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Investing Specialists

The Real Economy Is Still Doing All Right

The consumer has slowed down a bit, but it's definitely not disastrous, writes Morningstar's Bob Johnson

Given all the breathless headlines about the sequester (even though the sequester represents just about 0.5% of GDP) and the payroll tax, one would think the economy is already jumping into a major recession.

Sure, the consumer has backed off some, but the consumer spending numbers are still positive--and certainly no disaster. The weekly consumer data did take a hit at the beginning of February (and the full month of February will probably not look as good as January). But, the weekly data later in the month suggests the worst may be past us now, especially if the spring run in gas prices has run its course. While consumer woes are hitting low-end retailer and restaurateurs hard, home and auto sales continue to move ahead despite weather that has been less than optimal. Quietly, right beneath our collective nose, the manufacturing sector has taken a surprise turn for the better with some of the best data in a couple of years. I suspect that an improving housing economy should get a lot of the credit for the improving manufacturing sector. Housing is indeed the long-term prize, and we need to keep our eye on it as it currently represents just over 2% of GDP versus a long-term average much closer to 5%. That's a lot of runway room ahead of us.