Past: How We Got Here
As humanity has evolved, the components of a strong economy have continued to change. The reason that the US has led the world for over 100 years is that it’s learned to adapt. The country’s premier entrepreneurs have shifted from farmers to transportation innovators to factory leaders to enterprise founders.
Though the foundation of the US’s economic success dates back thousands of years, recent history has brought about the industrial demographic shifts that now serve as the cornerstone of the nation’s economy. After World War II, businesses began to consolidate, merging into huge, diversified conglomerates, while the American workforce increased its emphasis on providing services over products. Farmers, meanwhile, saw their profits suffer. In the 1990s, after the fall of the Societ Union and Eastern communism, trade opportunities expanded greatly, and technological developments revolutionized the way many industries operate. During this time, the economy grew rapidly, and corporate earnings rose massively. The Dow Jones Industrial Average, which was at just 1,000 in the late 1970s, hit 11,000 in 1999, providing newfound wealth to many Americans. In 1998, the government posted its first federal budget surplus in 30 years.
Since then, increased globalization, as well as the continued migration toward white-collar services — often in the technology field — have contributed to an extremely strong American economy. Before the pandemic, the US had reached an all-time high GDP in 2019 of $2.14 trillion, and the unemployment rate was around 3.5%, as of February.
Present: The Companies Driving Growth
Now that we understand how the US economy got to look like it does today, let’s get into the nitty-gritty of which companies play the largest — and smallest — roles in the country’s success. A breakdown of the US’s gross domestic product conducted last year by Deloitte offers some insights into who the country’s most important money-makers may be.
The biggest contributor to annual real GDP growth is the industry that makes up Wall Street (finance, insurance, and real estate), bolstered by growth in professional and business services. Manufacturing; trade, transport, and warehousing; and information industries all followed as key drivers of growth. The industries that contribute the least to growth are construction, utilities, mining, agriculture, forestry, fishing, and hunting.
One crucial trend is the growing importance of services over products in spurring the country’s growth. Deloitte predicts that services will continue to bolster growth, “with a handful of its industries likely to outperform and provide the economy a much-needed boost required for sustained growth.” Healthcare and technology will continue to be success drivers. The information industry has experienced an average annual growth of over 9% since 2015.
“Services … have been the key pillars of GDP growth since 2014,” according to the Deloitte report. “The past few years’ data substantiates the trend—in 2018, four out of the top five fastest-growing industries—information; professional and business services; trade, transport, and warehousing; and educational services, health care, and social assistance—belonged to the services industry.”
One common misconception is that only big companies like Facebook, Amazon, and Microsoft drive economic success and growth. However, according to the Small Business Administration, small businesses are the “lifeblood” of the US economy, accounting for 44% of US economic activity. Small businesses’ role in the country’s GDP has slightly decreased over time, falling from 48% to 43.5% from 1998 to 1994, while large businesses have grown quickly — at 2.5% annually. Big businesses are gaining increased power in America and will likely continue to do so, though small businesses still play a significant role.
“This useful benchmark shows us that small businesses continue to be big contributors to the U.S. economy,” Acting Chief Counsel for Advocacy Major L. Clark said. “While their contribution has grown at a slower rate than that of large businesses, small businesses continue to be at the forefront of driving innovation, jobs, and economic growth.”
Future: New Challenges
According to the National Bureau of Economic Research, the coronavirus pandemic has presented the country with unprecedented challenges, and the country officially entered into a recession in February. This macabre milestone ended the longest economic expansion on record in the US.
“The unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions,” concluded the research agency.
As a result, businesses will play a key role in bringing the country back. However, much of the US’s recovery will depend on government policy, mitigating core damage in the form of household spending, state and local government finances, bankruptcies and lower investment in businesses, and lost human capital. Business owners are depending heavily on the federal government to bail them out amid demand dips and supply issues. The best thing businesses can do is focus on what has always driven America forward: adapting and innovating.
About the Author
Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.