It’s natural to worry when the Standard & Poor’s 500-stock index experiences its worst three-day loss since 2011 and the Dow Jones Industrial average hits a six-month low. But your job is likely to be safer than your portfolio. Economists surveyed by Bloomberg are still looking for the U.S. economy to grow at a healthy 3 percent pace in the last three months of 2014 and at the same clip in 2015.
There’s a simple reason for that, as my Bloomberg News colleagues, Rich Miller and Simon Kennedy, wrote on Oct. 13. Foreign sales last year accounted for 46 percent of the revenue of companies in the S&P 500, leaving them highly exposed to troubles abroad. Investors are selling shares because they fear that foreign sales will slump because of recurrent weakness in Europe, a falling growth rate in China, and a protracted slump in sentiment in Japan.
The overall U.S. economy is far less dependent than the S&P 500 companies on what happens abroad. Most of what Americans produce is sold to other Americans; exports account for just under 14 percent of U.S. gross domestic product. As the world’s largest economy, the U.S. is far more insulated, according to 2013 World Bank data, than Germany, where exports are 51 percent of GDP, the U.K. (31 percent), or China (26 percent).
(Oddly, most of the countries that are less export-dependent than the U.S. are economic failures with very little to export, such as Afghanistan and Burundi.)
“The U.S. economy is less open than the S&P revenue base,” Jan Hatzius, chief economist at Goldman Sachs, told Bloomberg. This cuts both ways. Until recently it was Wall Street that shone: The S&P 500 index roughly tripled from its nadir in March 2009 through September of this year. Meanwhile, the overall economy suffered, with weak job growth. Now that the U.S. economy is showing signs of life—and Europe, Japan, and China are slowing—the tables have turned. The U.S. economy is benefiting from domestic forces, which include job growth exceeding 200,000 a month, renewed corporate investment, and healthy household balance sheets.
Why look at exports, rather than imports? Because exports from the U.S. depend on the health of foreign customers. If they’re in a funk, they won’t buy. In contrast, the U.S. will continue to be able to import products from abroad, even if foreign economies are a mess. In fact, overseas vendors may even lower prices for American customers in order to preserve their market share.
Not that the U.S. can ignore the rest of the world. Because of the huge U.S. trade deficit, net exports subtracted more than half a trillion dollars from GDP, or more than 3 percent, in the second quarter of this year. If demand in the rest of the world slows down, that deficit will grow.
