by Stephen Lindsley

On the morning of Thursday, Sept. 4, LaSalle Bank chief economist Carl Tannenbaum gave a breakfast talk at the University Club in which he outlined recent and current economic conditions, before discussing what he sees for the future.

It was a beautiful day in St. Louis, and Mr. Tannenbaum, a Chicago native, made mention of the fair weather and the fact that the Chicago Cubs had beaten the Cardinals in Chicago the previous night. "Before you start booing," said Tannenbaum, "I should tell you that I grew up on the right side of Chicago – the South Side – which makes me a White Sox fan. I wanted the Cubs to lose as much as you did."

The presentation, "Escaping the Rough: An Economic Update," used a golfing metaphor and included a PowerPoint presentation. At one point Mr. Tannenbaum’s projected numbers for mortgage interest rates, unemployment and the GDP were flashed on the screen – only to be quickly removed as he played coy – but in the end he allowed them to be displayed long enough for attendees to take notes. Overall, the talk was lively and peppered with humorous asides, but he acknowledged that the economic downturn over the last few years has been anything but funny. "When you are an economist, it’s not good to be nostalgic because you’re wrong so often," said Tannenbaum. "It’s better to look into the future."

The future, says Tannenbaum, looks bright, as he sees Greenspan and the Fed remaining conservative on rate adjustments in order to stimulate an economy that seems to be turning around. In addition, Mr. Tannenbaum expects that unemployment numbers will level off and begin to shrink as manufacturing increases – all of which should reflect positively on the GDP, which is already rising faster than expected.

Mr. Tannenbaum touched briefly on the issue of fair accounting practices, and the faith and confidence in our corporations that are crucial for continued investment and the growth of the stock market. "It’s the return of principle, not the return on principal that is important," he said, with a knowing look.

Overall, his tone was cautiously optimistic. Tannenbaum was careful to point out that we are in a transitional period right now, and some uncertainty remains. He mentioned that the housing market has remained strong throughout the recent difficulties, but that it only accounts for six to 10 percent of the economy, "rather than the 20 or 25 percent they would like you to believe." At the end of the presentation he fielded a few questions, noting that one seeming constant in any economy is the rising cost of higher education. "I’m encouraging my kids to stay away from computers and watch more Spongebob," said Tannenbaum, tongue firmly in cheek. "It’s junior college for them."

One strong note of caution that arose from a question in the audience concerned the state of the American auto industry. Tannenbaum voiced serious concerns about the future viability of the major automakers, pointing to the prevalence of zero-interest loans and hefty rebates offered by dealers. "They are selling on volume, but not making any profit, and that cannot continue indefinitely," says Tannenbaum.

Later in the day I had the opportunity to meet with Mr. Tannenbaum in a conference room on the 40th floor offices of LaSalle bank in the Met Square building downtown. The weather continued to be spectacular, as was the view from up there, with green Illinois bluffs and heavy Mississippi river barge traffic in evidence to the south.

Mr. Tannenbaum’s market perspective seems to be as broad as the vista from the top of the Met Square. In addition to his duties at LaSalle Bank, which is an affiliate of the ABN AMRO Bank of Holland – one of the world’s largest financial institutions, he has also served as chairman of the Economic Advisory Committee of the American Bankers Association. Tannenbaum is also a member of the Blue Chip panel of economic forecasters, and is a board member of the National Association for Business Economics.

We spoke for quite a while about the innumerable factors that an economist must take into account when making forecasts. "Economics is a social science," says Tannenbaum. "Tastes change and behaviors change. Markets are a beautiful reflection of human behavior. Wherever you go, if you ask a businessperson, ‘How’s business?’ you’re going to get a very straight answer. I get a good read on markets through travel, and listening to people talk about their businesses."

Tannenbaum also revealed that he pays close attention to what he calls the "big protected industries," especially farming, steel making and airlines. These are the industries that countries count on to keep their economies strong and to remain competitive in an increasingly global marketplace. Major changes in these sectors not only affect a large number of jobs, but also have an impact on a country’s entire socio-economic structure.

When asked about personal finances and credit, and whether people seem to be achieving more financial responsibility, he answered, on the whole, yes. He also pointed out that net worth is rising overall, so the amount of debt people carry can rise in proportion. "That being said, economists are often accused of saying it’s warm when their feet are freezing and their head is burning," said Tannenbaum. "When you have a broad range of numbers to work with, the average may not be as meaningful."

In response to a final question about the long-term cycle of the stock market, and whether the recent view of some economists that we are seeing a brief surge in an otherwise secular bear market holds any credence, Tannenbaum said, "In a word, no. In this era of rapid information gathering, the market is much more responsive and has the ability to turn around much faster than it did in the past. If we continue on the course we appear to be taking right now, I see positive growth in the coming quarters."

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Carl Tannenbaum, LaSalle Bank chief economist