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By Jason Stipp | 01-12-2011 12:22 PM

Six Lessons from the Economy

Morningstar's Bob Johnson says 2010 reinforced the importance of keeping a global mind-set, always digging behind the data (good and bad), and not losing sight of the consumer.

Jason Stipp: I am Jason Stipp for Morningstar.

Although 2010 is in the record books, it never hurts to look back and examine some of your good and bad calls, and see what insights you can pull from the prior year.

Morningstar's Bob Johnson has some lessons that he learned in analyzing 2010's economic data, and he is here with us today to share those insights.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, the first lesson that you brought up to me as something that you learned in 2010 or something that you thought about was how this recession was not your father's or your grandfather's recession. It is kind of an overarching theme. What do you mean by that?

Johnson: Yes. Certainly it's been a little bit slower recovery than most typical recoveries. It's like the recovery of 1990 and the recovery of the 2001 recession, but it's much slower than most of the rest of the recoveries that we've seen since World War II. So, certainly it's moved slower. It's been a recovery that we've had without any help at all from housing, which is really kind of surprising. This time around, a flood of imports. When consumers had money they tended to spend it on imported goods, which, especially in the middle of the year, really hurt the statistics. So, there really are some things that are very different this time around.

Stipp: So history maybe doesn't repeat somehow as it rhymes, but you have to remember that everything is just a little bit different from the time before.

One of the things that I know that you deal with is just a flood of data. You get data on manufacturing, you get data on imports and exports, you get data on inflation. But there is one area of data where you told me you really learned last year that you just really have to keep your area of focus, because it's so important. What is that?

Johnson: That's the consumer, the various types of consumption numbers. You don't want to get carried away and look at indexes of consumer confidence, but you need to watch things the consumer actually does. Whether it's retail sales, whether it's how many cars they're buying, all those things are the real indicators of confidence--what they're actually doing. The consumer is 70% of the economy. So, without the consumer we won't have these changes in inventory. The businesses won't invest unless they think the consumer is spending – or the consumer already is spending.

So, I've learned that a focus on a consumer is amazingly important to kind of set a direction. Yes, you may get some magnitude by, "oh yeah, you've got an inventory thing that kicked in, oh yeah the factories are going to kick in," but you really got to keep your eye on that consumer, and that will keep you from going silly--like by looking in the summer at some of the purchasing managers surveys that seemed to indicate there would have been a double-dip. If you had just kept watching the consumer, he kept spending a little more each month, that would have kept you on the right side of the track.

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