Wikinvest Wire

A tale of two American economies

Wednesday, November 18, 2009

Economist/rock star Nouriel Roubini writes in the Globe and Mail about the two very different "recoveries" underway for the U.S. economy.

While the United States recently reported 3.5 per cent GDP growth in the third quarter, suggesting that the most severe recession since the Great Depression is over, the American economy is actually much weaker than official data suggest. In fact, official measures of GDP may grossly overstate growth in the economy, as they don't capture the fact that business sentiment among small firms is abysmal and their output is still falling sharply. Properly corrected for this, third-quarter GDP may have been 2 per cent rather than 3.5 per cent.

The story of the U.S. is, indeed, one of two economies. There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn.

Consider the following facts. While America's official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.
That seems to be a common theme these days if you look past the headlines - that small businesses are not only failing to play their usual role of leading the rest of the economy out of the downturn, but they are in fact laggards in this "recovery".

Of course, the "two economies" theme is reinforced by the fact that bonuses on Wall Street are expected to be near record highs in 2009, whereas, the holiday season will surely be a much more glum affair on Main Street.

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2 comments:

Anonymous said...

Its like what happened in Japan. The large dinosaur industries are being propped up by "stimulation", while innovative new industries wink out of existence. Consumer preferences no longer have anything to do with what is in demand. Its all about industry political connections determining who gets the "stimulation" sales.

This leads to too much supply in fossilized industry, and taxpayers are forced to buy the unwanted product. Meanwhile, citizens can't afford to buy what they really want, because printing has eroded their purchasing power.

Anonymous said...

Any data to back up this: "innovative new industries wink out of existence"?

I think 'self-employed workers and small entrepreneurs" probably includes a lot of food & hospitality workers, home & commercial building and related services, finance, debt, mortgage, insurance etc., ancillary services. Not a good thing but nowhere near 'innovative new industy" category.

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