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Could the city of Chicago become a microcosm for the rest of the nation?

According to a new report by Austan Goolsbee, a professor of economics at the University of Chicago's Booth School of Business and former economic adviser to President Obama, the Windy City's jobless rate and employment ratio — two crucial measures of job creation — "significantly improved" within the past year.

Chicago's unemployment rate fell 1.7 percentage points (from 11.5 percent to 9.8 percent) between May 2011 and May 2012, more than any comparable U.S. city and much faster than the national unemployment rate, which shrunk 0.8 percentage points in that 12-month period. The report offers encouraging signs for Chicago lawmakers and citizens but the city still has the third-highest unemployment rate in the country.

Goolsbee says Chicago's labor market performance mirrors the trends taking place in the wider U.S. economy: a comeback in manufacturing, health care, tourism and business services. Employers added 163,000 new jobs last month, with the biggest gains happening in the professional and business services sector (+49,000), manufacturing (+25,000), health care (+12,000) and food and beverage services (+29,000). The national unemployment rate ticked up to 8.3 percent from 8.2 percent in June.

But Washington has to pursue more policies that promote exports and domestic manufacturing, Goolsbee says, in order to push the overall economic growth rate higher. The U.S. economy grew 1.5 percent in the second quarter of the year, down from 2 percent in the first quarter. Most economists are expecting tepid economic growth for the rest of the year as the economy continues to recover from the 2008 recession. Federal Reserve officials downgraded their 2012 economic growth projections in June and "expect economic growth to remain moderate over the coming quarter," according to the most recent Federal Open Market Committee meeting statement. Former drivers of economic expansion such as residential construction — or "bubble-driven growth," as Goolsbee says — carried the economy in the 2000s but were a major source of economic contraction when the housing market crashed.

"We used to be building houses and consuming faster than our income was growing," Goolsbee says. "That's not sustainable. Please let's not go back to that."