Last week: According to retail sales data, if goods are discounted steeply, cautious consumers can be encouraged to spend a little more. Will discounting therefore continue? How can retailers continue to make steep discounts, yet make money? And if price-sensitive consumers opened their wallets to take advantage of discounts, will they cut back elsewhere in order to maintain savings and cut down debt levels? The story of the U.S. economy in the last months of 2010 will be determined by answers to these questions. Discounts could be trimmed or even eliminated. Conversely, cautious consumers may try to establish household budget discipline. These behaviors reinforce a slow economic environment. Major changes will occur only if the economy unexpectedly opens up new jobs at a faster clip. And faster job growth is not expected.

THE SITUATION ABROAD

The global economy has moderated. That simply means growth has slowed a bit but is not on a downward spiral or back to recession. The basic pattern showed a gain in industrial output as companies replenished depleted inventory. With that phase of recovery largely completed, industrial output has moderated. Behind this industrial story has been a very slow pace in the service sector. It hasn’t picked up, but neither has it deteriorated. It is weighted down by problems in housing, construction and finance. More than a few countries are experiencing budget problems, which hasn’t helped. Recovery from these various issues is slow and time consuming, testing the patience of consumers.

FACT OF THE WEEK

Thirteen percent. The International Labor Organization (ILO) estimates that unemployment among 15 to 24 year olds has increased by almost 8 million worldwide since 2007, to a total of 81 million people. That is a jump to a 13 percent unemployment rate for this group. What makes this number even more critical is that unemployment has risen sharply, precisely at a time when fiscal constraints are forcing spending cutbacks on social safety programs in some countries.

QUESTION OF THE WEEK

We keep hearing that small business is the engine of growth in jobs. But what, exactly, is small business?

According to the Small Business Administration, nearly half of all the jobs in small business are in just five areas: construction, retail merchants, personal services and dry cleaning, health, and administrative and support services. Accountants, lawyers, artists, insurance agents and janitorial services are the next largest group, but much smaller overall than the first group.

Earlier this decade, these jobs were increasing between 3-4 percent per year. At times, that was twice as fast as overall job growth. The severe recession caused firms large and small to downsize. The nexus of problems in housing and finance, in a very weak overall economic environment, has been preventing any reigniting of job growth in these sectors – areas expected to incubate a new jobs recovery.

Incidentally, recent academic research by scholars associated with the U.S. Bureau of the Census shows that “small business” is a bit of a misnomer when it comes to the firepower for growth. It turns out that among small businesses, it’s the startups that create most jobs. But many startups fail, of course. The successful startups, however, are not only a strong source of job growth but also a good source of new technology and innovation.