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By Jason Stipp and Robert Johnson, CFA | 05-15-2013 12:00 PM

6 Reasons to Check Your Expectations for the Economy

Why Morningstar's Bob Johnson is not the most optimistic guy on the street.

Securities mentioned in this video
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Jason Stipp: I'm Jason Stipp for Morningstar. Although U.S. data reports have raised some hopes for the economy, Morningstar's Bob Johnson, our director of economic analysis, says he is not the most optimistic guy around. He is here to explain. Thanks for joining me Bob.

Bob Johnson: Great to be here.

Stipp: You have six reasons you say why you are not the most optimistic guy on the street. The first one has to do with government spending and that it will be a headwind for us. It has been and will continue to be. What's your take on that?

Johnson: Yes. The government represents about 20% of gross domestic product. So it's not a small number, and I have been whining endlessly about Europe having difficulty getting out of the recession because there government is about 40% of their economy. The more they cut government, the more they cut their own GDP and the more they get in that vicious downward cycle. We are lucky here that government is a smaller percentage of the economy at about 20%. Nevertheless, it is hurting the economy; it has since 2010. And unfortunately the news for the year ahead is not good between the sequestration, winding down Iraq, winding down Afghanistan, wonderful things politically but not such good things dollars-and-cents-wise for the economy. Those things will continue to weigh as well as post office issues and various pension issues.

Stipp: So more pain from government coming up. Number two, the auto industry, which has been an important part of the recovery, you say is kind of peaking out at this point as far as auto sales.

Johnson: I hope I get proven wrong on this one. I very well could be because I am just looking at numbers here. But we're at 15.4 million where most of the forecasts center, that's unit per year in autos for 2013. And a typical recovery sees a peak somewhere in the 16 million to 18 million level in terms of cars. We are darn close to that right now. It's been a huge engine of growth in this recovery. We've gone from 9 million to 16 million, but now if we go from 16 million to 17 million, it's like not a big deal. It's not going to be a big help to the economy.

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