Category Archives: Chicago

Chicago companies…..a changing town?

Lately, the Chicago business press has lamented the region’s loss of large company headquarters—for example, those of Amoco, Arthur Andersen, Borg-Warner, Quaker, Searle, and Zenith. The chart below numerically depicts the source of this local concern: The Chicago area is down 19 headquarters over the period from 1975 to 2005 as measured by Fortune magazine’s list of the largest nonfinancial companies. Has Chicago lost its vitality for building large companies and hosting their headquarters?

Taking a broader perspective, it appears that Chicago has held its own as a domicile for corporate headquarters. It consistently ranks second place among large metropolitan areas that host headquarters; only New York exceeds it. Looking farther afield, one can see that headquarters offices of the largest companies have spread out to other metropolises that have come into their own as business centers. A recent conference examined shifts in headquarters site decisions and motivation. Cities such as Houston, Atlanta, and San Francisco have developed a large scope of business support services, such as legal, accounting, and management consulting, that attract headquarters. All have large hub airports which are desirable in sending out and bringing in headquarters execs and their business associates.

In some ways, then, Chicago’s relative loss of headquarters reflects the filling in and development of the remainder of the U.S. rather than Chicago’s decline. To put it another way, why would we expect Chicago and New York to maintain the lion’s share of headquarters while the remainder of the U.S. economy grew more rapidly?

A different look reveals that Chicago’s headquarters companies have grown at a healthy rate—one that reflects a mature but healthy business service center. The following tables list the Chicago region’s top 50 companies from 1979 to 2005, again measured by Fortune magazine’s accounting of total company revenues. The companies’ revenues are quoted in comparable dollars, equivalent to spending power for gross domestic product (GDP) in 2005.

In examining individual companies among these rankings, we can see that, on average, the annual revenues of the top 50 companies in 2005 exceed those of the equivalently ranked companies in1979. In fact, the sum of the top 25 companies’ revenues in 2005 exceeded that of their counterparts’ in 1979 by 89 percent. For the top 50 companies, the revenue total of 2005 companies exceeded that of 1979 companies by 78 percent. Over this time period, the overall U.S. economy grew by 115 percent. Accordingly, in the context of the faster regional growth taking place in the Sun Belt and the West since 1979, Chicago has enjoyed healthy, though modestly lagging, success as the domicile of many of America’s largest and fast-growing companies.

In explaining Chicago’s continued role as a headquarters city, we can see that many large companies have survived and prospered from the 1979 list. These companies include Brunswick, Caterpillar, Deere, Kraft, Sears, United Airlines (UAL), and USG (United States Gypsum). Still others—such as Walgreen’s, Abbott, McDonalds, Archer Daniels Midland, and Illinois Tool Works—have survived and even experienced outsized growth. Walgreen’s revenues are up over 13 times since 1979. Illinois Tool Works Inc. ranked 17th in 2005, with $11.7 billion in revenue, although the company had not made the top 50 list of 1979.

Other companies have chosen Chicago as their headquarters’ domicile from outright relocations, during mergers, or through spinoffs. Boeing is the most notable relocation, choosing Chicago in 2000 over competitors Dallas and Denver. OfficeMax Inc. is another relocation to Chicago (from Boise, Idaho). Smurfit-Stone chose Chicago during its merger, and medical equipment maker Hospira Inc. was a recent spinoff of Abbott.

Other promising companies with headquarters in the Chicago region, such as Hewitt Inc., a human resource management company, have grown up here and have since emerged as public companies. Equity Office Properties Trust is another home-grown company with headquarters in the area, as is CDW, a computing equipment leasing company.

A comparison of the top 50 lists also reflects the shifting industry orientation of the Midwest away from manufacturing to services. In 1979, 33 of the top 50 companies could be classified as manufacturing versus 26 in 2005.

The Chicago region correctly stands up and takes notice at the loss of a large company headquarters. Hosting companies’ headquarters is an important specialization of Chicago’s economy. Over the long term, Chicago’s headquarters’ performance is a cause for interested concern though perhaps not for alarm.

Hog Butchers No Longer?

In his description of Chicago, Carl Sandburg poetically referred to it as the “city of the big shoulders … stacker of wheat … tool maker … player with the railroads … hog butcher.” At the time, this description fit Chicago’s economy just right as a place of muscular blue-collar industries such as rail freight, steel making, and meat packing. But today, Chicago’s economy has morphed into a city of more genteel, white-collar professions and industries. Infrastructure, such as a global airport and a significant broadband communications capacity, have helped to develop industries that are knowledge-based rather than commodity-based.

