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Recession Risks, Income Inequalities and Prospects for a Rebound

2008年01月12日 05:51 来源: PRNewswire 【字体:


  CHICAGO, Jan. 11 /PRNewswire/ -- Are we in a recession? Are we headed for one? Those are probably the most common questions asked of economists these days. Perhaps a better question is: Why do things seem so bad for so many when the economic data still says we are in positive territory? The answer could be that the data is wrong, and that the economy is actually weaker than is being reported by the government -- this wouldn''t be the first time," says Diane Swonk, chief economist of Mesirow Financial, in her January issue of Themes on the Economy available at http://www.mesirowfinancial.com/pdfs/newsletters/themes/themes_0108.pdf .

    "The Bureau of Economic Analysis missed the recession as it was occurring in 1990 -- initial estimates of growth in the fourth quarter of 1990 and first quarter of 1991 showed that the economy was still growing. This allowed former Fed Chairman Alan Greenspan to hold off on additional monetary easing over the summer, and pushed the White House and Congress to ratify the 1990 Budget Accord. Indeed, the current slowdown could be even worse than is currently being reported, which would make the debate about whether we should call it a ''recession'' or not," notes Swonk.

    In her January newsletter, Swonk discusses the risks of recession (draws comparisons to the 1990-91 recession), the threat that bad economic data poses to quality policy decisions and her outlook for a rebound in growth. The following provides a summary of her report:

    -- The risks of a recession have clearly increased in recent months, with most economists moving up their risk estimates from about 25% before the credit market crisis to almost 40% in recent weeks. Our own estimates for recession have also moved up, from about 30% to 45%. -- Consumer confidence is still well above -- more than 40% -- the lows hit in the wake of Iraq''s invasion of Kuwait, and consistent with the early stages of this expansion. -- Oil plays a much smaller role in the economy today than it did in 1990, which has made the economy much less sensitive to oil price increases. -- The real fed funds rate, which more accurately assesses the stance of monetary policy, is currently about twice as stimulative as it was prior to the recessions of 1990 or 2001. The Fed is expected to cut rates further, moving the fed funds rate down another half percent to 3-3/4% by their next meeting on January 30th. -- With the exception of December, the unemployment rate, has been remarkably stable. -- Preliminary data suggest that real GDP grew at about a 1.5% rate in the fourth quarter. Some of that weakness can be attributed to a give back to earlier gains. The rest reflects a genuine weakening of economic conditions, both in and related to housing. Prospects for growth are weak during the first half of the year, but considerably better for the second half.

    "On net, economic data is far from perfect, but doesn''t appear to be the problem it was in 1990. The economy hasn''t slipped into a recession yet. It has, however, slowed considerably from the breakneck pace seen earlier in the year," says Swonk.

    "The economy has looked better on paper than it has felt to the majority of Americans for the bulk of the expansion. It''s not going to feel any better now that growth is slowing. Moreover, if the problems that we face are more due to the distribution than the level of income this economy generates, then a reacceleration in growth will not do much to cure them. The temptation will be to move more toward populist than market-oriented solutions. Free trade is already under attack from both sides of the political aisles," concluded Swonk.

    The January issue of Themes on the Economy as well as archived issues can be found at http://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 $30 billion in assets under management and 1,100 employees in offices across the country. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial has consistently met the financial needs of institutions, public sector entities, corporations and individuals. For more information about Mesirow Financial, visit its Web site at http://www.mesirowfinancial.com.

    Source: Mesirow Financial
  

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