The economic story of the year: Politics

2011 has been a year where Congress faced many challenges in reaching compromise. Will that trend continue into this next election year?

Jeremy Hobson: The government said this morning that the number of people applying for unemployment benefits dropped again last week to 364,000 -- that is the lowest level in 3.5 years.

And that's where we'll start with Diane Swonk, chief economist with Mesirow Financial. She's with us live from Chicago as she is every Thursday. Good morning, Diane.

Diane Swonk: Good morning.

Hobson: So three weeks in a row of good jobs numbers, and the lowest level in 3.5 years -- is the job market finally getting better?

Swonk: We're seeing firing abating, which is good news -- especially right before Christmas, because employers tend to let people go at the end of the year. So that's the good news. The bad news is the reason those numbers are also coming off is that those who are on long-term extensions to unemployment, they've run out and they just can't apply anymore.

Hobson: And unemployment benefits are tied up into this whole payroll tax fight in Washington -- whether they're going to be extended. You tend to know what's going to happen in these down-to-the-wire Washington battles. So, what's going to happen?

Swonk: Well, I'm hoping that Congress has a very short holiday vacation and they're called back by the end of the year -- next week, in fact -- to finish up the business they left unfinished before the end of the year.

Hobson: That both the Senate and the House will come back, you think?

Swonk: They're both going to have to vote this through and get us into a situation where we don't have to deal with the tax hike at the start of 2012.

Hobson: Finally Diane, this is the last week we'll be able to talk to you in 2011 -- you're going to be off next week hopefully enjoying some holiday time. What do you think is the big economic story of 2011?

Swonk: You know, never in my career have I had to be as much of a political strategist as an economist to figure out what's going to happen next. And never has the decision of political leaders -- or lack thereof -- meant so much for the economy. So, I feel like I'm standing at a fault line that's shifting everyday, trying to forecast the economy based on the whims of leaders, both here and abroad.

Hobson: Diane Swonk, chief economist with Mesirow Financial, thanks as always and Happy New Year.

Swonk: Happy New Year to you.

About the author

Diane Swonk is chief economist with Mesirow Financial, based in Chicago.

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