Slowly Regaining Ground Lost

Jan 12, 2010, 16:03 ET from Mesirow Financial


CHICAGO, Jan. 12 /PRNewswire/ -- "The risk of a misstep in the economy this year is particularly high, given the costs associated with standing still, let alone moving backward. Unemployment is still too high, and the erosion in our growth potential too great to even imagine. Add to that the fact that the current recovery has been less than stellar — especially when it comes to creating jobs — and it is no wonder that the euphoria we are seeing on Wall Street has yet to reach Main Street. In fact, firing continued to outpace hiring by more than 80,000 in December," says Diane Swonk, chief economist of Mesirow Financial, in her January issue of Themes on the Economy located at: http://www.mesirowfinancial.com/economics/swonk/themes/themes_0110.pdf

In her January newsletter, Swonk takes a closer look at business cycle dynamics and why the economy still feels so bad, even though we are a good six months into a recovery. Separately, she discusses the implications for employment, monetary policy and fallout for financial markets:

  • Real GDP growth is expected to be inherently slower and more subdued than one would expect given the depth of the losses that we endured over the last two years. The 1980s were used as a benchmark because of the similarity between the depth of the most recent recession and those of that decade.
  • The unemployment rate is expected to rise during the first quarter. It is then expected to gradually drift down over the course of the year, but remain close to the 10% threshold. That contrasts with a sharper drop in the unemployment rate from 10.1% to 7.9% during the same phase of the 1980s recovery.
  • The Fed is expected to remain on the sidelines for much of 2010, and wait to normalize rates until unemployment has fallen below the 10% threshold in the latter part of the second half of the year.
  • Profit-share is expected to rise over the course of the year, even as profit growth slows from the robust pace seen at the end of 2009.
  • The broader stock indices — the Dow and the S&P 500 — could increase another 5-8% from their December close.
  • The prospects for the Treasury bond market are not as good, with long-term yields expected to creep up in 2010.
  • Persistently low inflation and worse fiscal problems elsewhere, however, are likely to limit the magnitude of the rise in bond yields.
  • The dollar is still the best of the worst as a reserve currency and, as a result, will continue to attract foreign investors during times of turmoil.

"The recovery that started in mid-2009 is expected to persist into 2010, albeit at a somewhat subdued pace. Those gains will not be enough to lift as many people out of unemployment as we would like, but it is a start, and with every new beginning there is still hope — hope for better times down the road, and hope that I am wrong. I would gladly accept a much stronger recovery and larger rebound in employment than I have forecast," concludes Swonk.

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

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Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with more than $30 billion in assets under management and 1,200 employees in locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, 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.

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