The chart below compares the Chicago metropolitan area’s employment with the nation’s across broad industry sectors. The bars measure the share of total employment in a given industry so that, for example, the top maroon bar illustrates that 14 percent of U.S. employment can be found in government sectors, while 11 percent of the Chicago area employment can be found in government sectors (purple bar).

The purple bar that illustrates Chicago’s long suit is “professional services.” Most of these industries are business services, including accounting, management consulting, advertising, temporary services, legal, and research and development. To a large degree, these industries are staffed by educated professionals. In comparison to the overall nation (maroon bar), Chicago’s economy is more highly concentrated in these industries. The same can be said for the finance, insurance, and real estate (FIRE) sector comparison that can be found below professional services on the chart. The FIRE group includes Chicago’s world-leading risk exchanges and related businesses.

To staff its new economy, many young and educated workers are migrating to Chicago, especially from surrounding states. In addition to career opportunities, they are attracted by amenities such as lakefront parks, renovated neighborhoods, lively nightlife, operas, ballet, and orchestras. In a recent news article, journalist David Greising playfully rewrote Sandburg’s poetic ode to Chicago to reflect its new economy: “Hog belly trader for the World, Writ Writer, Consultee of Companies, Builder of Airports, and the Nation’s Intermodal Carrier, Prideful, Anxious, Hopeful, City of the Stringed Orchestra.”

The service orientation of Chicago’s economy has come about in a remarkably short time. It was not so long ago that Chicago’s employment concentration closely resembled the surrounding Midwest economy, especially its sharp concentration in manufacturing employment. The chart below tracks the manufacturing share of Chicago’s economy from 1969 onward and compares it to the overall U.S. As recently as 1969, both Chicago and the surrounding Midwest were significantly more concentrated in manufacturing jobs than the U.S. But steadily over time, Chicago’s concentration has converged with the U.S., while the Midwest as a whole has maintained a higher proportion of jobs in manufacturing.

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Connecting to achieve tech commercialization

Several cities and metropolitan areas in the Midwest are actively encouraging startup technology companies. Not all of these cities are likely to succeed, but those that have a prodigious base of basic research activity have the best prospects. The Chicago metropolitan area has long been one place where the strong flow of both federally-funded and large-company R&D in the medical and life sciences suggests that there could be greater potential for technology startups as well.

A number of recent efforts in the Chicago region are specifically focussed on technology startups. These efforts include new technology parks, cooperative university R&D consortia, new venture funds, and entrepreneurial assistance. On May 15, technology leaders gathered at the Federal Reserve Bank to discuss the formation of a Chicago-based network that might better link and connect technology commercialization efforts to like-minded organizations in the metropolitan area. Places such as San Diego and Cambridge, England, are notable locations where such connecting organizations are reputed to have stimulated growth in technology startup companies. What can the Chicago area learn and adapt from such models?

The program began with the observations of a technology founder and business builder in both Seattle and in Chicago. Wilbur H. (Bill) Gantz, Chairman of the Board of Ovation Pharmaceuticals, Inc., in Deerfield, Illinois, emphasized how very difficult it is to successfully bring a new company to market. Raising funds is very difficult, but building a company with a profitable product is even tougher. As a result, life-sciences startups “can never get enough support.”

Life-science startups in the pharmaceuticals arena go through many distinct phases, each with unique support needs. University scientists may be needed early on. And in following stages, competent partners must be close at hand to assist with financing and protection of intellectual property. At later stages, product development, marketing, and manufacturing expertise may be crucial.

In Gantz’s Seattle startup, PathoGenesis Corporation, the University of Washington was a helpful partner in sharing university faculty in research and development. Local financing was also key to the startup there. However, the Seattle location presented challenges in local availability of pharmaceutical chemists. For that reason, such personnel were recruited from the Midwest and East Coast, and product marketing expertise needed to be outsourced to the Chicago area.

Gantz further emphasized that Chicago tends to be very strong in such basic business services as marketing, public relations, and intellectual property. Moreover, the metro area is rich in technical personnel that can be hired as necessary from the large life sciences companies Baxter and Abbott and local universities, or else recruited back to Chicago from former Searle employees who left the area when their facilities closed. Despite access to such personnel, recruitment of cutting-edge university scientists is more difficult; Chicago’s university scientists tend to be more adverse to risk and to commercial ventures than those in Seattle.

