James Paulsen, Chief Investment Strategist, Wells Capital Management, shares his perspective on the economic recovery in an interview in April 2010.

Is the recession really over?

The economy has been outpacing expectations, and we've likely turned the corner. Retail sales were stronger than expected in March, up 1.6% according to the Commerce Department. We're finally seeing improvement in employment numbers. So that sound you hear is a collective sigh of relief as Americans finally begin to relax a bit about the economy.

What are the biggest drivers of the economic recovery?

A simple factor: Consumers and businesses are calming down. We certainly faced difficulties over the past couple of years - restricted credit, mortgage foreclosures, massive layoffs - but analysts and the media sold Americans on the "second coming of the Great Depression." As a result, the 90% of Americans who were still employed experienced economic paralysis. They were so worried about the economy that they stopped spending, making the problem worse.

Businesses also prepared for a depression and purged operations accordingly. Ironically, that is now a positive force for growth. As business picks up, many companies have operating bases too small to service the recovery. They will soon start adding to payrolls and inventory and restart capital spending just to catch up. In addition, all the cost cutting they've done is leading to very good profit reports, which in turn boosts investor confidence.

The housing and auto industries have bottomed out, so their drain on gross domestic product (GDP), in my opinion, has stopped. Housing is unlikely to drive the economy the way it did at its peak, but housing prices have shown steady growth over the past few quarters.

Some analysts are calling this a "jobless recovery." Your thoughts?

Employment tends to be a lagging indicator — that is, it tends to be one of the last things to improve in an economic recovery. But unemployment claims are down by almost 200,000 from their peaks. The work week has expanded and temporary jobs have gained in recent months, indicating that businesses need employees and hiring should continue to pick up.

What lessons can retirement plan investors take from the past few years?

The good news is that, as of early April, the stock market is up about 75% from its low last year.* But people are still cautious. Trading volumes are very low, and there is a lot of cash sitting on the sidelines. As the economy continues to improve, people may be more open to risk.

For many retirement plan investors, especially those with a long timeline until retirement, the real risk is having an inappropriate asset allocation relative to their goals, timeline, and risk tolerance. Review your allocation to see if you are overweighted in any particular asset class. Given the market's upheaval, you may want to consider rebalancing to a more appropriate allocation.**

A long-term perspective is also helpful. People who were worried about the market the past couple of years but stayed in may now be in a position to benefit from the market upturn.