The Long Road to Recovery
CHICAGO, January 7, 2009 — "In the wake of the seizure in credit markets: capital costs soared and credit disappeared; retailers, who couldn't get financing for holiday inventories, closed stores and fired workers during the height of the holiday shopping season; layoffs surged; and, the carnage that was intended for Wall Street hit Main Street. Real GDP is forecast to contract another 1.5% on average in the first half of 2009, after contracting more than 3% on average in second half of 2008," says Diane Swonk, chief economist of Mesirow Financial, in her January newsletter, Themes on the Economy.
"Christmas 2008 was the worst that we have seen in 35 years and economic conditions are still deteriorating. Efforts by the Fed to re-inflate the economy, and a heavy dose of fiscal stimulus will eventually help to reverse those losses," notes Swonk.
In her January newsletter, Swonk gives insight into how long it will take for the economy to recover and how much longer than that it will take for any of us to feel those changes in our own lives. The better bet on a rebound in overall growth and a stabilization labor market conditions is in 2010:
- Bank balance sheets are expected to take at least another year to heal.
- Actions the Fed has taken to intervene in credit markets have already lowered mortgage rates. It is only a matter of time before those effects accumulate, credit markets begin to truly heal, and credit becomes easier to obtain for firms, states, and municipalities.
- The effects of Obama's stimulus package, especially those associated with infrastructure investment, are expected to start kicking in. This will initially boost activity in the beleaguered heavy manufacturing sector. It won't take long, however, for other industries to benefit as well.
- The housing market is expected to reverse course and pick up a bit. Las Vegas, Phoenix, and parts of Northern California, which were hit hardest by the housing market bust, are expected to be among the first to turn.
- Inventories, which have been a drag on growth for two years, are expected to finally build. The return of inventory financing is particularly important, as it will likely magnify any natural rebuilding of inventories that we see associated with a rebound in the economy.
"There are no silver bullets, however, and the best we can hope for in the near-term is to mitigate rather than reverse entirely the declines we are seeing. The good news is that we still live in the most flexible and resilient economy of its size that the world has ever known. With time, we will recover. In the interim, remember that those of us who are still working, and who still have some sort of savings (even if they are diminished), are among the lucky ones in this economy," concludes Swonk.
The January 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 $32.2 billion in assets under management and more than 1,100 employees in 30 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 and was named one of Chicago's Best Places to Work by Crain's Chicago Business in 2008. For the fiscal year ended March 31, 2008, the firm posted $492 million in revenue, with more than $246 million in capital. 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., © 2007, 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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