Nonetheless, Gantz sees the Chicago environment as strong and getting stronger. The real estate end has been expanding with the establishment of a research park at the Illinois Institute of Technology as well as one at the former Searle facility, along with expansion of the Chicago Technology Park. So too, Chicago’s early stage capital scene is now brighter as so-called angel investor networks are forming. Government support of an appropriate nature has also come around, as evidenced by the city’s competent hosting of the nation’s premier business conference in the life sciences, BIO2006.

The next conference speaker was Stuart Henderson, Partner and Biotechnology Practice Leader for Europe at Deloitte, UK, who offered his insight and experiences with Cambridge’s connecting organization, Cambridge Network. The initial conditions in the Cambridge area were not so different from Chicago, prodigious university research but comparatively less commercialization. Also similar to Chicago, there was no “burning platform” of general economic demise in the Cambridge area 20 years ago, but simply unfulfilled economic potential. Yet today, Henderson claims that there are 1,500 technology companies in a town of 200,000 people (though perhaps 6.5 million people reside in its labor market area), including global companies such as BP-Amoco, Schlumberger, 3M, Amgen, and Pfizer.

Henderson reported that a well-conceived organization called Cambridge Network was key to bringing about this success. The network was founded by a small group of highly passionate and committed leaders who put up only modest funding at the outset. He described it as “a simple meeting of minds.”

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Immigration and Chicago’s Growth

In preparing for a presentation to be delivered before the ARS National Forum on Regional Stewardship this week, I was prepared to expound on the superior economic performance of Chicago in comparison to neighboring cities. After all, John Grimond’s recent review of Chicago for Economist magazine recently stated that “Chicago has come through deindustrialization looking shiny and confident.” I must admit that I, too, often characterize Chicago’s performance as robust, and I have observed that both Chicagoans and other Midwesterners believe this to be the case. Much to my surprise, however, in examining total payroll employment trends, I discovered that Chicago’s growth fell short of the neighboring East North Central (U.S. Census division) states region during the 1990s and since that time as well! And in comparison to the nation, Chicago’s per capita income has been flat to slightly declining. What gives?

I believe that part of the answer can be explained by the robust influx of immigrants to the Chicago area, along with the high birth rates of recent immigrants, which have made for a more complex story than the payroll employment and income trends suggest.

Owing to immigration, the Chicago area’s population growth has exceeded the surrounding region since the 1990s, as the chart below suggests. The Chicago metro area is now ranked fifth nationally in proportion of foreign-born population, adding 537,000 between 1990 and 2000—an expansion by over one-half. As of the 2000 U.S. Census, 17.5% of Chicago’s population were foreign born, many of them young families with children. And so, the rapid expansion of the region’s housing stock, revitalization of many older neighborhoods, and home appreciation have not been simply the figments of imagination or the heady boosterism by residents and observers of the Chicago region.

The growing immigrant composition of Chicago’s work force, and the way we measure it, may also explain part of its tepid payroll employment growth. Owing partly to language barriers, immigrants are more likely to be self-employed rather than work for a firm as a “payroll” employee. So too, to some extent, immigrant payroll employment may also tend to be casual or uncounted by government payroll employment surveys. An alternative way to estimate employment is conducted by the U.S. Bureau of Economic Analysis (BEA) which takes some account of self-employed workers. In contrast to payroll employment, trends using BEA data (below) suggest that the Chicago area’s employment growth exceeded the East North Central states of Ohio, Indiana, Michigan, Illinois, and Wisconsin in the early years of this decade, and its performance during the 1990s also converges somewhat with the national average.

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Chicago Survey

Chicago is arguably one of the most-studied places in the world. The origins of this examination likely began with the world’s interest in Chicago’s rapid growth following the Great Fire over 100 years ago, and the subsequent phoenix-like re-birth. Serious sociological study of neighborhoods began with Jane Addams’ documentation of immigrant enclaves here and with the venturing of the University of Chicago’s social scientists outward from Hyde Park. This tradition continues today by social scientists, political scientists, and economists of every stripe. At least two periodic conferences that I know of examine Chicago. Some one-time Chicago self-examinations coming up this year are in celebration of the 97th anniversary of the publication of the great Burnham Plan of Chicago.

And so, any journalist setting out to survey Chicago’s position and prospects is favored in having many people to interview and much source material to draw on. The downside is that, in drawing conclusions and implications, there are also many experts peering over the journalist’s shoulder prepared with well-informed critique. Such a journalist, then, will either be highly accomplished, or else should have a great store of hubris.

