An Expansion in Name Only: A Midyear Economic Review

CHICAGO, June 8, 2011 /PRNewswire/ -- "Middle- and low-income households are expected to remain particularly frustrated with the pace of economic growth through the start of 2012... [and] class warfare is likely to gain traction as the 2012 elections approach." Chief Economist Diane Swonk details both temporary and long-term headwinds for U.S. economic growth.

View a video featuring Diane Swonk listing the major challenges facing the U.S. economy, in the June issue of Themes on the Economy®. Read this month's issue. She weighs the factors adding to and subtracting from the recovery during the second half of 2011.

• "Consumer spending is expected to continue to muddle along in response to a modest pickup in employment." Higher prices at the gas pump will persist, acting as a brake on discretionary purchases for middle- and low-income consumers.
• "Record-high profit margins have given large companies some wiggle room to absorb the shock of higher commodity costs, without passing them on to price-sensitive consumers." But companies are under pressure to redeploy those profits, in investments or as dividends.
• "The trade deficit is expected to narrow, as exports outpace imports in an economy that is moving away from its consumer roots to more investment and export-based growth."  The weak dollar supports this increased export potential for U.S. manufacturers.
• "Government spending is expected to continue to contract, with spending cuts across the board." Fading federal stimulus money is exacerbating spending cutbacks at the state and local levels.
• "Housing market activity is expected to remain in the doldrums, but improve modestly from record lows hit at the start of 2011. Investors are finally returning, now that the marginal costs of home ownership have fallen below comparable rents in most markets."
• Playing chicken with the August 2 deadline to raise the debt ceiling could upset the bond market. "Even a country like ours, which has enjoyed so much leeway in the debt markets, would be forced to pay some sort of a premium for default."

Swonk concludes that, "Risks are a little more weighted to the downside than to the upside." But she expects transitory factors like production disruptions linked to the earthquake in Japan to recede and "set the stage for modest acceleration in growth later in the year." That said, the European debt crisis and the "Arab Spring" remain wild cards for the global economy.

The June issue of Themes on the Economy® as well as archived issues can be found at mesirowfinancial.com.

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with more than $43 billion in assets under management and 1,200 employees in locations across the country and in London. With expertise in Investment Management, Global Markets, Insurance Services and Consulting, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals. For more information about Mesirow Financial, visit its Web site at mesirowfinancial.com.

SOURCE Mesirow Financial