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By Jason Stipp | 06-15-2011 12:29 PM

Johnson: No Double-Dip

Though the data show an undeniable slowing, the real driver of the economy--the consumer--is still holding up, says Morningstar's director of economic research.

Jason Stipp: I'm Jason Stipp for Morningstar. After a year-plus long hiatus, the words "double dip" are back into the headlines and back into people's conversations.

But how much of a risk is another major slowdown?

Here with me to offer some insights is Morningstar's Bob Johnson, director of economic analysis.

Bob, thanks for joining me.

Bob Johnson: Great to be here.

Stipp: Undoubtedly, we have seen some data that hasn't looked great. Why do you think "double dip" is once again part of the vocabulary? What things are causing people to feel this way? Can we tick them off?

Johnson: Sure. Industrial production was down two months ago, and it was flat again this month, so industrial production and manufacturing look a little weak. The employment data last month, instead of growing the number like 200,000 to 250,000 jobs per month, we only grew 88,000 jobs, so we had a slowing on the employment front.

Retail sales this week weren't as bad as people had feared they would be, but nevertheless retail sales were at a little bit slower rate than they had been--still satisfactory, in my view.

But those are probably the biggies that are out there.

Stipp: So, Bob, I want to get your take on some of those data points and put them into context in a moment.

But before we do that, I want to talk a little bit about the notion of a double dip and what that means.

So, back when we were told that recovery had actually started, we discussed how there's a perception gap. We were told that the recovery started at a certain time, but in a lot of people's minds, it didn't feel like a recovery had started yet. And now it seems like some of the data shows it's going down the drain and people think "double dip." But what is the actual economic definition of a double dip? How do you know if it's come?

Johnson: I think a double-dip is after you've had a few months or a few quarters of economic growth, but you don't get all the way back to your old peak and then you fall again.

They're very careful about how they set the end a recession, and the start of a recovery. And I think that they've been very careful about that. The data would seem to indicate that the previous recession was over. We've gone to a new high in GDP. This would be the start of a new recession, if we had one.

Stipp: So, I want to talk to you a little bit about some of the data that we've been seeing and what you're looking at, and how much of a risk you actually think another slowdown would be. It seems to me that you felt like we had more room to run in the recovery…

Johnson: ... and I still do ...

Stipp: Okay. So, let's talk a little bit about some of the data that we've been seeing. So, I think some of the data that came out this week, the Empire Manufacturing Index showed some contraction. We didn't see the growth that we saw there. How are you thinking about manufacturing right now in a broader context?

Johnson: In a broader context, I say it again and again, but the consumer is 70% of the economy. They are what drives the economy. You watch the consumer; you figure what's going to happen to the rest of the economy.

Manufacturers don't manufacture things for their own health. They manufacture things because the consumer is buying them. So you watch the consumer data and that's what's really the lead.

Manufacturing can have their ups and downs with inventories, their cycles. It's hard to get everything just right. So they are going to have up periods, and they are going to have down periods, even as the economy is improving.

For the gap between 1990 and 2000 during that recovery, there were three major downturns in the purchasing managers' survey. It wasn't until we got to the fourth time that the economy actually fell apart, which was in 2000, which was related to actually some of the Nasdaq activity.

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