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By Jason Stipp | 01-11-2012 12:00 PM

Johnson: Don't Let an Economic Soft Patch Petrify You

First-quarter GDP will have a tough time matching the fourth quarter's relatively robust results, but 2012 should show acceleration overall, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp from Morningstar. After a relatively robust fourth quarter for the economy, what can we expect for 2012? Morningstar's Bob Johnson, director of economic analysis is here to help us dig into the details and tell us not to worry too much if we see some soft spots in the early part of the year.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So before we talk about 2012, I want to talk about the fourth quarter of 2011. It looks like it's going to be relatively robust, when all the numbers and revisions come in. Why is that? What did we do well at the end of the year?

Johnson: I think, it's quite a big number. I mean, I think, we'll grow 3% or more in the fourth quarter, and that's almost the double the best rate so far in the year. So that was a very good quarter. We closed on a strong note. A few things happened. One is that the auto industry kind of restarted, and we got a full quarter of all that production coming back online. So, that's certainly one thing that helped out there.

Stipp:  This was after all of the disruptions that we saw through the spring and the summer because of the tsunami.

Johnson: Absolutely, they had to wait, cycle back their production, and then they had to ramp it back up in the third and fourth quarter, and the fourth quarter is the first full quarter we got of that. So that was certainly a big help.

Stipp:  So, autos won. What else helped us in the fourth quarter?

Johnson: Well, the consumers certainly spent in the fourth quarter. They kind of accelerated their spending a little bit and spent actually more than they had. The savings rate went down in the fourth quarter, I estimate, and certainly as deals became attractive and prices came down and as there were things like autos that they just had to replace, the consumption number went up in the fourth quarter, and that was certainly a help.

Stipp:  So, the fourth quarter, it looks like it's going to be pretty good. But you're saying now as we move into the new year, the first quarter of 2012, we could see some softness there. What do you think would be behind that? Why might we see a bit of a pullback from those numbers?

Johnson: Again, to put it in some perspective, if we grew 3% or 3.5% somewhere in that range in the fourth quarter, we could dip down all the way to 2% in the first quarter again, and it always starts fears, 'oh, we're falling back in', 'it's another recession', 'here we go again'. But, I think, there's a lot of special factors. In the first quarter, obviously right now we've had a stretch of really warm weather, and that begins to affect utility usage, winter sports, and winter clothing. And so while the warm weather kind of helped us at the end of last year, because people could get out, they could go shopping, construct buildings longer than they could, now we are going to get a little bit of payback. The warm weather is actually going to be a little bit of a hurt in here. So, that's one thing.

Stipp: You mentioned that the consumer might have done a little bit of extra spending in the fourth quarter, maybe they pulled ahead some of that spending you might have seen in the first quarter?

Johnson: Absolutely. The consumer clearly did spend ahead with the savings rate coming down. Now maybe they anticipated inflation coming down; maybe they were looking forward to the Social Security check increases in the first quarter. Who knows what it was, but they did spend more than their incomes went up, at least what we've seen so far, and now as we move into this year, I think, they may pull back a little bit. And you saw in a whole variety of numbers that the consumers really did kind of pull out all the stops in the fourth quarter. But the consumer credit number, a number that's been kind of dismal--they haven't borrowed any more, they haven't had any confidence to go out and borrow—showed best borrowing month in November of the recovery. They borrowed some $20 billion. So, they are clearly feeling like in the mood to spend again.

Stipp: So, consumers are spending down a little bit of savings and taking out a little bit more credit on those credit cards to do a little bit of shopping. We could see that soften a bit here in the first part of the year.

Johnson: Yeah.

Stipp: What about employment, would we see any softening there, after we had a pretty good December labor report?

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