What do you do when the economy is moving sideways?

December 28, 2012

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There’s a word economists have used quite a bit this year to describe how the economy is doing: sideways.

University of Chicago professor Randy Kroszner has a better phrase: the “sideways slide”.

That’s what he predicted last year for this year. He’s not taking much pleasure in the fact he was right - nor that he’s forecasting much of the same for 2013.

“We’ve kind of slid along, had growth of about two percent or so, we’ve had some private sector job creation but not enough to make much of a dent in the unemployment rate,” said Kroszner, the Norman R. Bobins Professor of Economics at the Booth School of Business.

Kroszner said that’s true not just nationally but in Chicago as well.

“We didn’t have a double dip, but we certainly haven’t had a boom as some of the other regions in the Plains have had,” he said. “If you look at places like Montana, Idaho. There are housing shortages, there are worker shortages. Unfortunately we don’t have that here.”

Krosnzer said it’s hard to have a strong overall recovery without a one in housing.

“The recent numbers show that 18 of 20 markets have had house price appreciation over the last year. Unfortunately, Chicago is in that minority and Chicagoland has seen house price contractions rather than increases,” said Krosnzer, who said housing is important because consumers feel like much of their wealth is tied up in their houses.

But there’s another risk that looms large over the economy - the fiscal health of the country and more importantly, Illinois. Business leaders who want to relocate here are thinking about taxes in the long term - what they’ll pay in five, ten or twenty years.

That’s why Krosnzer is predicting more of a sideways slide again for 2013.

That isn’t too much of a concern to Jeff Silver, the CEO of Coyote Logistics. Coyote’s entire business model is based on what some might call the “new normal" of today’s economy.

On the main floor of the Chicago company office, hundreds of workers are sitting in front of computers, headsets on, speaking with truck drivers and companies that need to transport products across the country.

Coyote doesn’t own trucks. Instead, they’re like matchmakers - connecting drivers with empty loads to clients who need to move products. For example, Coyote arranges transport for all of Heineken’s domestic products, from the minute it hits U.S. shores.

They measure their business in the amount of truckloads they move - in this case, about 3,000 a day.

“We’ve grown very very rapidly, so at this time last year I think we were moving 2000 loads,” said Silver. “So we’ve grown by about 50 percent in that time period.”

Last year, Coyote moved its headquarters from Lake Forest to downtown - a popular move with many of its employees, that usually get hired right out of college. They’ve gone from about 800 workers to more than 1200 this year.

When I got to their offices and said I was there for an interview, they thought I meant a job interview - because they’re still hiring.

“We’re pretty optimistic,” said Silver, adding an important caveat: “You know, if we can get past this little mess the country is in now, we think that hopefully we’ll be able to see the economy grow by a percent or two, if not, that’s ok too, hopefully it doesn’t shrink much

Silver says Coyote will perform well either way - his business model really just focused now on saving his clients as much money as possible.

It turns out Silver’s not the only one thinking about the economy’s mixed performance.

Economists spent much of this year characterizing this as just moving sideways. Krosnzer first started using the term in 2011.

In general, nationally, the business community is responding to all of this uncertainty by sitting on a lot of cash. That’s true of big banks, who are still stingy about lending, and small businesses.

As the weather gets colder, this becomes the quiet time of year for The Bike Lane, a shop just off of Milwaukee Ave. in Logan Square. This morning, the store has just opened - one messenger popped in to fill up his tires.

Co-owner Adam Glenn is behind that counter tuning up a 50-year-old Crescent Master Cycle bike that’s actually in surprisingly good condition. He’s taking apart the internal shifting hub to see what’s going on with it.

Two years ago, Glenn opened The Bike Lane with two other friends. Jon Timmins is one of the other owners.

“Our first year was suprisingly busy and every year since it’s continued to grow,” said Timmins, who credits their location on Milwaukee Ave. as one big draw for cyclists. “Obviously, the economy has affected our business, but cycling is one of those things - it’s not recession proof, but more people are turning to cycling because the economy is the way it is.”

Timmins is 31. Glenn is 25. They said it hasn’t been easy, running a business - but it’s more rewarding than they thought. They feel confident about the solid customer base they’ve developed, and have added a few more employees.

But even though they say they’re optimistic about their business’s future, the trio is cautious about extending themselves.

“We take it year by year - we don’t want to get too far ahead of ourselves and dig a hole we can’t get out of,” said Glenn.  “We’re taking it one step at at time, we do have plans to expand but we’re going to do it when we’re ready and as intelligently as we can.”

Planning for the future is a common theme this time of year. December is when the Booth School of Business usually does its economic forecasts - which they’ve been doing since 1954.

I asked Randy Kroszner how seriously the average person - that is, people who aren’t economists - should take forecasts like his.

“A good forecast is not one where you take that number and say, ‘Aha! GDP growth will be 2.25 percent exactly next year’. You say, what are the reasonable risks there, both on the down side as well as the upside, and then do my planning, as a consumer, as a business person, as a home owner - around those risks,” he said.

Kroszner says what’s useful about forecasting is that it forces you to stop and think: What on average do I expect? And what do I need to plan for?

That’s especially true when the economy is in a sideways slide.