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Quarter-End Insights

Outlook for the Economy: A Longer, if Not Stronger, Recovery

What this recovery has lacked in robustness it may make up for in longevity.

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  • Although the U.S. economy remains relatively strong, it's not ready for a rocket ship-like performance, either. Growth in most U.S. metrics has been slow for three months or longer. Some of that stagnation is weather-related, but certainly not all. Up-and-down bounces related to the government shutdown and budget settlement, major inventory buildups, and higher interest rates have all been negatives for recent economic activity.
  • Despite the current soft spell, there are several major positives that could make this recovery one of the longest on record. What this recovery has lacked in robustness may be trumped by longevity. This recovery has already lasted longer than half of all post-World War II recoveries. The housing market still has a huge runway in front of it, oil and gas production continues to accelerate, government austerity measures should continue to soften, and the world economy is again showing signs of life, potentially boosting U.S. exports.
  • There are factors that will potentially hold the economy back in 2014. In the short run, good but slowing growth rates in autos, housing, and jetliners mean that other sectors will need to pick up the slack. Higher interest rates and new geopolitical uncertainties won't be helping matters, either.
  • In the longer term, demographics and socioeconomic trends may permanently keep the U.S. GDP growth rate at 2.0%–2.5%, or perhaps even less. This is thanks to an aging population that spends less; a move to e-commerce from employment-heavy and construction-needy brick-and-mortar retailers; and the declining need for office space as more workers do their jobs with less space or work from home. Technology, generally a very good thing, also seems to be putting a real dent in employment opportunities.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.