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By Jason Stipp and Robert Johnson, CFA | 08-28-2013 12:00 PM

Is Slower Growth Really Such a Bad Thing?

Mediocre growth certainly brings its own set of complications, but it can also be more sustainable, less inflationary, and less wasteful, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. One of the pain points coming out of the financial recession has been stubbornly slow growth. But is slow growth an entirely bad thing? Here to answer that question is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: A report came out recently by NBER saying that they expect slow growth to stick around for a while. Where are we right now with growth? What is the average? What have we seen recently?

Bob Johnson: In the post-World War II era, the average GDP growth rate here in the United States has been about 3.2%, and right now I'm thinking 2013, as an example, will be roughly between 1.5% and 2% GDP growth, depending on how you measure it. The potential could be for half the usual rate, and some people might claim that that's the recession and, yes, it partly is. … One other metric that I saw, and I haven't gone back to be able to check the data, but I've heard one commentator mention that if you look at the GDP growth rate over a five-year block of time, that this is one of the slowest-growth-rate periods except maybe in the 1930s when we were coming out of the Great Depression.

Stipp: It's been painfully slow. Certainly part of it was due to the recovery from the financial crisis. NBER says, though, that we should get used to slower growth. It's probably going to stick around for some secular reasons. What are some of the reasons they're saying, "get used to it"?

Johnson: One of the things they talk about is just the whole demographic situation, and certainly we've all heard, for many years, about the aging baby boomers and so forth. Now, as many of them retire and leave the workforce--they're very productive workers and now they're leaving and there are fewer [people] there to replace them--we're actually going to have a shrinking working-age population in a year or two, and that's going to certainly weigh on … overall GDP growth.

Stipp: We've also seen higher-education levels start to top out or peak, so we're not necessarily educating more people than we were before.

Johnson: Absolutely. For a while we were improving: More people got high school completion, more people got college every year as we went through time. But those data points have really stalled out, kind of dramatically, and their contention is that with the rest of the world getting more and more educated and us peaking out our [education] levels, that the U.S. may lose out just a little bit on the educational front.

Stipp: Another big topic in political spheres is income inequality. No matter what you think about it, there are some economic implications.

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