I mentioned in a recent post that I believe the United States is losing its worldwide economic mojo -- its hegemony. I believe we're seeing some evidence of that now unfolding, and the future effects will be far-reaching and long-lasting. And I'm not sure it's reversible, as the U.S. consumer still has yeoman's work to do repair his/her balance sheet. And even then it will be a long road home.
Rex Nutting wrote a piece over at MarketWatch Wednesday that I would have written were I a business writer. I believe it speaks to some of the effects of our situation:
WASHINGTON (MarketWatch) -- The stock market achieved a milestone on Wednesday, withthe Dow Jones Industrial Average surpassing 10,000 once again. Along with stellar earnings from big companies such as J.P. Morgan and Intel, Dow 10,000 shows big companies are doing just fine.
At the other end of the spectrum, however, small businesses are still mired deep in a recession. Wall Street may be celebrating, but Main Street can't afford to.
Coincidentally, the best gauge of how small businesses are doing was released justTuesday. The National Federation of Independent Business index showed a small 0.2 gain to 88.8 in October. The economist for the small-business group said the good news was "that the index did not decline.
"The Dow, which includes 30 of the biggest and most successful companies, is up about50% from its bottom in March. The NFIB index, which represents about 350,000 small firms, is up about 10%.
The Dow is one of the most famous economic and financial indicators; the NFIB is hardly known at all, even among economists. Still, we should listen to the NFIB. [ed. note: You would know about the NFIB if you've been reading here (Dec. 2007) or Blah3.com (Feb. 2008).]
According to Goldman Sachs chief economist Jan Hatzius, the NFIB index usually tracks closely with gross domestic product. Hatzius says big businesses are decoupling from the rest of the economy.
Big business has access to capital; small business doesn't. Big businesses have been earning lots of money; small businesses say profits are falling. Big business could afford to hire workers, if it wanted to; small businesses can't.
The decoupling represented by the Dow and the NFIB show the economy may be much weaker than we think. Most economic indicators -- payroll growth, retail sales,manufacturing orders -- by design do a better job of measuring big business activity. Usually, it doesn't matter.
But it matters now. The health of big business -- and the rebound in the stockmarket -- may be blinding us to just how weak the rest of the economy is.
--Rex Nutting, Washington bureau chief
More on this as time and data allow.
