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The Dow Jones Industrial Average reached record highs this week, but a local professor says that isn’t necessarily a sign the economy is booming. KSMU’s Samuel Crowe has this report on what factors we should look at when gauging the health of the U.S. economy.
The Dow was founded in 1896, and has since garnered a storied history of how certain stocks and certain sectors of the economy are doing, says Dr. Jonathan Groves, communication professor at Drury University in Springfield. And this week the Dow reached record highs. But Groves warns not to make the mistake of thinking that means the economy is doing well.
“It doesn’t really tell us how individuals are feeling. It doesn’t really give us a good measure of employment. It doesn’t give us a good measure of how much people are spending, which are all contributors to the economy. So it really looks at it from a very corporate, from a very large company point of view,” Groves said.
And many of the large American companies, like Apple, Google, and Ford Motor Company aren’t even part of the Dow.
Groves points out that the Dow measures stock prices, and these prices represent how people think those companies are doing. So if investors see stock prices up, they’ll think “things are good, the company is profitable. Let’s invest.” Then the values of those large companies go up...
“But what does that mean for a small business in downtown Springfield? It’s meaningless to them. It doesn’t give us any indication of how that small business is doing. It’s not a direct measure of how that company is doing. So you have to look to other measures to gauge how our small businesses are doing,” Groves said.
And small businesses, Groves says, are the engine that drives the American economy. Groves says there are several economic measures to better estimate our economy’s health, such as different stock market indexes like the S&P 500, the Nasdaq and the Russell Index. He says economists also look at employment and income measures, productivity, unemployment, jobless claims, and investments. And then he says there are less tangible measures.
“Like consumer confidence, which looks at how do people feel about the economy, because as anyone will tell you, related to the stock market or economy, there is a factor that depends on how do people feel. Do people feel upbeat, because if they feel upbeat then they’ll spend money and then contribute to the economy,” Groves said.
Groves says the media’s fixation on the Dow, and how it moves every day, plays a role in the public’s perception of its importance. He says there are times when the Dow is down, yet the economy is doing well. There’s no one-for-one correlation why the Dow does what it does.
For KSMU News, I’m Samuel Crowe.