Is the U.S. economy becoming bipolar? That’s what it seems like if you contrast the behavior of consumers versus corporations lately. Individual shoppers have been as bullish as they have been in years. With stocks relatively high, personal finances in better shape, and the housing market in recovery, American consumers have finally opened their wallets, shelling out for everything from new cars to electronics, and helping to boost GDP a bit in the process.
But oddly, flush American corporations, which have some $2 trillion on their balance sheets thanks to a couple of years of record profits, are hunkering down. Business spending has dropped, hiring at many firms is at a standstill and many firms are lowering their forecasts for the year. Indeed, the stock market took a serious dip on Wednesday off the back of a series of disappointing earnings results from companies ranging from 3M to DuPont.
As Paul Ashworth, the chief U.S. economist for Capital Economics puts it, “The American economy seems to be developing a split personality.” But what’s the root cause of this bifurcation? I think it has to do with the real versus the imagined in our economy. Consumers are responding mainly to the Fed’s latest round of “quantitative easing,” which has goosed the stock markets and even to a certain extent the housing market. Companies, on the other hand, are already feeling the slowdown in Europe and the emerging markets – and they are worried about the growth prospects for the U.S. in the year ahead.
For more about what this will all mean for jobs, growth, and the direction of the stock markets in the next year, read my latest Curious Capitalist column in this week’s edition of TIME Magazine.