Traversing an Uneven Terrain

Annual Outlook Edition

Dec 09, 2010, 18:16 ET from Mesirow Financial

CHICAGO, Dec. 9, 2010 /PRNewswire/ -- Mesirow Financial's Outlook for 2011 forecasts the reappearance of a more optimistic consumer, while business investment continues to expand, though focused more on beefing up technology than staff. The lump of coal in that Christmas stocking is that unemployment is expected to remain high.

The sector that led us into economic crisis and recession, housing, "has fallen so low that it has almost nowhere to go but up, so it is expected to become a driver of growth," predicts Chief Economist Diane Swonk. She adds that, "low mortgage rates, more realistic pricing and rising comparable rents have all combined to render the marginal costs of home ownership lower than renting."

Her December Themes newsletter, offers up a glass that is at least half-full, as consumers face the third Christmas since the bottom fell out of the world economy in the autumn of 2008:

  • For consumers, modest rebound in employment and wages, plus a newly-built cushion in saving, all suggest new strength in spending.
  • As for business investment, Swonk says that, "rebounding profits, robust cash flow, easy credit (for large companies) and strong exports make up the primary reasons for optimism."
  • There are risks of a trade war, which could affect exports because members of Congress such, as Senator John Kerry (D-Massachusetts), recently joined the chorus of those calling for a sharp increase in tariffs, in case China resists pleas to let the yuan appreciate against the dollar.
  • The President's deal with Republican leaders on tax cuts and unemployment benefits should support economic growth: "Some estimate that we could see as much as 1/2 to 3/4% additional growth," says Swonk.
  • Longer term, the U.S. will have to confront the budget deficit, discerning the difference between the cyclical expansion of red ink, a direct result of that deal, and the structural deficit. Otherwise, "the bond market could get spooked and push bond yields higher to compensate for the risk of a debt crisis down the road," Swonk warns.
  • Bottom Line:  in the near term, Federal Reserve purchases of U.S. treasury debt should support credit markets, while equity markets benefit from strong business investment.

The December 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 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.

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