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WisBusiness: Economists Forecast Solid Year for State's Economy
1/12/2006

By Brian E. Clark
WisBusiness.com

Wisconsin’s economy should chug along in 2006 in a “Goldilocks” mode – not too hot and not too cold – Sam Kahan, a senior economist with the Federal Reserve Bank of Chicago, said Tuesday.

Kahan, who spoke at Wisconsin Bankers Association economic forecast luncheon, said growth will cool a little bit from 2005, but remain solid.

And while consumer spending may slow somewhat because of higher interest rates and high energy costs, he said business expansion should take up the slack.

On the national scene, he said he did not think Ben S. Bernanke, the incoming Federal Reserve chairman, will raise interest rates simply to prove his “machismo.”

“Each new chairman wants to make his mark,” Kahan said. “But he won’t do anything without considering the context of what is happening in the economy.”

Fellow economist David Ward, president of Northstar Economics in Madison, said he was ditching his mantle of “Dr. Doom” and predicted Wisconsin will do well this year.

“We will continue to see good employment and I believe income growth here could exceed the national average for the first time in years,” he said with a smile.

He also said the Badger State’s old economy is continuing to transform itself because of rapid changes in technology.

He predicted Wisconsin’s paper industry will be revolutionized in coming years because – thanks to biorefining that will turn wood waste byproducts into energy, polymers, chemicals and other products.

He said what is now a $5 billion national enterprise could turn into a $14 billion industry. He noted that paper companies in Wisconsin are investing in new machinery worth hundreds of millions of dollars.

And he said he was particularly impressed by the November sale of Georgia-Pacific to Koch Industries, a private firm with significant interests in petroleum and chemicals, commodities, financial services and ranching. The company now has a Green Bay paper mill that employs more than 2,100 workers.

Ward also praised regional efforts around the state that he said could help stimulate local economies. He cited branding and promotional efforts in the northeast, Milwaukee, north-central and southwestern Wisconsin.

He said Wisconsin also could benefit from a new Canadian port on the Pacific Coast that will ship huge numbers of containers through Wisconsin to Chicago.

Finally, he said Wisconsin stands to benefit from the research coming out it its universities, especially UW-Madison. He said technology transfer will be buoyed by new angel networks that will pump money into fledgling Wisconsin high-tech companies.

And he warned that Wisconsinites without educations beyond high school will continue to lose earning power as relatively unskilled factory jobs continue to disappear.

A third economist, Robert Genetski of Michigan, was especially bullish on the economy and said the nation’s stock market is undervalued and poised for major gains.

Genetski said the push for lower taxes, less regulation and freer markets has improved the U.S. economy and the overall world economic scene.

He also threw cold water on worries over a housing bubble and predicted that oil prices will return to levels around $35 a barrel in the next five years.

Genetski acknowledged that there will be economic turmoil for businesses and workers whose industries are in decline.

“There also will be unprecedented opportunities, but you must create an attractive economic environment for Wisconsin to thrive,” he said.
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