Journalist Johnny Grimond of The Economist has just written the first survey of Chicago and its surrounding area for that well-respected magazine since 1980. For the most part, the survey article is about all that could be hoped for by the denizens and students of Chicago. In some respects, it is a love letter to Chicagoans. The prism of comparison of Chicago today to the Chicago of 1980 reveals a city that has moved on from economic despair and survived a period of profound economic restructuring and political turmoil. In this perspective, its achievements are remarkable. Unlike other industrial belt cities, Chicago has survived the greater region’s manufacturing decline and replaced it with high-level service functions and urban livability. Moreover, in doing so, much of its success has emanated from a revived central core outward, rather than becoming solely a suburban ring economy.

Rather than further re-hash the survey article’s findings, I suggest you have a look at it and perhaps contribute your opinions about it here. In my opinion, it will be shame if The Economist‘s survey does not provoke a broader dialog among Chicagoans about the future and what, if anything, to do about it. What do you think are Grimond’s errors of commission and omission in assessing Chicagoland and its prospects? Is Chicago poised for prosperity, or has it merely experienced a short-lived respite from long-term decline?

At the end, Johnny Grimond notes a few possibilities for further success, namely further development of its professional services sectors and better commercialization of its educational and technological assets. However, Grimond is somewhat pessimistic in observing that the Daley era may be coming to an end, with nastier politics ahead and no evident leadership handoff in sight. And like its counterparts, Chicago has not cracked the puzzle of easing inner-city poverty and upward mobility. And so, he concludes that “Chicago’s current success may be about as good as it gets.… Chicago, like almost all America’s older cities, still faces the prospect of decline, or at best stasis, unless it can find the elixir of urban life—how to grow richer without growing bigger.”

What do you think?

Global Chicago: Da Bulls, Da Bears, Diversity

Chicago United is a 38-year old group devoted to “Enriching the economic fabric of the Chicago region by building sustainable diversity in business leadership.” On March 10, I participated as a panelist at the first of a three-part series titled “Chicago: A Global City, A Global Perspective on Diversity.” Together with my co-panelists Paul O’Connor and Saskia Sassen, we addressed whether Chicago had become a global city and, more importantly to the Chicago United audience, whether Chicago was working effectively from the standpoint of diversity as a business imperative in the global marketplace.

Here are my thoughts, though I’d like to hear yours as well!

The Chicago metropolitan area (Chicago) lies on the razor’s edge with respect to its future. So-called globalization lies at the heart of what has brought Chicago to its critical crossroads. To put it simply, depending on both its own actions and on the fates, Chicago can possibly become a backwater business capital city of a shrinking and largely unimportant region of the United States. Alternatively, Chicago can become an independent city of global importance, a city that attracts the world’s most talent business makers, artists, policy makers, and idea-creators. As such, Chicago could even become the portal that helps revive a surrounding Midwest region which is sorely in need of revival and re-invention.

Globalization means that the world’s economy has become more integrated and intertwined, and its regions more subject to frequent and profound shifts and changes. This is so because communication costs and transportation costs have fallen dramatically. For example, costs of shipping a ton of cargo dropped by three-fold from 1920 to 1960, and containerization and transport by larger and larger ocean-going ships continue to pressure prices downward today. Air shipping costs have dropped by 80% since the mid-1950s. And while many of us complain about airline deregulation and recent security procedures, personal air travel is now much more affordable to average Americans.

Communications cost declines are even more dramatic. The cost of a three-minute phone call from New York to London was once the equivalent of $350 in 1930 in today’s terms. These same communications facilitate both cargo and personal logistics, as well as propelling traded services, information, and capital around the world.

On top of this, most of the world’s nations have agreed to lower barriers to the flow of goods, capital, intellectual property, and sometimes travel and immigration.

How has globalization impacted Chicago? The pressures and challenges are great. Chicago can be characterized as the business capital city of a shrinking economic region. Chicago was borne of the gathering of farm products and natural resources, the sorting and shipping of these products, the financing of these products, and the supply of business and legal services to farms and agri-businesses throughout the Midwest.

In parallel, Chicago became a great manufacturing city as result of its transportation/hauling capability and facilities. Chicago gathered Midwest resources and transformed them more productively than any place on earth. So did other Midwest cities, but Chicago also became the business capital of these lesser cities in supplying them business, financial, and legal services.

