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A Watch List of Economic Trends for 2011

The glass raised to toast the New Year is half-full, according to Mesirow Financial's Chief Economist, Diane Swonk. The recent holiday shopping season featured a mix of high- and middle-income consumers opening their wallets to spend on gifts and for themselves. Those shoppers are feeling more optimistic about the job market in 2011, so they put their cash and cards on the counter, though often prompted by special sales or promotions.

Prices remain low for most consumers, apart from gasoline and frost-damaged fruits and vegetables. The Federal Reserve insists that inflation is more likely to fall than rise in the near-term, even though oil-hungry, emerging-market economies are bidding up prices for energy and other commodities.

American companies have plenty of cash on their balance sheets, ready to deploy when they feel confident enough to hire. Swonk expects job growth to accelerate: "I'm not wearing rose-colored glasses; it's just that many of our top ten worries, like inflation and the budget deficit, pose more of a three-to-five year than a one-year threat."

• This top economist acknowledges the risk of political gridlock, but is hopeful because, "Many of those who participated in the President's bipartisan commission to reduce the deficit found common ground" with respect to tax reform and spending cuts for priorities as diverse and controversial as "the defense budget and that universal sacred cow, agricultural subsidies."

• Reports of the dollar's demise as the world's reserve currency are much exaggerated, to paraphrase Mark Twain, for three reasons listed by Swonk: "The euro looks even less stable and justifiable today as an alternative to the dollar than it did when launched in 1999. The yen, along with Japan, has lost its luster during the past two decades of sub-par growth. The yuan is still under the control of Chinese authorities," and pegged to the U.S. dollar.

• Despite the rally in commodity prices, "Persistently high unemployment, lackluster wage growth, a low rate of factory utilization, another drop in home prices and additional constraints in credit ..all suggest that inflation will remain low even as the economy regains momentum in 2011."

• Geopolitical risks "provide stark reminders of how politically unstable our world remains," but Swonk takes comfort from the fact that, for instance, "China, which once considered itself more an ally of North Korea than the U.S., played a key role in getting North Korea to back down after the December attacks, and will likely be critical in negotiations."

Swonk ends her analysis of top-ten economic concerns by saying that at least we have some agreement on what our national problems are, and time to fix them, if we can muster the political will.

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

Published January 7, 2011


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