Economy and Government and Media & Marketing

CHRIS KATTERJOHN Commentary: LaSalle economist holds court

October 17, 2005

Now that President Bush has named both his candidates for Supreme Court vacancies and one has been confirmed, we can expect news soon of an appointment that is more important to businesspeople and markets.

That would be the replacement for Alan Greenspan, chairman of the Federal Reserve Board, who retires Jan. 31.

Greenspan has been in his seat 18 years and has presided over a period of strong economic growth, low inflation and interest rates, and a tremendous stock market. As such, he has earned the confidence of the markets and the business community.

Will his successor be able to attain such stature and help orchestrate a comparable boom?

That's one of myriad things occupying the colorful and entertaining mind of LaSalle Bank's chief economist, Carl Tannenbaum, who planned to speak Oct. 14 at IBJ's annual Economic Forecast breakfast at the Westin Hotel.

"For the good of the Republic, I have removed my name from the list of possible Greenspan successors," Tannenbaum told me a few days before the breakfast.

Not surprisingly, the Chicago-based economist was to spend a good deal of time at the breakfast talking about the ripple effects of Hurricane Katrina on the nation's economy.

"The good news is that there's no contract like a government contract," he said, noting that the Midwest and its numerous manufacturers of heavy equipment and construction supplies should benefit over the next 12 to 18 months as the Gulf Coast rebuilds.

The down side, of course, is the prospect of higher energy costs for five to 10 years. Tannenbaum suggested we might see a return to an atmosphere similar to the one that accompanied the energy crisis of the late 1970s and early '80s.

"Already I'm seeing auto commercials on television that are touting gas mileage," he noted.

SUV sales are down; demand for hybrids is climbing.

Last year at this time, Tannenbaum and other economists were lamenting $2.20 per gallon for premium gas and the prospect of heating bills at least 20 percent higher than the previous year's. Thanks to Katrina, premium at most gas stations today is more than $3 a gallon, and energy analysts are predicting winter heating bills as much as 75-percent higher than last winter's.

Batten down the hatches.

The government, of course, will find ways to finance the reconstruction of New Orleans and its immediate environs and that, of course, will increase the nation's long-term indebtedness. Put that together with the shaky condition of both Medicare and Social Security, and we could have a big problem on our hands in the not-too-distant future.

It's time for us as a nation to deal with these issues, Tannenbaum warned.

On the international front, the economist had a lot to say about China, and the ongoing question of whether that growing nation is playing fair in the game of world trade. He warned that because China is key to the U.S. economy, "We need to be patient and keep the lines of communication and trade open."

Not only is China responsible for many of the low-cost consumer goods American citizens demand and purchase, but it takes the money it makes in the sale of those goods and invests it right back into America, in essence financing our deficit.

Tannenbaum noted that China owns 12 percent of all U.S. Treasury Department bonds. As a result, we'd best make sure we keep our ties in place.

As for predictions, Tannenbaum called for growth in the gross domestic product (adjusted for inflation) of 3.4 percent in 2006, down slightly from a projected 3.5 percent for 2005. Last year at this time, he predicted GDP growth of 3.6 percent, which was almost on the money.



Katterjohn is publisher of IBJ.To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to ckatterjohn@ibj.com.
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