Reflections on 9 years of economic analysis


Jérémy Glaser: For Morningstar, I’m Jeremy Glaser. After 14 years at Morningstar, nine of which spent analyzing the economy, this is Bob Johnson’s last week. We are going to talk a bit about what he has learned over these years and also some final thoughts.

Bob, thanks for joining me.

Bob Johnson: It’s good to be here today.

Glaser: So let’s first talk about some of the great lessons you’ve learned from studying economics for so long. You said that one of the most important is that it really is an ocean liner. The economy is not moving that fast.

Johnson: It is totally true. It was an idea that a liner – it is very difficult for him to change direction or speed. It tends to keep going no matter how it goes, and we’ve certainly seen it in the economy. And we’ve had this relatively slow growth of around 2% since the recovery started, but we keep seeing disasters, natural disasters, geopolitical events, all kinds of weird things hitting the economy and the economy. economy continues to come back with this growth rate of around 2%. It’s slowing down just a little bit now, but it’s been a pretty strong trend since 2010. So it’s really not a one-time event. And people keep looking, oh, it’s changing or something dynamic is really happening or changing. And what has really happened is that we have an ocean liner economy on a general level. Now, that doesn’t mean that individual sectors come and go in economic terms, but the overall level of growth has remained remarkably stable.

Glaser: And it’s a warning that if you see a big change from month to month, maybe it’s noise and not a signal?

Johnson: Absoutely. You know, a lot of newspapers, a lot of columnists, a lot of bloggers, the way they get attention is to dramatize the numbers and it’s easy to do on a monthly basis. All kinds of strange things can happen. Some department stores may shift their annual sales a few days and affect the numbers. A business day can be short. We can pass a storm. Just looking at data from month to month is really a very risky business. We often talk about it just because it’s the vernacular that everyone uses, but we always try to come back to looking at, as we always say, the average year-over-year, three-year growth rates. months and that’s really, I think, the best way to look at the data. And frankly, a lot of government agencies are now reporting data on that same basis. So I think we got a few converts by looking at the data this way, and I think that’s really one of the main takeaways. If you plan to look at the data, at least look at the data from year to year. Don’t look at the data from month to month.

Glaser: One of the other big things to keep in mind is demographics. You think that’s the root of a lot of this slow growth that you just talked about.

Johnson: Absoutely. I think the demographics had a situation where they warned of what’s to come so far in advance and then they didn’t hit exactly at the right time and we had the Great Recession brought on by other factors to around the same time. So that sort of buried some of the economic impacts of what was going on with demographics. But now I think it’s pretty clear to everyone that demographics is a really big topic. And while you don’t want to use it for forecasting GDP and decide whether you want to enter or exit the market, which we don’t think our data should be used for anyway, but at least demographics should color in. the way you think about your wallet and what you want to own and what you might not want to own based on this really dramatic change is the baby boom, that mouse in the python, if you like, story, where we went from 2.5 million births a year to 4 million and more over a 20-year period, and then completely collapsed in the 1970s. So it’s a very, very important to watch in terms of what’s going on in the economy, and I think you have to really understand that dynamic or you don’t really understand what’s going on in the economy.

Glaser: When you look back, do you think there were times when it was obvious that things were getting much better or much worse? Was it easy, at least in hindsight, to see where the economy was going?

Johnson: Well I think we have always maintained the liner and tried not to panic. I would say probably two or three sets of times – one was in 2013-14 when they pulled some of the raise and some of the numbers looked a bit low. We have become more careful. We never said a recession was imminent, but we certainly cautioned a bit about growth rates. But I think we really – things tend to go in that straight line, and that just doesn’t want to get out of that pattern too much. And I think that’s very important to consider.

Glaser: So you think it’s relatively difficult then to really make concrete predictions about the economy at any given time?

Johnson: I think it is. And it’s harder to pick a top in the market than a bottom. The economy stays in recession for a few months and recovering for eight, ten years in some cases and that recovery is now in that range. And so, what happens when at turns it is very easy to predict a trough. I mean, we’re still very proud of our piece of green shoots back in 2009 when we called the turning point. But, boy, I would tell you it’s a lot harder to call a top because there are so many warning signs and they turn out to be wrong, and we’ve had quite a few this pick up already. . Some of the PMI data has pointed to some pretty cautious things. Consumption data looks worrying. Some of the “Fed” signals have put up warning signs. And the problem is, you usually have so many warning signs, what happens is people get used to it and ignore it. And then all of a sudden they hit and it’s really fast. I mean, you graduate for 10 years and you drop really, really quickly in a few months.

Glaser: You mentioned this piece of green sprouts as one of your favorites. Looking back, what other calls or what other piece of analysis do you think of most fondly?

Johnson: I think I liked our work that we did on the whole shale and oil situation. I think a lot of people have talked about what this maybe doing on imports / exports. But I don’t think a lot of people have realized how many businesses it has really helped. It wasn’t until the oil industry sort of reversed itself from 2015 that all of a sudden everyone came out, all the ships came out and everyone got it – all the water is exit and everyone figured out – how many companies were really exposed to it. I mean, a lot of companies that made steel pipes, companies that made computers, people that did industrial controls. All of them had great exposure to this industry and all of them took advantage of it, and they were all acting like they were some kind of economic genius as to why their businesses are doing so well and we never heard in the quarterly reports. say, oh, a lot of things are going on in oil and gas that really get us going. So, really, a very interesting dynamic. And then when things went wrong, all of a sudden they found out that 40-50% of my income was somehow related to the oil industry. Of course, this all happens in the conference calls after the peak.

Glaser: Is there anything else on this front that you would like to examine?

Johnson: Well I think Boeing was another really interesting thing and the 787 which was actually enough when it came online to move the GDP. I mean, it might not sound like a lot, but 0.25% just adding this 787 program. Now they’re here in Chicago and we have a really good analyst covering that headline. So we had a lot of good data. And I think a lot of people haven’t understood the ramifications of that, how many other industries have benefited from it. And a lot of those companies were based in the United States. So, it was particularly useful. And I think, again, it wasn’t difficult, but the auto industry has been a very, very important part of that recovery, and that’s one of the reasons we’re a little worried about the upturn right now is that the industry is clearly at its peak outside.

Glaser: Any other final thoughts for our viewers or readers of your column?

Johnson: Well I just want to thank all the readers for their patience over the years. I mean, in the beginning, we weren’t really fine economists, fine speakers and writers. And I think over time, with everyone’s patience and suggestions, we’ve made a lot of improvements to the topic. We’ve gone from maybe three or four bar charts and probably three years in the effort before we even could put a single chart in there and now we’ve put 15 or 20 and we’re not thinking about it anymore. So we are very proud of it. We couldn’t have done it without our readers, who offered me the comments I always read and many of the ideas they gave me popped up in future columns and helped shape the columns. and made me understand where I was not explaining things. well, things that I had missed. And a lot of people wrote to me separately and shared their personal stories. When I said things are really wonderful and they were writing to me about issues they would have, and you realized that it wasn’t a really broad cover that a lot of people were left behind.

Glaser: Well Bob, on a personal level I just want to thank you for your insight and for all that you have done and the analysis that you have shared over the years which has been really helpful and kept us focused. on the large photo and provided a lot of valuable insight.

Johnson: Well, thank you very much to you and Jason Stipp who started these interviews a long time ago. It has been a wonderful process. I look forward to them every week, probably more than writing the Friday column. But thank you for all your good questions and patience on the video screen here to keep everyone on track. So thank you again.

Glaser: Thanks for joining me, Bob.

For Morningstar, I’m Jeremy Glaser. Thank you for watching.


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