Prospects for a Growth Recession

CHICAGO, June 6 /PRNewswire/ -- "It is sometimes hard to discern whether
the glass is half empty or half full when it comes to the current state of the
economy. Optimists cite incoming data, which shows that the U.S. continued to
skirt a statistical recession in the first quarter. Pessimists, on the other
hand, fear that much of the weakness associated with higher food and energy
prices, and the drag on wealth associated with falling home prices, is still
ahead of us," says Diane Swonk, chief economist of Mesirow Financial, in her
mid-year economic review edition of Themes on the Economy
http://www.mesirowfinancial.com/economics/swonk/themes/themes_0608.pdf
"The economy is not expected to grow fast enough to absorb the influx of
new workers to the labor force, and the unemployment rate is expected to
continue to rise. This is closer to what economists term a 'growth recession'
than a true expansion -- even though growth remains positive," notes Swonk.
In her June newsletter, Swonk takes a detailed look at the forecast for
growth in the second half of 2008 and first half of 2009, including:
-- Real GDP Growth. After picking up a bit in the wake of easier monetary
and fiscal policy, the economy is expected to come to a slow again at
the turn of the year:

-- Consumer spending. Tax rebates and increased cash flow (created by
lower mortgage resets) is expected to provide a lift for consumer
spending in the second and third quarters, but much of that spending
is now expected to be spent on staples instead of discretionary
purchases.
-- Business investment is expected to rebound slightly in response to a
pick up in investment in the oil, agriculture and export sectors.
-- Inventories are expected to rebuild after being drawn down to
unusually low levels, which should provide an extra lift for
manufacturing activity.
-- Government spending is expected to remain relatively stable, with
increases in federal spending offsetting a slowdown in spending at
the state and local level.
-- The trade deficit is expected to be the bright spot in an otherwise
dull outlook for the U.S. economy. Much of the rise in exports
associated with the weak dollar is still ahead of us, as it
typically takes as much as two years for the full effects of a shift
in the dollar to work its way through the economy.

-- Inflation. Both the overall and core measures of price inflation are
expected to abate, but remain well above the Fed's "comfort zone."

-- The Fed hesitantly abandons its concerns on growth and financial market
stability for inflation.

-- Treasury yields are expected to continue to rise, and the spread
between corporate yields is expected to narrow as credit markets
stabilize.

-- Profit growth. Cost-cutting and higher productivity growths are
expected to boost corporate profits in late 2008 and early 2009.

"The economy is expected to continue skirting a statistical recession, but
that doesn't mean times won't be tough for a large cross section of the
population and businesses. Any gains that we do see in response to tax rebates
and monetary stimulus over the summer, in particular, are not expected to do
much to boost consumer or business confidence ahead of November elections,"
concludes Swonk.
The June 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
$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 $490
million in revenue (unaudited), with more than $245 million in capital. For
more information about Mesirow Financial, visit its Web site at
http://www.mesirowfinancial.com.
SOURCE Mesirow Financial

Diane Swonk, +1-312-595-7122, or Olga Camargo, +1-312-595-7128, both of
Mesirow Financial