Without belaboring the point, these same activities are today shrinking as sources of household income and jobs for both Chicago and its surrounding Midwest. For the most part, technical progress has diminished the need for workers here in Chicago in these activities, even while the attendant productivity gains have raised standards of living both here and around the nation. Growing world trade and import competition have contributed to local pressures and shrinkage. Prices for commodities and routine manufactured goods have declined, too, as both farming and manufacturing have become hugely productive—victims of their own success. And so, income and job growth generated from these activities are now weaker.

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Bullish on the Chicago Metropolitan Economy

So far this decade, the Chicago metropolitan area’s economic performance has been disappointing. As in the surrounding Midwest, job declines during the recent recession were worse here than in the nation as a whole, and this area’s job growth during the expansion has since been lagging. With this lackluster performance, there has been a special disappointment for Chicagoans; the metropolitan region’s economy led the nation and most of the surrounding Midwest during the 1990s. During that time, there was a sense that Chicago’s economy had evolved beyond its role as regional business capital into one as national and global business center.

What is Chicago’s outlook for 2006? I am optimistic, although there are some defensible reasons for caution. For one, goods producing industries in the surrounding region may continue to pull down Chicago’s service sectors. Chicago’s outsized business and professional service sector continues to serve the Midwest, as do its travel, distribution, and business meeting services. But looking ahead, the Midwest economic outlook is clouded by the prospects for its automotive industry. Nationally, automotive sales growth is not expected to be robust this coming year, especially for the Big Three automakers and their suppliers that populate the eastern part of the Midwest region as well as northern Illinois and southern Wisconsin. Accordingly, this segment of the Midwest cannot be expected to propel Chicago’s service economy in 2006.

There is a second reason to be cautious: National economic growth is expected to moderate modestly in 2006 (link). Since Chicago and the Midwest generally follow national trends—perhaps even follow them in a magnified fashion—there is some doubt that the metropolitan economy’s performance will gain momentum as the national economy moderates.

Still, despite these trends, and with a great deal of uncertainty, I offer some reasons for optimism for those of us who are inclined to be bullish about Chicago.

Not all of the surrounding Midwest manufacturing activity is moribund. The region’s capital goods industries, such as the machinery and equipment industry, are expanding. Looking forward, as national and global economic growth continues, U.S. and world demand for “new tools” and added production capacity tend to lift capital goods sectors. In turn, employment in manufacturing sectors, along with physical expansion of factories, tend to take place with a lag as excess capacity becomes squeezed.

More generally, recently reported data indicate that improvement in Chicago’s labor markets is already underway. During the autumn, Chicago’s year-over-year payroll job growth exceeded 1 percent for the first time since the year 2000, while the unemployment rates were down in the fourth quarter (according to preliminary reports).

Chicago’s vaunted business and professional services industry is once more reporting strong employment growth. Though it has much catching up to do from its poor performance in recent years, Chicago’s year-over-year job growth in this sector is exceeding the nation’s.

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Chicago’s Exchanges Look to the Future

Last week, the Chicago Board of Trade (CBOT) became a publicly traded company. On the first day after offering its stock, its share price ended the day above $80, well above forecasts of a $45-50 value per share.

The CBOT development was one of many suggesting that the prospects of Chicago area’s futures exchanges have improved in recent years. But to what extent is the turnaround sustainable, and will this growth and success continue for one of Chicago’s hallmark industries?

Chicago’s importance as a financial center is defined by its exchanges and associated dealers and brokers. The Chicago exchanges can claim close to two-thirds of the volume of exchange-traded contracts in the U.S. A major assessment of the exchanges’ importance to the Chicago economy has not been conducted since 1997. (See Civic Committee of The Commercial Club of Chicago‘s Report by the Risk Management Center, “Study of Financial Markets & Financial Services in Chicago,” 1997.) That study reported that 150,000 Chicago-area jobs could be attributed to the exchanges, and $35 billion in funds were on deposit at local banks to support Chicago’s exchange products. Many other linkages to Chicago’s economy, such as the needs of large local companies to balance their financial risks and risk exchanges’ ties with other financial and legal services firms and universities, were articulated in that report.

Chicago’s exchanges had long dominated global trading activity in futures and derivatives. But throughout the 1990s, the Chicago exchange community lost global market share. The figure below shows the growth in volumes of futures and options contracts traded on exchanges from 1987 to 2004. Trading volume at U.S. exchanges languished in the mid-1990s, even while growing rapidly throughout the rest of the world.

