Since the mid-1970s, the U.S. economy has undergone several waves of creative destruction in which capital and labor have shifted from declining to growing industries. In this process of what our Bank refers to as "the churn," the economy redirects resources toward their most profitable use and there is often a substantial turnover among firms. Along with an increased pace of churn on Main Street, there has been an increased pace of turnover among the leading stocks on Wall Street, something our Bank president, Bob McTeer, likes to call "firm churn." Today I hope to provide a few snapshots of how the churn in our economy is reflected in the stock market. ; The rest of my presentation first focuses on the changing pace of stock market churn. Then, I'll relate changes in our economy to the churning industrial mix of leading stocks. At the end, I'll briefly summarize with some conclusions about how the stock market can help us gauge the overall pace of the churn, changes in the mix of industries that are underway in our economy, and future changes in industrial structure as well.
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Article provided by Federal Reserve Bank of Dallas in its journal In Depth.