Roubini: Two U.S. Economies Diverging
Posted by: John Tozzi on November 18, 2009
Nouriel Roubini, the NYU economist who accurately predicted the financial meltdown, writes an important commentary in The Globe and Mail about two disparate American economies: “There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn,” he says.
Still mired in the recession are small firms and the millions of unemployed and underemployed. Incomplete or lagging data, he suggests, distorts the perception of how well the economy is doing:
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.
He also echoes Fed Chairman Ben Bernanke’s analysis that credit is restored for corporations with access to capital markets but not for others:
And the credit crunch for non-investment-grade firms and smaller firms, which rely mostly on access to bank loans rather than capital markets, is still severe.
Or consider bankruptcies and defaults by households and firms. Larger firms – even those with large debt problems – can refinance their excessive liabilities in or out of court, but an unprecedented number of small businesses are going bankrupt. The same holds for households, with millions of weaker and poorer borrowers defaulting on mortgages, credit cards, auto loans, student loans and other consumer credit.
Consider also what is happening to private consumption and retail sales. Recent monthly figures suggest a rise in retail sales. But, because the official statistics capture mostly sales by larger retailers and exclude the fall by hundreds of thousands of smaller stores and businesses that have failed, consumption looks better than it really is.
While we likely have to wait for more data, there seems to be an emerging theme that the economy most small firms inhabit is diverging from the economy that firms with access to stock and bond markets inhabit. Roubini’s essay expands on an idea advanced last week by Goldman Sachs economist Jan Hatzius that found small business sentiment (as measured by the NFIB’s index) out of line with other measures of the economy, like GDP.
In our post about Hatzius’s report, we asked readers who have weathered other recessions whether this recovery feels different. One, Jeff Goldberg, left this comment:
My experience is we had credit available in the early 1990’s. This time it has all but dried up. With no credit it is difficult to wiggle. We therefore have laid off 2 people and are hoping for some type of holiday season to pull us through.