Moving From Recession to Recovery: What Can We Really Expect?

CHICAGO, Oct. 15 /PRNewswire/ -- "One year later, the National Association for Business Economics (NABE) group is calmer but hardly happy. Talk of a depression has been replaced with debate over the strength of the recovery. The economy looks like it bottomed around July, and is growing at a little more than 3% in the second half of 2009. No one, however, is popping champagne corks. The crisis took years -- if not decades -- to create and will take more than a few quarters of growth to fix," says Diane Swonk, chief economist of Mesirow Financial, in her October issue of Themes on the Economy located at http://www.mesirowfinancial.com/economics/swonk/themes/themes_1009.pdf .

"Financial markets have improved, with credit spreads narrowing significantly from the dark days of the crisis. The supply of credit, however, remains incredibly inhibited. This is to say nothing of the secondary tightening of credit that is likely to emerge as the cyclical defaults and bankruptcies take their toll on the banking system in 2010," notes Swonk.

In her October newsletter, Swonk provides insight into the thinking of economists and policymakers, who attended NABE's 51st annual meeting, October 10-13, 2009 in St. Louis, Missouri, and includes the 2009 NABE consensus, the structural challenges that we still face, and the course that both monetary and fiscal policy is likely to take going forward:

-- NABE 2010 Consensus. Over 80% of NABE's forecast panel believes that the "Great Recession" has ended and that the economy is now in the early stages of a recovery. Growth is forecast to increase at an average rate of 3% in 2010. -- Employment is not expected to exceed previous highs until 2012 or later. -- Inflation is expected to remain tame through the end of 2010, inhibited by excessively high unemployment and a large amount of slack. -- The dollar is expected to further soften, but not lose its status as a reserve currency. -- Corporate profits are expected to bounce back and the NABE group is uniformly optimistic that the broader stock indices will continue to rally. -- The availability of credit (or lack thereof) remains the primary risk to the outlook in the near-term. -- Concerns span the spectrum from a secondary round of credit tightening associated with the sharp rise in unemployment and accompanying defaults, to the losses that banks will have to absorb as commercial construction crashes.

-- Monetary Policy. The NABE forecast panel expects the Federal Open Market Committee (FOMC) to reverse course and raise rates by mid-2010, a good six months ahead of our forecast at Mesirow Financial. Fiscal Policy. Concerns about the sustainability of the recovery have reignited the debate regarding another round of fiscal stimulus.

"We have come a long way from where we were a year ago. That said, nothing in the outlook could be considered 'normal.' We are heading into a new era when consumers are finally forced to live within their means, and employers will be forced to be more accountable. That said, we have done very little to correct the problems that created the crisis, and it will take years to formulate the changes we need to guard against the worst of the infractions that created the crisis. The recent rally across all asset classes is particularly worrisome, as it suggests we are still ignoring major differences in risk. Under those conditions, another crisis is not only possible, but probable," concludes Swonk.

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

SOURCE Mesirow Financial