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Investing Specialists

A Recovery Is Hard to Stop

The bears are growling, but I'm not panicked yet, says Morningstar's Bob Johnson.

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Armed with last week's labor report, the economic bears are coming back out of their caves. There's no doubt that a weaker stock market and the crisis in Greece are slowing U.S. consumer spending a bit. A temporary slowing in real hourly wages several months ago isn't helping matters, either. But the economy is still in the very early stages of a recovery.

Without a major policy boo-boo--something that can never be ruled out--it is usually more difficult to stop an economic recovery than a recession. The virtuous cycle of more spending, more production, more employment, more spending, is hard to stop. Although we have had several recessions in which we've seen a quarter or two of modest contraction after a recovery began, the back-to-back recessions of the early 1980s are the only example of a true double-dip recession since World War II (that is 10 recessions, for those counting along). I am not ready to panic and don't think we will be double-dipping anytime soon. However, the evidence to prove my thesis may take another month or two to appear.

My real hourly wage metric, which is an extremely early indicator, began softening last September after some stunning gains in the summer of 2009. Those summer gains translated into much stronger retail sales at the end of 2009 and early 2010. Now some of the weakness in real hourly wages late in 2009 is translating into weaker retail sales five to six months later. (More on retail sales below.)

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.