Weathering the Aftershocks of the Crisis: A Mid-Year Economic Review

CHICAGO, June 7 /PRNewswire/ -- "Most are expecting the National Bureau for Economic Research (NBER) – the group which provides the 'official' dates for the beginning and end of business cycles – to declare June 2009 as the bottom of the Great Recession of 2008-09. This means we are almost one year into a recovery, which by most measures is better than anyone expected," says Diane Swonk, chief economist of Mesirow Financial, in her June edition of Themes on the Economy, located at http://www.mesirowfinancial.com/economics/swonk/themes/themes_0610.pdf

"However, no one has exactly started to pop champagne corks. The pace of growth since the start of the recovery has been subpar, with growth averaging about half the six-to-eight percent one would expect given the depth of the losses that we endured. Unemployment is still excessively high and consumer confidence has improved, but remains close to the lows we hit after Bear Stearns collapsed in March 2008, which is nothing to write home about," notes Swonk.

In her June newsletter, Swonk takes a closer look at the forecast for growth in the second half of 2010 and first half of 2011, including:

• Real GDP Growth. The recovery, which started in the second half of 2009, is expected to continue, but at a subdued pace.
  • Consumer spending is expected to slow after a spurt in the first half of 2010. Continued gains in spending will be supported by moderate (not stellar) employment growth, a return of raises, pent-up demand, lower energy prices and a pickup in mortgage restructuring, which will free up some income for discretionary purchases.
  • The rebound in housing is expected to remain muted as lower mortgage rates offset the end of homebuyer tax credits to support the market.
  • Business investment is expected to post some of the strongest gains, with a rebound in spending on new equipment and technologies more than offsetting continued weakness in the commercial real estate sector.
  • Inventories are expected to continue to be replenished, but not be as large of a contributor to overall economic gains as they were at the start of the recovery.
  • Government spending is expected to moderate as the push from federal stimulus plays out, and cuts to state and local government budgets mount.
  • The trade deficit is expected to widen slightly. However, that deterioration is due more to a rebound in imports than a drop in exports and, as a result, is more a reflection of the economy's strength than weakness.
• Inflation. Disinflation and the risk of deflation are expected to remain significantly greater risks than accelerating price levels for some time to come.
• The Fed is expected to hold the fed funds rate in its current 0-.25% target range for much of the year.
• Treasury yields are expected to remain low, as the flight to safety persists and inflation continues to decelerate over the summer.
• Corporate Profits. One of the true highlights of a low inflation/high productivity growth environment is profit share, which is expected to rise over the next year.

"This, coupled with some overshooting that occurred as investors panicked in response to problems in Europe and the oil spill, suggests that the Dow Jones Industrial Average should rise more than 10 percent over the next twelve months," concludes Swonk.

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 $37 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