Feeling for a Pulse: Can We Survive a Relapse?

CHICAGO, Aug. 11, 2011 /PRNewswire/ -- "Recent financial market instability ... shares an eerie resemblance to the week following Lehman Brothers' failure in 2008." Chief Economist Diane Swonk says she "often likened the financial crisis and the resulting Great Recession to a massive coronary, when the U.S. economy had to be jolted back to life and landed in the intensive care unit."  Swonk has cut her forecast for economic growth, warning that there is "a serious risk of relapse – in this case, a double-dip recession."

View a video featuring Diane Swonk explaining the new challenges which face the economy in the second half of 2011 and into 2012. Read this month's issue of Themes on the Economy, including reasons behind the revision to Mesirow Financial's expectations for the U.S. economy:

• "S&P's unprecedented action hit the markets hard... on top of its conclusion that our government is incapable of the compromise necessary to narrow the deficit sufficiently," said Swonk. She disagrees, adding, "The challenges we face on the fiscal front may be large, but they are not insurmountable, especially now that both political parties agree on the need (if not the prescription) for reducing the federal deficit."
• Dramatic revisions to the government's GDP figures indicate that American companies have been unable to pick up the slack created by government cutbacks at the federal, state and local levels, resulting in a "growth recession," which means weak economic growth with rising unemployment.
• Our problems don't stop at the water's edge, however. Swonk predicts that the European debt crisis and "ongoing problems in the euro area could, over time, prompt some depreciation to the dollar."  
• The silver lining to a falling dollar scenario is exports: "The trade deficit is expected to narrow as exports continue to outpace imports, especially as consumer spending slows," Swonk said.
• A potential bright spot is the expiration of investment tax credits at the end of the year, which could prompt companies to buy new equipment. "Heavy truck purchases have already surged," Swonk noted.

Finally though, investors should not count out the Federal Reserve, according to Swonk. "Given the risks the economy and financial markets now face, it seems more likely that the Fed will engage in another round of large-scale asset purchases," otherwise known as QE-3.

The August 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 $43 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

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