Fund Managers Keep the Faith

"Individuals and businesses still don't have a lot of confidence in the economy picking up," says Lisa Black, a managing director at TIAA-CREF. "The Fed has done its part to pump up the economy. Now it's up to the fiscal stimulus out of Washington to make the final push."

Fiscal stimulus generally comes in the form of tax breaks, but not everyone believes that tax cuts will solve the problem.

Whatever money flows back into the economy as a result of federal tax breaks will be mitigated or even erased by the cutbacks in state spending, says Rick Smith, a portfolio manager with MFS Investments.

Still, though, the Merrill Lynch survey found that, for the second month running, fund managers expect nominal GDP growth of 3%. That healthy growth rate is largely due to the fact that things are simply not as bad as they seem in the areas that make up the largest part of the economy.

Sure, manufacturing has taken a beating because domestic production is far more expensive than importing; and yes, the technology sector is still floundering. But those are not the areas to look at, according to the survey.

Essentially, while there's downward pricing pressure in the durable goods market (things like washing machines or cars), that manufacturing segment makes up just some 10% of our economy -- and that number is shrinking. Meanwhile, some 60% to 70% of our economy is based on services, an area that's growing and still has some pricing power. (The government makes up 18% to 22% of annual gross domestic product.)

That 60% to 70% of our GDP is -- and has been -- growing at roughly 3% a year. But in the late 1990s, the relatively tiny technology sector, which represents less than 5% of the economy, was growing at a whopping 40% a year. When that number went negative, people started panicking about the economy, Smith says.

But what everyone should realize is that the largest chunk of the economy is growing at roughly the same clip as it had been -- the economy just doesn't have the startling (and unsustainable) growth of the technology market dragging the rest of it to unbelievable heights.

"It's like being in a car with a teenager driving 85 miles per hour," Smith says. "At first you're nervous, but then you get used to it and it becomes second nature. But when you get in another car with a driver going 65 miles per hour, you feel like you're driving with your grandmother."

In other words, Smith thinks the projected 3% growth is exactly where we should be.

"The economy's not in bad shape," he says. "It just feels bad because we just got out of a Ferrari driven by a teenager."