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By Jason Stipp and Robert Johnson, CFA | 12-12-2012 12:00 PM

Too Soon for Recession Talk

Some economists believe that recent, noisy data indicate a recession for the U.S. economy, but Morningstar' Bob Johnson says, not so fast.

Jason Stipp: I'm Jason Stipp for Morningstar.

After a 2.7% third-quarter GDP read, which looked better than most people thought was reality, most economists are now expecting the fourth quarter to slow down, and some are even talking about recession.

Here to give his view on the possibilities of recession for the U.S. economy is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: We have heard the R word creep into the discussion of some economists and some economy-watchers. What's behind that? Why do we expect to see a slowdown in the fourth quarter, and why are some people even expecting a recession type of slowdown?

Johnson: I think a lot of people are probably looking at a combination of reports. We've had two back-to-back weak retail sales reports [in September and October], and as I've always talked about, the consumer [being] a big part of the economy, so certainly that's got people worried.

Personal income has been soft in the last couple of reports. We had one bad month of auto sales, now we've had one good month. … We had poor industrial production numbers, and we've had continuing poor numbers from the Purchasing Managers Institute.

Stipp: And also government spending was a big part of that 2.7% third-quarter GDP, and we don't expect to see that happen again as well?

Johnson: That's going to go away, but then again, there was a soybean inventory effect that was almost the same size as the government effect, and then auto production took 0.5% off of GDP in the third quarter, and that will probably reverse itself here in the fourth as well.

Johnson: OK. So, I want to talk about some of those positives in a moment, but before we get there, there is a lot of noise in the data right now. You've written about this on Can we even tell if we're actually slowing down when we try to pick apart all of the things that have really messed with the data recently?

Johnson: We really can't, and there are a few factors for that. One is, we've had a shifting inflation rate, and sometimes inflation spikes one month, but the benefits and the harms happen in another month. And so, we've clearly gone from two months where we had 0.5% of 0.6% price increases, then we had a month of flat, now we'll probably have a month of down. So again, that will start to be better for the consumer. So, vibrating inflation rates. When we look at all these numbers, the best way and the way most people look at them is inflation-adjusted. So, that's certainly one factor out there.

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