Almost two years into the current job-killing recession, a tentative economic recovery is here, and the stock markets could climb an additional 5 percent by year's end, says John E. Silvia, chief economist for Wells Fargo Securities L.L.C.

But a double-dip recession could slam the nation in 2010, and there are structural economic problems that have to be addressed in Washington to solve the nation's long-run flaws, the economist warned a Union League crowd of wealth managers, lawyers, and consultants here last week.

The shift to professional and service jobs from blue-collar factory jobs appears to be finally catching up with the U.S. economy and has become painfully apparent in the current recession, Silvia said, noting that this shift was "starting to overwhelm American society." He noted in an interview that "a lot of people don't have the right skills or are not located in the right place for new jobs, and that is a great challenge."

Silvia's message last Tuesday at the club on South Broad Street was one of cautious optimism. It was joined by an exuberant prediction by Byron Wien of Blackstone Group L.P. that the S&P would hit 1,200 by year's end - it closed at 1,040 yesterday. The markets sagged last week on doubts about the strength of the recovery. A survey of economists by Bloomberg predicted the S&P to be at 1,037 come Jan. 1.

The Inquirer asked five other economists to predict where the S&P would be at the end of 2009 and on July 1 2010. It also asked when they thought the S&P would be back over 1,400.

Silvia says there's a recovery. It's fueled by federal deficit spending, which can't be sustained, and inventory restocking by big corporations that anticipated "Armageddon" earlier in the year and drastically curtailed orders. That restocking doesn't indicate higher demand from consumers or businesses.

Fourth-quarter growth should be respectable, Silvia said, and the major stock-market indexes should rise on the optimism.

But the U.S. economy, Silvia said, is living with the excesses of overbuilt housing and commercial markets, higher federal deficits, overextended consumers, and a weak job picture. Unemployment, even when the economy confidently enters a sustained recovery, is likely to be permanently higher. He estimates the longer-run rate at 6 percent.

"We are nowhere near the typical recovery in terms of jobs," said Silvia, who spoke in a second-floor Union League meeting room of plush carpets and oil paintings. About 25 professionals gathered to hear him and eat lunch of tilapia, chicken, and steamed vegetables.

Silvia estimated in his presentation that the U.S. economy would shed 200,000 jobs in September. When the number was released three days later, on Friday, the government reported the economy had lost far more - 263,000 jobs. Unemployment overall climbed to 9.8 percent.

Silvia says some businesses are looking at soaring health costs and deciding to buy automation equipment instead of hiring workers.

The nation is at a crossroads of economic growth, Silvia said. If the government tightens credit standards on consumers and homeowners to strengthen the nation's banks and financial institutions, this tightening would lead to fewer new-home starts and lower home-equity loans and lower national economic growth, he said.

"I wish you the best," Silvia told the Union League crowd, "because I think there will be huge adjustment in American society."

Where, what, and when?

Bill Stone

of PNC Financial

Services Group

"It's impossible to say what the market's going to do over the short term. . . . Put a gun to my head, I'd still say, in the short run we may be overbought."

"If the economy is not sustainable, if the W happens [a second recession], stocks will get hammered pretty hard. That's not our forecast."

"Our biggest overweight [bet] is in technology. The other . . . is cyclical."

"We don't own autos."

No prediction.

- Joseph N. DiStefano

Peter Zaleski, professor of economics and statistics at Villanova School of Business

"The market could finish up another 3 to 5 percent from here on out. S&P at 1,200 by year's end is quite a stretch of the imagination."

"The S&P could hit 1,100, optimistically. . . . I would not expect to see a buying binge in the stock market any time soon."

"Maybe 40 percent in a broad-based stock fund, 40 percent in intermediate-term high-quality corporate bonds, and the remainder in a mix of short-term cash and precious metals."

"Sticking the majority of your funds into a single investment, especially one that you do not fully understand."

"We might get a more stable return to 1,400 that could occur over a five-year period perhaps."

Joel Naroff,

president of

Naroff Economic Advisors

No higher than 1,090.

At 1,145.

Health care and green technology. "I don't think there's going to be a backing off in the drive toward a green economy."

Anything to do with communications or other businesses that could be strongly affected by the Internet. "We don't know what the Internet is going to bring to a whole variety of businesses."

Not for the next two to three years. "Maybe 2012 to 2013."

- Jeff Gelles
Mark Zandi,

chief economist,

Moody's Economy.com

"I expect the S&P 500 to end this year at 1,050."

"It will rise to 1,150 by mid-year 2010."

"I think TIPS - Treasury Inflation Protected Securities. These are Treasury securities that compensate the investor for inflation; [they] are a very safe investment."

"Gold is a very dicey one. Of course, this answer really depends on one's risk tolerance and investment horizon."

". . . it will top 1,400 by year-end 2012."

- Suzette Parmley
Holly Guthrie, senior

research analyst, retail specialist, Boenning & Scattergood Inc.

Boenning & Scattergood has not issued S&P projections, she said.

No projection.

"Ann Taylor closed a lot of stores and their stock has still done incredibly well. In February, it was at $3.80. It's now $16." Other movers: A.C. Moore. Urban Outfitters Inc. Nordstrom Inc. Investors are pushing those stocks back up.

"Where I would look for

potential slowdown would

really be companies

that fared well last year

during the recession."

No projection.

- Maria Panaritis

Q&A

The Inquirer questioned five area economists about the S&P 500, now and in the future. Read their responses, C2.

Contact staff writer Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.