State growth seen

But gain won’t match nation’s, economist says

With its still-heavy reliance on manufacturing, Wisconsin’s economy is likely to grow at a slower pace than the United States in 2017, a bank economist said Friday.

Gus Faucher, a PNC Bank economist who was in Milwaukee to talk with bank clients and the Association for Corporate Growth, said in an interview he expects national GDP growth of about 2.25% next year.

He said while Wisconsin’s economy will advance, impediments associated with the manufacturing industry and a limited supply of workers will hold the state back from matching that rate.

“Growth here is going to lag behind the U.S. because it’s still over-represented in manufacturing, and also because of the demographic issues,” Faucher said. “The local economy will be expanding in 2017, but just at a slower pace than we see nationally.”

Faucher said although Wisconsin’s economy is diversifying with industries such as financial services, education, health care and business professional services, manufacturing, which is subject to drags like a strong dollar, is still dominant. A strong dollar makes durable goods like those produced in Wisconsin more expensive overseas.

The downturn in energy production as oil prices have fallen also has hurt Wisconsin, he said.

“In greater Milwaukee and Wisconsin, there are manufacturers that supply into that industry — drilling equipment, mining exploration equipment, fabricated materials,” said Faucher, who is a senior vice president and deputy chief economist for the Pittsburghbased financial institution.

He said businesses will look for workers elsewhere if Wisconsin’s population and workforce don’t keep pace with employer needs.

“Businesses are looking for workers, and if they don’t find them here they are going to go to the Southeast, they’re going to go to the Southwest, they’re going to go to the Northwest,” Faucher said.

He added: “I mean, you have great universities here, but you need to figure out how to keep the graduates here and not working in other parts of the country.”

Faucher said he expects the Federal Reserve to raise interest rates next week and twice in 2017. While rates will go up next year, he said he doesn’t see them rising enough to dampen the housing market.

“I think the fundamentals for the housing market are pretty good. You have job growth, you do have wage growth picking up,” Faucher said. “I think there’s still what we call pent-up demand out

there.”

Faucher said he believes the rally in the U.S. stock market is being driven “by an expectation that profit growth will be stronger over the next couple of years under a Trump administration.”

Anticipation of higher prices for goods and services, tax cuts, an economic stimulus package and reduced business regulation under Trump and Republican lawmakers are fueling expectations by investors that corporate profits will increase, he said.

Faucher said even though the current U.S. economic expansion is 7.5 years old — two years longer than the average expansion after five previous recessions — he doesn’t see another recession on the near-term horizon. He said recessions are caused by imbalances in the economy.

“Right now, I don’t look at the economy and see red flags out there,” he said.