Swonk Releases Annual Outlook Edition: The Quiet After the Storm

CHICAGO, December 9, 2009 — A year ago, I argued that the riptide that dragged the economy down in 2008 had become more of a tsunami. Once Lehman went down on September 15th there was nowhere for the economy to go but down. The only question was how many jobs would be sacrificed before we did something about it," says Diane Swonk, chief economist of Mesirow Financial, in her annual outlook edition of Themes on the Economy.

"The Fed and Treasury stepped in to put their fingers in the proverbial dike, despite significant backlash (and ignorance about the magnitude of the problem) from Congress. Calls for fiscal stimulus from Fed Chairman Ben Bernanke, however, went unanswered. Even former President George W. Bush has admitted that he had no idea how bad things actually were," notes Swonk.

In her December newsletter, Swonk provides her 2010 economic forecast and outlook for financial markets:

Consumer spending is expected to rebound, aided initially by pent-up demand and the spillover from the 2009 pickup in home sales.

Housing is expected to continue to rebound, albeit from exceedingly low levels.

Business investment is expected to remain weaker than we would like, as firms are still unwilling (and unable) to finance capital expansion.

Inventories dropped even faster than underlying demand, which has set the stage for some restocking in the year ahead.

A rise in federal spending is expected to continue to provide some offset for persistent and deepening weakness at the state and local level.

Exports have already picked up in response to stronger growth abroad. A commensurate rise in imports suggests that we will probably have to wait another year before the trade deficit begins to narrow again.

The Fed is expected to hold off until December before it starts to "normalize" rates.

Long-term bond yields. The premium that the government must pay investors to buy their debt is expected to rise slightly.

Profits growth is expected to slow but remain in the double digits through year-end.

The dollar is expected to further depreciate relative to the yen and the euro, especially as confidence in our credit worthiness wanes.

"Historically, economists have UNDER rather than OVER-estimated recoveries. Overshooting on the downside, coupled with aggressive fiscal and monetary stimulus often sets the stage for a bigger rebound than most anticipate. I believe that headwinds associated with the credit crunch will persist and limit the degree to which we can recover this time around," concludes Swonk.

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 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.

The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2009, Mesirow Financial Holdings, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy an interest in any Mesirow Financial investment vehicle(s).

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