The outlook for the national economy is that we are exiting the recession, but we will not see a rip-roaring recovery. Economist Ken Goldstein says The Conference Board's numbers suggest that businesses are looking at better conditions. In fact, CEOs confidence within their industries increased to 59 in the third quarter of this year, up from a dismal 14 in the first quarter.

However, Goldstein says the real story during the next six months will be whether we will be able to pass the baton, if you will, from supply to demand. Goldstein cautions the economy won't be past the point of danger until at least the summer of 2010.

What does this mean for the Midwest? A tough and long climb out of what has been a tough recession.

To learn the most up-to-date economic data for this region, and the national economy, view The Conference Board's latest Index of Coincident Economic Indicators, at www.conference-board.org.

Global Corporate Xpansion: Ken, what is the status of the economy?

Ken Goldstein: The context going into a new decade is that the recession is over but that doesn't mean anything. To a lot of folks, and certainly the folks in the Midwest, perhaps more than anywhere else in the country, it still feels like a recession.

And it is going to for at least the first couple of months of 2010. The immediate environment is that things are less bad than they are better. We will be in that mode … that will be the story through the winter, with one glaring exception. This time a year ago, going into not just a bleak economic winter but an obviously cold winter for the Midwest, one of the compounding circumstances was how high utility bills were this past winter. In part because the price of natural gas was up in the $13 and $14 range. Right now, going into the winter, we are talking about $4 or $5.

So the one offset is that we are going to get a surprise for a second straight winter, in terms of utility bills. This time it will probably be a pleasant surprise. But that fact is more comfort-based as people are really concerned about jobs. If folks are concerned about anything more than jobs, they are concerned about home prices.

Even if the national economy makes a turn late winter or early spring, there is no question the Midwest, from Ohio across to the upper plains states, will be the last part of the country to feel the turn. And, for longer-term prospects, we are talking about a very weak recovery, not just in 2010, but perhaps right through 2013 and 2015.

Nationally, we are talking about an unemployment rate above 9 percent by this time 2011. We are talking about home prices in 2011 that may be no higher than they are right now. Things are not worse; they have gotten a little better. But across the country, and especially in this part of the country, it will be a very long and tough, slow climb out of what has been a very tough recession.

GCX: When we talk about the fact that things are getting a little better, why are things picking up?

Goldstein: This is a fairly typical pattern. It does not always happen this way but this is not unusual in the sense that the canary in the coal mine, if you like, is a pick up in the industrial core of the economy.

Of course it is very different these days. But in some sense we are still talking about the Rust Belt so what is happening now is better conditions in manufacturing and perhaps in trade.

What really needs to happen, the real story during the next six months is whether we will be able to pass the baton, if you will, from supply to demand. And if we don't — and there is a chance we might not — we could indeed dip right back into either outright recession or to what feels like a recession. We won't be past that point of danger until at least the summer of 2010.

GCX: What does The Conference Board forecast for the national economy during the next few quarters?

Goldstein: The third quarter, which is already over but which we simply do not have the numbers for, the top line number for GDP will look great. However, that is a statistical result, not a real result. It has to do with the arithmetic of how we count some things, especially inventory.

In the fourth quarter and in the first quarter next year growth will probably be no more than 2 percent. And sometime in the fourth quarter or the first two quarters of 2010, we could even see the economy slip below a 1 percent growth rate. The point is that if the economy is growing, but only growing slowly, it will feel like: ‘here we go, right back into recession.'

What will bring this about or prevent it is how much and how quickly demand will kick in and start to pick up, in consumer demand, in business demand and in export demand.

GCX: Do you find that businesses are starting to move out from their survival and planning stages and once again looking to expand?

Goldstein: We have numbers that are suggesting business is looking at a better condition.

We just came out with our latest “Conference Board Measure of CEO Confidence,” which is a quarterly measure. The CEOs surveyed are involved in industries across the board.

Fourth quarter last year, the number dipped down to a confidence level of 24 (on a 100-point scale). It was 30 in the first quarter of this year when we were in the grip of this horrendous recession. By the second quarter that number had jumped up to 55. In the third quarter, the number jumped up to 63.

When asked about what the CEOs think of conditions right now in their own industries, in the fourth quarter of last year, that number had dropped down to 16. In fact, this measure dropped down to 14 in the first quarter of this year. The number rose to 43 in the second quarter, and is up to 59 in the third quarter.

So, the improvements to conditions are better for two reasons:

* One, they [businesses] have done a lot of cost cutting. And it not that they are cheering about it because they understand the jobs that are not there anymore means the paychecks aren't there anymore to buy the stuff they are producing, whether it is goods or services.

Nevertheless, the cost cutting has helped to get their finances in order. What's more, CEOs are anticipating that demand, however much it picks, will pick up, sooner rather than later.

The caution I would add is that when the economy does pick up, even if we avoid this double-dip possibility, we are not going into a rip-roaring recovery. The consumer doesn't think so. And these survey results suggest that business is not convinced of that. And our forecast suggests that is probably not the scenario we are going to follow.

* Secondly, businesses are not about to start to hire a great deal for two reasons: they do not have the money for it; and the anticipation that demand will not be that strong. The other side of the coin is that for all those folks out there whether there are in Minneapolis, St. Louis, Chicago or Detroit, their road back into the labor force is indeed going to be a tough, slow ride.

GCX: As we head into 2010, what impressions do you want to leave businesses about the economy?

Goldstein: There are two big points that businesses in general are facing. No. 1 is that pricing power is difficult. It was before we even went into recession. Not only has that not gone away it will probably be even more difficult tomorrow to get a price increase than it was before the recession.

The second point is the sense that demand is not going to come roaring back. It is going to come back, which is the CEOs anticipation, and I think they are on to something. I would caution, and I think they are cautioning, that it is not going to be a robust demand. Not in 2010, not in 2011, and maybe not in 2012.

I think what is even more important than the lack of pricing power is the sense that this is recovery; however, it will be a much dampened recovery, and it will be for some time.

Interview conducted by Rachel Duran.

Ken Goldstein is an economist with The Conference Board, and can be reached by e-mailing ken.goldstein@conference-board.org. For more than 90 years, The Conference Board has created and disseminated knowledge about management and the marketplace to help business strengthen their performance and better serve society. The organization operates as a global independent membership organization working in the public interest. Among its services, the organization publishes information and analysis, makes economics-based forecasts and assesses trends. To learn more, visit www.conference-board.org.