"
But there are a lot of people going around saying we're in a recession already, and some of the data from the second quarter looks a little softer than I'd certainly like to see, but I think there are a lot of odd things happening. I think, for example,
Microsoft's got a new operating system coming out, so people are saying don't buy computers, because the new operating system is coming out, so that slowed that market. We've got
a little bit of a saturation issue in digital TVs right now that's certainly beginning to affect some of our imports on that side of the house. We've got
some odd things happening with gasoline prices that makes consumption look just a little bit lower than it is, and we've even got helpful things like
a lot of major drugs going into generic form, which dramatically cuts the prices and the spending on drugs. And all those things are coming together to make a lot of the economic numbers look a little weak.
Certainly, consumers aren't spending those savings. I don't want to say the consumer is booming or going crazy, but on the other hand, he saved some money recently in the last three months, and he isn't spending that money just yet, but there are certainly a lot of positive signs. And as weak as some people think the economy is, I ask you this question. I asked you these common sense questions. Let's put the data aside and just ask, would
housing sales be at the best levels of the recovery? Would
auto sales be almost in kind of booming type of territory? Would consumers be taking out
more loans in a world where they thought things were falling apart? I think that the fundamental answer is no. Maybe because of seasonal factors, maybe because of these special things that I'm talking about, things look a little weak today, and I think they may [look weak] for another month or two, but I think overall my 2% growth rate for the full year remains very much intact for the U.S. economy.
I think certainly one of the things that's got people concerned is
exports. Exports have gone up as a percentage of the U.S. economy. They're now about 14% of the economy. Back in the '60s, '70s it was more like 5%, 6%, 7%. So we've certainly become more dependent on exports, and exports were probably one of the fastest things to recover in this recovery, but remember they also got killed because there were five or six months where we literally couldn't ship anything overseas because we couldn't get letters of credit for banks. And so a part of it was just a bounce. We're not very much further ahead in exports than we were to begin with. So exports were important, but are becoming less and less important all the time in terms of our growth rate.
If you look at the next slide, I have also lined up the various world economies.
People say, well, Europe is falling apart, what does it mean? Well, Europe represents about 3% of the U.S. GDP, our broadest measure of economic activity, 3%. A lot of that is agricultural products, a lot of it is Boeing aircraft that are under long-term contract. They are things that aren't going to go away. So even if Europe was to go into a really bad spell, I doubt that Europe would fall much below 2.4%-2.5% of the U.S. economy. So I'm not terribly worried about Europe from an economic effect.
Now whether the banks fail and cause something to happen to our banking system over here is an entirely different question. There is a 10% to 15% probability that it does cause that type of banking situation. It's something that certainly should be on everyone's radar, but in terms of economic effects, I think it's relatively minimal.
Europe is also important to a lot of S&P 500 companies, and it affects their earnings, but it doesn't so much affect U.S. employment, because a lot of the things that multinational companies sell in Europe are made in Europe or made in the Far East, but certainly not made in the United States. That's why, for the last three years, earnings of corporations have been booming at the same time that employment in the United States has barely budged. Now, as we go in reverse, and Europe slows and earnings slow, it doesn't necessarily mean that U.S. employment is going to get any worse, because none of those jobs were here to start with.
And also, just on the bottom of the slide, I know that everybody is mainly concerned about Europe, but
China is even a smaller percentage of our economy. They are about 1% of our economy, and most of that is actually soybeans.
And people say, oh the slowing, it's going to hit us in terms of exports! And it's slowed. I said, it was the very best help to the economic recovery in the first few months, but every year the effect has become a little less and a little less.
You can see in this slide, in 2010 overall export growth was about 21% across all economies. Then in 2011 that fell to the 15% range, and now for the first five months of this year (we haven't got the June data yet), we are down at around 7%. So, we've already seen some of the slowing. It isn't like this remarkable thing is going to come out of the sky, and our 50% growth ends tomorrow. This has been an ongoing trend, like you get in every recovery; you get the big boom at the beginning, and then you kind of flatten out, and that's just what's happening this time around.
So, now it's the consumer that's really the most important part of the recovery, as they usually are, because we are about 70% dependent upon the consumer, which is the largest of any other major economy. The consumer is important. I always say don't watch the manufacturers--that's the wrong thing to be watching most of the time because manufacturers will manufacture if the consumers have the demand. Manufacturers don't make goods for the fun of it, or just to stack an inventory or to have it around because they think it might sell next week. They usually make it because they've got an order in hand, and if the consumer is strong, manufacturers are going to build, they are going to hire more people in their factories, they are going to build more capital goods for their factories so they can make more. That higher employment and those higher orders of capital goods mean more incomes in consumers' pockets, which means more spending, and you get this wonderful virtuous cycle. And that's the thing I really think is really important to keep in mind in the economy.
Ultimately, the consumer is the center of that stage."
http://www.morningstar.com/Cover/videoCenter.aspx?lineup=PREMIUMVIDEO&id=560675&referid=a3497
