The 2011 economy deja vu: all over again? Tough and yet-to-be-written new federal regulations, tense debates over taxes, spending and investment, stubbornly high unemployment levels. Over the past year, these were some of the factors influencing an economic recovery best described as tepid. What's on tap for 2011? By most accounts, more of the same.

• Author: Ladd, Scott
• Position: ECONOMY

Renowned American philosopher Yogi Berra once observed that "it's deja vu all over again." The baseball Hall of Famer was talking about witnessing back-to-back home runs, but he could just as easily been assessing the state of the economy as it stumbles into 2011.

Economists studying the often inscrutable tea leaves of financial recovery say they expect more of the same this year--a slow, sluggish recovery, fits and starts in job growth and hiring and additional federal efforts to attempt a fiscal kick-start. While some positive economic signs surfaced at the tail end of last year, they were offset by a startling and disappointing jobs report in early December showing negligible private-sector job growth and a jump in the national unemployment rate to 9.8 percent.

The 2010 economic year was marked by persistent high unemployment, with the rate of long-term unemployment in the United States at its highest point since the Great Depression. It also saw limited lending and investment on the part of banks and other financial institutions. Trillions in unspent cash sat on the sidelines as American businesses remained wary of the future and the impact of new laws and regulations. The Patient Protection and Affordable Care Act and Dodd-Frank Wall Street Reform and Consumer Protection Act passed Congress, triggering a new round of debates over the depth and breadth of federal regulation, costs to business, etc.

The Federal Reserve pumped more money into the economy through quantitative easing, to the chagrin of many economic and political observers in the U.S. and abroad, some of whom equated it to "printing money." Talk of long-term debt solutions gained momentum. The National Commission on Fiscal Responsibility and Reform, appointed by President Barack Obama, proposed $4 trillion in reduced spending, tax revisions and entitlement program cuts over the next 10 years. Though it failed to attract the necessary 14 of 18 votes to send the proposal to Congress, proponents said it sets the stage for what promises to be a long and contentious national conversation about debt, spending and taxes.

With the expected extension (at press time) of the Bush-era tax cuts, in addition to the proposed reduction in payroll taxes and extension of unemployment benefits through the end of 2011 (in addition to other provisions in the massive tax bill), lawmakers and economic forecasters had additional elements to factor into the financial equation.

Two leading financial observers--Nicholas Sargen, chief investment officer at Cincinnati-based Fort Washington Investment Advisors Inc., and Diane Swonk, senior managing director and chief economist for Mesirow Financial, in Chicago--were asked to analyze the events of the past year and what they portend for 2011.

"The consensus view is that we continue to muddle along," says Sargen, noting that the general projections on real...