2007: A year of surprising twists

In "The Wizard of Oz," farmhand Zeke, played by Bert Lahr, spots trouble on the horizon and shouts a warning.

"It's a twister. It's a twister."

Like a twister on an uneven path, this year's economy wreaked havoc on some while leaving others alone to thrive.

The gross domestic product rose 2.5 percent. Many corporations, such as Oak Brook-based McDonald's Corp., produced banner earnings. Mergers and acquisitions professionals were all smiles as they racked up another record year.

However, the twister touchdown point proved to be the housing industry and the related mortgage, construction, retail and financial sectors. It uprooted lives from carpenters to LaSalle Street bankers.

Other outside economic trends also touched down in the Chicago area as oil prices surpassed $90 a barrel, showing up at area gasoline pumps, reducing disposable income for families.

As of last week, gasoline prices in the Chicago area rose about 30 percent this year, to $3.09 a gallon for regular. Prices peaked in May at $3.66 a gallon.

Rising energy prices and growing concerns about global warming sparked demand for corn-based ethanol, which was good for downstate grain farmers. But those grain prices showed up in the higher cost of some food at area groceries. Downers Grove-based Sara Lee Corp. raised the prices of its breads twice in the second half of the year.

Also this year, a plan was announced for the Elgin, Joliet & Eastern Railway to be purchased by Canadian National Railway Co., in part because the Canadian dollar surpassed the U.S. dollar in value.

Industrial practices in China resulted in a year of record recalls. Oak Brook-based toy maker RC2 Corp. was hurt when it discovered its Thomas & Friends Wooden Railway series was found to have excess lead.

Still, the biggest story of the year remains the depressed housing market.

Rising home values stalled, even fell in some parts of the country. More and more homes were put up for sale while fewer were buying. A wave of foreclosures related to adjustable rate mortgages and subprime lending practices lit up the industry.

Warrenville-based Neumann Homes got caught in the storm's path, its bankruptcy marking the largest area homebuilder failure in recent history.

The physical manifestation of the housing crisis can be seen in new, unfinished housing developments throughout the area.

"People are ending up with a pile of dirt as their neighbor," said Carl Tannenbaum, former chief economist at LaSalle Bank before its takeover by Bank of America this year.

New home sales in the Chicago area fell 33 percent, according to Tracy Cross & Associates, a Schaumburg-based real estate research and consulting firm.

From the peak year of 2005, sales fell nearly 50 percent.

Chicago wasn't hit as hard as Florida or California, but Cross said "we were in the middle of the pack." The downturn is comparable to the housing downturn between 1990 and 1992, Cross said.

Although existing home sales in the area are off 19 percent, as of October prices for the year rose 3 percent, according to the Illinois Association of Realtors.

Cross said the housing slump now is still largely restricted to related industries.

For the economy as a whole, reliable year-to-year Chicago-area economic output numbers are unavailable as of yet, according to Diane Swonk, chief economist for Mesirow Financial in Chicago. However, she points to labor statistics showing the Chicago area trails the nation in employment, which indicates it probably also economically trailed.

"We haven't been able to escape the problems of Detroit and the automakers," Swonk said. "I get a sense that we're a little behind."

With health care, food and energy costs rising at a faster pace than wages, many Chicagoans may see statistics showing the U.S. economy grew this year, and wonder why they don't feel the updraft.

The upper-income portion of the economy is growing, as witnessed by the success of high-end retailers this holiday season. However, even pizza delivery indicators show a slowing of sales as more people save money by eating at home more often, Swonk said.

"The economy adds up on paper, statistically, better than it feels for the average Chicagoan," Swonk said. "You have people saying (my economic security) is not great and it should be better."

2007 Business highlights

People

Greg Brown, Motorola Corp. chief operating officer, to replace Edward Zander as CEO.

Charles Evans, a Federal Reserve Bank of Chicago executive, replaces longtime President Michael Moskow.

David Nelms becomes CEO as Discover Financial Services LLC goes public.

Thomas Wilson, No. 2 at Allstate Corp., becomes CEO after Edward Liddy's retirement.

Robert Bruce Zoellick, Naperville Central High School graduate becomes president of the World Bank.

Mergers and buyouts

CDW Corp., based in Vernon Hills, agrees to $7.3 billion buyout by Chicago's Madison Dearborn Partners

Chicago Mercantile Exchange wins $12.1 billion bid for Chicago Board of Trade over rival bidder Intercontinental Exchange.

Kraft Foods Inc., based in Northfield, buys France-based Groupe Danone's biscuit unit for 7.8 billion.

LaSalle Bank, based in Chicago, sells for $21 billion to Bank of America.

Tribune Co. agrees to $8.2 billion bid by a group led by billionaire Sam Zell.

Walgreen Co., based in Deerfield, buys Buffalo Grove-based specialty care firm Option Care for $850 million.

Major moves

McDonald's Corp., based in Oak Brook, launches McSkillet, specialty coffees.

Elgin, Joliet & Eastern Railway is expected to go to Canadian National Railway Co.

Neumann Homes, based in Warrenville, files for Chapter 11 bankruptcy.

Sears Holdings Corp., based in Hoffman Estates, bids for Restoration Hardware.

Source: Daily Herald reporting