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By Jeremy Glaser | 08-17-2011 02:20 PM

U.S. Economy Can Survive Eurozone Slowdown

Despite rising concerns about eurozone GDP, positive trends in U.S. industrial output and a resilient consumer should buttress the U.S., says Morningstar's Bob Johnson.

Jeremy Glaser: For Morningstar I am Jeremy Glaser. Last week, U.S. stocks had a wild ride as investors considered all sorts of economic data and the potential of an economic slowdown, both in Europe and the United States. I am here today with Bob Johnson. He is the director of economic analysis for the Morningstar. We're going to take a look at some metrics that we have seen come out this week and if investors should continue to be worried about a slow global economy.

Bob, thanks for joining me today.

Bob Johnson: Nice to be here.

Glaser: So, let's start in Europe, I know that that's certainly an area that was of particular concern with both the sovereign debt crisis and also of just incredibly slow growth. We got some gross domestic product data from Europe. Can you talk to us a little bit about it?

Johnson: Sure. This week, the market got set off very early in the week because of some European data on GDP which was very poor in their minds. It grew at 0.2% quarter over quarter. So, that's about 0.8% annualized, which is by the way about the same as the first half was in the United States. So it's not that far off where we were here but certainly a disappointment there.

There were some components that were particularly disappointing. Although they didn't have individual parts, but the feeling is that the consumption was the major reason that the number came back down. We did see the French portion of the data, and consumption in France was actually down in the second quarter. So with all of those economies, Germany, France, and so on, many of them are seeing decent export growth, but the consumer has never been particularly good. Now as exports have slowed a little bit, those countries' economies are feeling a little bit of pain.

Glaser: So this could be tough for Germany because the hope was that Germany would have enough economic strength to kind of bail out and to help drive the rest of the European economy.

Johnson: Exactly, Southern Europe and Eastern Europe, both, because Germany is a major export market for those economies.

Glaser: So, if Germany were to slow considerably either because its export markets are slowing a lot or because it's having a falloff in domestic consumption, is that something that worries you for the rest of Europe?

Johnson: Well, certainly for the rest of Europe it does because Germany and France have been the strong parts and obviously Italy, Spain, and Greece have all been softer. It has been kind of the Northern European countries that have been driving the growth and at least they had been strong, helping support the others and now they are seeing some weakness, which certainly doesn't bode well for the European situation.

Again, is that enough to ruin the whole worldwide recovery? That's a more interesting question. And I think Europe is a relatively small part of U.S. exports. Most of ours go to Canada, Mexico, Asia, so forth, but they still are a small portion of what we do. And so slowing their certainly won't help our exports either.

Glaser: So, let's then turn our gaze to the United States manufacturing sector. We've seen some reports that have shown a little bit of weakness or potential weakness in the PMI report that I know you have been watching closely for a couple of years now. Do we see any data this week that maybe points to a continuation of that trend, or things are looking a little bit stronger?

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