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By Jason Stipp | 03-22-2014 09:00 AM

Markets and Economy: Put the Big Picture in Perspective

BlackRock's Heidi Richardson, University of Chicago professor Randy Kroszner, and Morningstar's Bob Johnson tackle today's key macro issues--including employment, housing, consumer and corporate spending, the Fed taper, and much more.

Jason Stipp: Hello and welcome Morningstar's 2014 Individual Investor Conference. I'm Jason Stipp, site editor for Morningstar.com. If you've attended our conferences in the past, welcome back. If you are a first-time attendee, we are glad that you're spending some time with us today. I promise you it will be time well-spent.

Without further ado and no breaks for right now, we are moving into our first panel, the Big Picture.

So if you thought the weather was hard enough to get through, imagine what the economy is facing right now. We have of course the weather issues. We have the Fed fretting about removal of the stimulus that the Fed has enacted over the last several years. The housing market, which was supposed to be the big driver of the recovery, is seeing some slowing growth there, and emerging markets of course, which had so much promise coming out of the 2008 downturn, haven't performed perhaps as well as investors might have expected.

So what should we take of all this data, this conflicting data, the revisions to data? How can we make sense of it? I'm joined today happily by three expert panelists who will be able to help us put all of this big-picture economic data into perspective.

First up, we have Heidi Richardson. Heidi is from BlackRock. She joined BlackRock in 2010 with 23 years of experience in active investment management. As a global investment strategist for BlackRock, she can offer perspective on all the asset classes, equities, fixed income, alternatives, and multisector approaches, and of course she's plugged into the BlackRock investment strategies team, research, and investment views.

Heidi, thanks so much for joining us today.

Heidi Richardson: Thanks for having me, Jason.

Stipp: Next to Heidi is Randy Kroszner. Randy is the Norman Bobins Professor of Economics at the University of Chicago's Booth School of Business. From 2006 to 2009, Randy served as a governor of the U.S. Federal Reserve. He chaired the Fed's  Committee on Supervision and Regulation and the Committee on Consumer and Community Affairs. During that, he was taking a leading role in developing responses to the financial crisis, so he has a lot of insights on the Fed's activities. From 2001 to 2003, he was a member of the President's Council of Economic Advisers.

Randy, thanks much of being here.

Randall Kroszner: Great. I'm really happy to be here.

Stipp: And next to Randy is my colleague and friend, Bob Johnson. Bob is Morningstar's director of economic analysis. He's also a Morningstar.com columnist, and he has more than 20 years of investment-industry experience, including both buy-side and sell-side assignments as a research analyst. Prior to assuming his current role in 2008, Bob was an associate director of equity analysis for the technology team at Morningstar.

We have a lot to cover today. Let's get going. I think there's, as I had mentioned, not a short list of issues the economy is facing right now, but let's kind of start off, and I want to get, from each of you, a picture of your take on the overall U.S. economy.

The recent data have been mixed. We've seen revisions to data. It's been volatile. It's kind of been difficult to read, and I think it's leaving a lot of questions about where are we right now? What is the overall health of the U.S. economy?

Heidi, I'd like to start with you, your overview take on what is the situation?

Richardson: Well, I think we are in the middle of a globalized synchronized expansion, not only in the U.S. but outside of the U.S. If we look at the U.S., we've come off of multiple years of this 2% economic growth, and this year, we are forecasting about 2.50%-2.75% in terms of the economic growth.

But one concern is the consumer. I think the biggest issue that we're looking at with the implications of the growing economy is wage growth, and we haven't seen wage growth for the consumer. So if we look over the last few years, we've barely outpaced inflation. And so the implications of that, the numbers we are watching very, very closely are the employment numbers, and not only just the pure unemployment number, because a lot of the decline in that is coming from the participation rate falling off, but we are looking at really wage creation, looking at job creation, and seeing the implications for consumer there.

But if we look at corporate balance sheets, corporate balance sheets are very strong. There's record level of cash on the balance sheets. We're seeing a pickup in merger and acquisition activity. We are seeing a pickup in share buybacks. We're seeing a pickup in increasing dividends for corporations. So, the end result for consumers I think from an equity standpoint is still a positive moving forward.

Stipp: Randy, she mentioned some good things and some bad things, some concerns and some bright spots. But we've seen it seems to be adding to kind of slow growth for the U.S. economy and it's been that way for a while, but with a lot of volatility. So, how would you characterize the current state where we are today?

Kroszner: I think where we've been for the last couple of years, I call the sideways slide. We've been growing around 2%, sometimes a bit above, sometimes a bit below, but not really getting breakout growth that we need to kind of get back to where we were.

There's a chance that we can do a little bit better this year for many of the reasons that Heidi had mentioned. If you look at corporate balance sheets, they in principle are ready to invest. There are very, very strong balance sheets and reasonable profit growth, but there are a lot of headwinds that are out there.

We've addressed some of the fiscal uncertainty that we had. We had these fiscal follies in Washington, where we were shooting ourselves in the foot for no particular reason. That's not really helpful in a difficult economic recovery. We've addressed some of those. The clouds are not completely gone, but that's helpful.

We have a lot of regulatory uncertainties. I'm glad that one of the later sessions is going to focus on health care because I know in my travels around and talking with a lot of people in the corporate sector, that's a big uncertainty, both for larger firms as well as for the small and medium-size firms.

There are still these headwinds that are there, but the basic structure should allow us to go forward. Corporate balance sheets as well as household balance sheets have improved significantly from five years ago. We really need to turn the corner and confidence. We could be there, but I'm not quite sure we're going to break out in the sideways slide yet.

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