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Debt deal, moderate growth, slightly lower jobless rate among 2013 predictions

Speaker Dr. Bob Froehlich during Annual Economic Outlook luncheHyatt Regency Chicago Thursday January 10 2013. l John H. White~Sun-Times photo

Speaker Dr. Bob Froehlich during Annual Economic Outlook luncheon at Hyatt Regency Chicago, Thursday, January 10, 2013. l John H. White~Sun-Times photo

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Updated: February 12, 2013 2:46PM

Action that raises the U.S. debt ceiling and that avoids a downgrade of U.S. debt, more insourcing of jobs, but no major drop in the nation’s unemployment rate — those are among economists’ expectations for 2013.

The predictions were made at the Executives’ Club of Chicago’s economic outlook luncheon program Thursday. The annual event was moderated by Chicago Sun-Times financial columnist Terry Savage.

“I think we’re going to have some kind of a deal,” said Mesirow Financial Chief Economist Diane Swonk. “I think we’re going to avoid a major showdown over the debt ceiling” and the damage to the economy such a fight would bring, she said.

With the potential for downgrades being more real, “with CEOs getting involved, walking into the White House … walking into Congress and saying if you screw this up, this is how many jobs you’re going to lose in your backyard, I think that’s a game changer,” Swonk said.

“If we make it through this political battle, we could easily have the best year of the recovery.”

Swonk expects continued improvement in home prices, increased business investment and increased state and local government hiring in the wake of widespread cuts that have occurred in recent years.

She added that supply chain problems that occurred following the earthquake in Japan and intellectual property problems in China are prompting companies to bring production back to the U.S. from overseas.

Still, overall Swonk doesn’t expect rapid-fire U.S. economic growth this year. She forecast Gross Domestic Product will average 2.3 percent in 2013, and she sees unemployment at 7.5 percent. She expects the Dow to rise to 14,450.

Economist Bob Froehlich is more bullish on the Dow and slightly less optimistic about the unemployment rate and economic growth. Froehlich, a director at American Realty Capital and former executive vice president and chief investment strategist for Wealth Management at the Hartford Financial Services Group, told the packed audience he expects the Dow to climb to 15,000, while he sees the unemployment rate coming in at 7.7 percent and GDP at 2.2 percent.

Among key trends he said he sees changing the investment world this year is a focus on inflation. While inflation as measured by the Consumer Price Index showed the index rose 36 percent from 2000 to 2012, baby boomers and seniors have been grappling with much higher prices, he said. During that period, energy prices rose 122 percent, medical costs 64 percent, food and beverages 40 percent and college fees and expenses 118 percent, he said.

His message to investors: “You have to have something that is going to do well in a rising inflationary environment.”

Froehlich sees the market in China opening up more in the wake of changes in Communist Party leadership.

“China, Australia, Singapore, Hong Kong, that’s where the opportunity is going to be the greatest,” he said.

Meredith Whitney, chief executive officer of Whitney Advisory Group, told luncheon attendees that for companies this year, “Revenue growth will be challenging because consumers don’t have a lot of money in their pocket, and I don’t see a lot of really strong job creation” in the U.S.

She sees opportunity for investors in the financial industry among the most efficient operating companies that have responded to an environment where the industry has seen revenues decline.

“For the first time in four or five years, there’s a real opportunity for company specific outperformance, and that means it’s a stock pickers’ market,” she said. “Financials that actually have a game plan ... certain financials are going to grossly outperform others.”

Like Swonk, she also sees more onshoring of jobs to the U.S.

“Cheap energy is moving manufacturing back to the U.S.,” she said.

She pointed to the CEO of a German company who told her natural gas costs there are five times that of the U.S.

“He’s building a plant in Texas,” she said. “That’s happening all through the central corridor.”

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