It doesn’t sound like a good mix: Sharp declines in the stock market, competitive pressure resulting from weak currencies in Europe and China, ailing industrial and export companies, barely perceptible wage increases. It’s no surprise that there are such widespread doubts about the strength of the U.S. economy.
What investors mainly see is the gloomy series of events in capital markets and stagnating wages among American workers. From the German perspective, the most important factor behind a solid economy is the growth of industrial and exporting companies, in keeping with Germany’s model of success.
The official figures in the United States are also lackluster, though still better than in most other developed countries. Growth has probably slowed recently to an annual rate of about 1 percent, and productivity is only improving minimally. The balance of trade is only stable because imports have declined.
Is the U.S. economy merely an apparent giant who, like in the children’s book “Jim Button,” shrinks the closer you look at it?
No, because its true strength lies beyond the realm of exports, capital markets and the manufacturing industry.
A strong labor market is more important to a robust economy than almost all other indicators.
The U.S. economy created almost 300,000 new jobs in December, continuing a trend that has been underway for years. But the main source of this miracle is the service sector. In addition, small- and mid-sized companies play a much bigger role in job creation than publicly traded corporations.
The new jobs are not just in relatively unskilled professions, such as the restaurant business. There is also a growing demand for qualified professionals in fields such as healthcare. Still, the importance of restaurants should not be underestimated, because they provide an income to large numbers of immigrants in the United States. We could use more of this dynamism in Germany, especially now.
A strong labor market is more important to a robust economy than almost all other indicators. One of the reasons that wages are still largely stagnant is that more Americans who had previously left the job market have recently been accepting jobs again. But that too is ultimately a good sign.
Yes, U.S. corporations are known internationally; yes, companies such as Google and Facebook are changing the world; and yes, the Americans are proud of their capital markets. But the strength of their economy stems primarily from the dynamism of the broadly diversified service sector.
It is based on the willingness of Americans to work for others and have others work for them, and to spend money on that. In this sector, the increase in efficiency through new technology plays a smaller role than in industry, which is why relatively small growth rates are already enough to create new jobs. This is the positive side of an almost nonexistent increase in productivity.
Investors should be careful. They see the turbulence in the capital markets. But the Federal Reserve must and will orient its monetary policy toward the dynamics of the entire economy.
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