Economic Recovery Will Be Stronger than Expected

Stipp: So, what would you say is behind that more aggressive outlook? What are you seeing that others are seeing differently?

Johnson: A couple of things. Auto is improving more and I'll get into that a little bit more. Inventory is improving, a stop in the decline in residential building, and a couple of other factors there, as well as a little bit better consumer wealth on the stock market side now.

Stipp: So, in the autos front, obviously we saw "Cash For Clunkers" have a nice short-term stimulative effect. But what are you seeing in autos longer-term that maybe could be driving GDP more than others think?

Johnson: What I'm thinking and, obviously, we've talked a lot about auto sales being half of what they were at the peak. And the peak had been for many years at a normal level. It wasn't an exaggerated level. So, we were running at half of that.

And cars were out, they had bad weather, whatever, and I think that that demand has the potential to get back there longer term.

But even in the short run, the cars do wear out. But even beyond the sales part of the equation, what makes me a little bit more optimistic for the whole economy and the jobs front, is that auto production went to a quarter of what it was at the high.

Now keep in mind, we talked about huge numbers of cars being produced at the peak, half of the number being sold, and half again that amount actually being produced over a number of months, and that inventory is going to have to be restocked.

We're seeing it in Ford's production numbers each month ramping up more and more, and that will create more high-paying jobs over the next couple of months. I think a lot of people aren't seeing that.

Stipp: Certainly the inventory restocking can give us a nice bump up as the severely depleted inventories come back online. But I think a question in a lot of people's minds is the consumer.

So ultimately, will consumers be buying more in the future that will force those inventories to continuously be replenished going forward?

Johnson: I think there's a couple of things there. One is I think the jobs front has been pretty bleak, we'd all admit, over the last year. But it really is getting better. We've gone from 700,000 job losses in January, it's still losses, but I'm thinking probably 150,000 or so when we see the number next Friday on the employment report.

And I think there's a very solid chance that for the month of October or November, one of those two months, we may actually see job growth. So, that's going to get the consumer, I think, feeling a little bit better.

We've had a nice run in the stock market, as you pointed out earlier, and that's really strengthened some of the [consumers'] balance sheets more than people realize. It was a couple trillion dollars in the June quarter, and probably three trillion more in the September quarter.

And that's significant dollars. The so-called "wealth effective" that worked so negatively for us over the last several quarters is now going to begin working in our favor. So, that's another reason I'm a little bit more optimistic on the consumer and their spending than some.

And the other deals with a big macro analysis that says, "Well, you look at the numbers in aggregate and think, well, maybe the balance sheets aren't perfect."

Well, it's just silly at the bottom to look at the aggregated numbers as it was at the top. At the top, things kind of looked OK. But then you realize that 20 or 30% of the people that were deeply in debt and really had a lot of troubles in front of them. By ignoring those people, the economists often missed what happened in this recession and its size.

Now, on the other side, I think that the people that have good balance sheets, and have saved, and have cash and have jobs, with just a little bit more confidence, have money to spend. I think that percentage of the population that has the money to spend is greater than a lot of people give it credit for.

So, those are probably the major reasons I'm more optimistic on the consumer than most other people are.