The Economy in 2010
Ten answers on the economic recovery, stimulus, jobs, the outlook for 2010, and the upside left in the market.
Kicking off Morningstar.com's Ideas Week, Bob Johnson, associate director of economic analysis, answers our questions about the state of the recovery, the market runup, possible surprises, and the outlook for 2010.
1. Some market watchers attribute the upturn in third-quarter GDP to high levels of government stimulus, and argue that if the government takes its foot off the pedal, GDP could suffer. What's your take on the stimulus' impact on GDP, and the fundamental strength of the underlying economic recovery?
The government has done a lot to both help and hurt the economy over the past several quarters. On the help side, we have low interest rates and direct support of capital markets by the Fed. Then we have the official government stimulus program that included homebuyer credits, reduced tax withholding rates, aid to local governments, as well as infrastructure spending. Finally, there are one-off programs such as "cash for clunkers."
On the other side of the ledger, uncertainty about health-care spending requirements has hurt small businesses, a major engine of growth. The auto industry bankruptcy, though necessary, caused some major disruptions in employment this spring. Low interest rates, though helping homebuyers, have severely depressed the earnings of savers, which in turn hurt disposable income. The threat of higher taxes and larger deficits hasn't done wonders to improve consumer confidence, either.