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In the 1990s, competing exchanges in Europe and Asia made strong gains in market share. Electronic or computerized exchange facilitated overseas market locations partly by offering trading activity during hours when Chicago floor trading was not active. Ultimately, electronic trading also offered cost advantages for some existing products, while preserving important liquidity, clearing, and price-discovery properties as well. Overseas competitors adapted to and innovated electronic or computer-generated trading more successfully, and therefore captured markets that the Chicago exchanges might otherwise have claimed.

The Chicago exchanges also innovated and implemented systems of electronic trading, but their strong prior commitment to the open outcry or pit trading method of trading and price discovery perhaps impeded their success. So too, globalization of capital markets enhanced the demand for futures products overseas, along with a desire to trade around the clock. And so, electronic trading and the competitors who used it effectively were more successful in capturing growth in global demand.

But in recent years, Chicago’s two major exchanges, the Chicago Mercantile Exchange (CME) and the CBOT (CBOT), have rebounded strongly. Not only are contract volumes up markedly, but both exchanges have gained market share on their global competitors over the past two years. The CME reorganized from a mutual or member ownership structure to incorporation and public ownership, with an IPO in late 2002. Since that time, product and market expansion, enhanced services, and cost savings and price reductions on trades have boosted the CME’s market shares and sales. As of mid-October, the CME share price had increased ninefold since its IPO.

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How Much Are Headquarters Worth?

Earlier this month, Mittal Steel USA announced it will locate its headquarters in downtown Chicago rather than in Northwest Indiana. Mittal USA employs 21,000 workers in 14 states. The parent company, Mittal, headquartered in London, is the largest steel maker in the world.

Mittal’s U.S. headquarters will employ only about 200 people. Even so, the company will reportedly receive $7.5 million in tax credits from the State of Illinois for job training and infrastructure, and the City of Chicago will contribute $2 million toward equipment, furniture, and fixtures. At a cost (undiscounted) of $40,000-$50,000 per job in tax incentives, why are public officials so pleased to have the Mittal headquarters?

For one reason, the Chicago area economy, along with the rest of the Midwest, is lagging the nation in this first decade of the millenium. Moreover, an intense matter of pride and branding of Chicago’s economy is at stake. The Chicago area ranks second only to the New York metro area as a headquarters city (figure 1). And, as reported by Lyssa Jenkens, chief economist of the Greater Dallas Chamber, even Sun Belt cities that are gaining headquarters admire Chicago and New York(Chicago Fed Letter). Yet, although Chicago snagged a big prize with Boeing’s move from Seattle in 2000, the city has lost other headquarters in recent years, such as Ameritech, BankOne, Quaker Oats, and Amoco.

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Chicago — Regional capital or global business center?

The Chicago economy is expanding, but the pace of growth is disappointing compared with that experienced during the 1990s. This lagging performance raises some questions about the future. Will Chicago merely serve a supporting role as a services center for the surrounding Midwest, or can Chicago’s businesses expand their reach to more rapidly growing national and global markets?

Robust growth of jobs, income, and population during the 1990s left intact Chicago’s role as capital city of commerce for the broader Midwest, and then some. Some observers of the Chicago economy, including me (Global Chicago book), argued that Chicago was outgrowing its regional character. It was becoming a global city, with market ties and cultural recognition above and beyond the Midwest. This view boded well for the region’s long-term prospects, as the shrinkage in surrounding Midwest manufacturing and agriculture income would not hold Chicago back from a favorable performance among global cities.

However, those rosy predictions are somewhat at odds with the reality of Chicago’s performance over the past 4-5 years. The Chicago area is undoubtedly participating in the U.S. economy’s expansion. The airports are at capacity once again, hotel occupancy rates are climbing, some of the risk exchanges are swaggering a bit with profitability and outreach to foreign markets, and commercial office vacancy rates have leveled off. But the Chicago area economy continues to lag the U.S. economy. This follows a recession that hit the Chicago metropolitan area more severely than it hit the nation overall. Year over year (as of August), the Chicago area’s payroll employment grew just 0.8 percent, compared with 1.7 percent for the nation. The unemployment rate for August stood at 5.9 percent versus the nation’s 4.9 percent (figure 1). This extends a weak performance from year 2000. Annual data show that payroll employment declined -4.1 from 2000 to 2004, versus a -0.2 decline for the nation.

Figure 1

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