Reserve Bank of Chicago.

Graphic by Crain’s Chicago Business

“It appears that Chicago is sharing in the economic expansion about apace of the United States,” Testa said.

The industrial diversity means that Chicago’s economic recovery will rely on the recovery of Chicago’s businesses and industries as a whole, Bartkoski said.

“With a diverse economy your eggs aren’t in one basket, so in terms of the ups and downs of the economy, we’re not tied to one particular sector,” Bartkoski said. “That’s good when one sector is down. You don’t do as well when that sector is up.”

Here is a breakdown of some of Chicago’s main economic sectors.

Pharmaceuticals

The Chicago area accounts for a large portion of the national pharmaceutical employment—about one out of eight employees, according to Bartkoski.

“That’s a large sector and it’s one that involves a lot of moving parts, because you not only have the big pharmaceutical companies but you have smaller firms, the research firms, the research hospitals, the universities,” he said. “It’s a pretty significant slice of the economy here.”

And it’s not all drug development, Bartkoski said. The industry also encompasses important aspects such as research and general pharmaceutical production, which all employ people.

Recently, Chicago has attempted to raise its visibility in the industry through measures such as hosting a prominent biotechnology conference.

Photo by Kevin Sue

Construction

The excessive homebuilding in the United States also affected Chicago, which is experiencing a low demand for retail construction.

“The homebuilding residential sector is still very moribund and weak in the Chicago area,” Testa said. “The overbuilding that took place was greater than in a lot of the surrounding cities in the Midwest.”

All of this adds up to too many available houses, he said.

“[Residential home] retail sales have been weak,” Testa said. “So it will take some while even after sales have recovered before homebuilding starts to be pulled along.”

Additionally, there was some overbuilding of retail strip development that went along with the home development, he said.

Photo by Kevin Sue

Transportation

Chicago has a tremendous cargo industry that spans road, rail and air, Bartkoski said.

The recession may have hurt the demand for goods, which means less freight was carried, but railroads still have a stronger outlook than compared to the sluggish 90’s. Good news for Chicago, Bartkoski said.

“We are the rail hub of the United States,” Bartkoski said. “We are the location where the eastern railroads and western railroads come together. So that puts us in a unique position in the U.S. rail grid.”

Unfortunately, airport traffic at O’Hare International Airport has been sluggish so there is little justification for airport expansion, Testa said. How the airlines handle or hedge fuel costs will also determine how the industry plays out, Bartkoski said. On a positive note, the merged Continental-United is locating in Chicago rather than Houston.

Manufacturing

According to Testa, manufacturing stands out from the other industries due its post-recession growth.

“U.S. economic output has just about regained about what it lost before the recession and manufacturing has been growing very rapidly, much more rapidly than the U.S. economy. But it has only recovered about 60 percent of the downturn,” Testa said. “So it went down much more sharply than the general economy and it’s snapping back more quickly and leading the recovering in terms of growth, but it’s from a very low point.”

Part of this recovery is due to manufacturers rebuilding their inventories and experiencing growing exports. The purchasing in the industry could indicate forthcoming demand, he said.

“If that trend continues, you’re going to see a pickup in the manufacturing sector and that would be very welcome anywhere,” he said.

Chicago’s manufacturing is particularly diverse, producing products ranging from medical supplies to metals to food, Bartkoski said. In particular, food manufacturing has a large presence in the area, he said.

“Because we’re in the middle of this huge agricultural base and the transportation system, it makes us natural for food processing and production,” Bartkoski said.

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