Thursday, September 11, 2008

The Export Boom: Will It Continue With Strong $?

Much of the world may be struggling with the economic downturn, but life has been getting better in Columbus, Ind., Kingsport, Tenn., and Waterloo, Iowa. These out-of-the-way places have become trade hot spots as U.S. exports, fueled by the dollar's fall, continue to provide a rare spark in an otherwise gloomy economy.

While many economists expect a recent snapback in the value of the dollar and a spreading global slowdown to soften that growth, exports have become a key to greater local prosperity more than at any time in decades.

"Exports are impacting, in a positive manner, virtually every industry and every state," says Daniel J. Meckstroth, an economist at the Manufacturers Alliance/MAPI, an Arlington, Va.-based public-policy and research group that represents mostly large manufacturers.

Foreign buyers are scouring the U.S. for everything from guitar strings and wine corks to used dump trucks and newsprint. The volume is so great that some inland trade hubs can't find enough metal shipping containers to load products headed overseas.

Over the past year, real-goods exports have risen $115 billion, or 12%, and are up across every major category. They now make up nearly 13.5% of gross domestic product, the highest percentage since World War II (see chart above).

It's a badly needed tonic for the beleaguered U.S. economy. A smaller trade gap, due to growing exports and slowing imports, combined to add 3.1 percentage points to the GDP's growth rate in the second quarter. The latest report from the Institute for Supply Management also showed that while manufacturing as a whole shrank slightly in August, the index for export orders, an indicator of future export business, rose to 57 from 54. ISM readings above 50 indicate expansion.

Key to this growth has been the weaker dollar, which has made American goods more competitive in global markets and prompted many manufacturers to expand production inside the U.S.

MP: Accompanying the article is
this interactive map, showing regional exports in the U.S. as: a) dollar values and b) as a percent of GDP. The metro Detroit area exported $43.2 billion worth of goods in 2006, representing 23.8% of that area's GDP.


At 9/11/2008 7:59 AM, Anonymous Anonymous said...

And yet some well respected bloggers are reporting that the GDP in Q2 doesn't pass the "sniff test".

"If the government had used the same deflator as it did for the first quarter, 2.6, GDP would have only been 2.0.

Consumer inflation for July was the fastest it had been in a generation, moving up at a rate of 5 percent for the previous 12 months. Had the deflator been that large, we would have seen negative growth for the second quarter."

At 9/11/2008 10:11 AM, Blogger the buggy professor said...

We have to remember two things about our trade balance:

1) Slower economic growth in the EU, and possibly China and India and the oil-rich countries --- with oil revenues falling in value with cheaper oil than was the case earlier this spring and summer --- will probably reduce these countries' purchase of US exports. The question really is, how much?

2) On the other hand, out of worry about inflationary pressures and the continual inflow of dollars in China and some other countries, their central banks --- or any other government agency managing their currencies --- have been selling dollars, in an effort to boost their currency rates in exchange markets and hence reduce the costs of imports.

See in this connection the following analysis at Brad Seltser:


3) And so we have two contrary trends at work that will influence US exports and imports in the near future:

Slower GDP growth and hence reduced purchases of US exports abroad, and yet a slower rise or even reduction in the US$ that should, we hope, keep purchases of US exports either steady or moving upward.

Which trend will dominate?


4) More worrying for someone like me --- with a Ph.D. in both economics and political science (and a long academic career in the latter) --- is that the Federal Reserve and the US government may have succumbed in part to the pressure of foreign governments in their decision to take over Fannie and Freddie.

That's because the Chinese and other governments had purchased large quantities of their financial assets, and these assets had been plunging . . . both in the stock market and in bond markets. As those prices were falling, those governments' holdings were heading toward the cellar in $ prices.


5) Whether that foreign influence was crucial or not --- and who could be certain here? --- it definitely seemed to play a role.

In which case, the global influence of the US in diplomatic, security, and economic reach has been badly breached power-wise.

In the upshot --- again, continuing speculatively, nothing more --- there is an even stronger case for a US policy after the Bush-W administration leaves office for a push toward alternative energy independence. Lower oil prices in international markets would then be lower, and hopefully falling for years --- as a result of which the aggressive militarized policies of Russia and Iran would be offset and force their leaders to confront their basket-case economies. And, as a second result, US policymakers would regain their independence in deciding monetary and fiscal policies. All the while, thirdly, the US would be far less exposed to the vagaries and security problems in the Middle East, the Persian Gulf, and the ring of former Soviet-satellite countries on the southern and southwestern rim of Russia.


6) Remember: any analysis of the cost/benefits of growing US dependence on foreign oil and foreign governments' holdings of dollars or dollar-denominated assets needs --- in way foreign to the thinking of economists --- to confront these wider considerations.

Otherwise, we'd be struck in the never-never dreamland of theoretical economic analysis of a blatantly inadequate sort --- politically, financially, and economically.

And if you want a technical statistical term for such limited analysis, call it the "fallacy of partial analysis." AKA, poorly specified statistical models, with omitted crucial explanatory variables.


Michael Gordon, AKA, the buggy professor

At 9/11/2008 5:26 PM, Anonymous Anonymous said...

Buggy Prof.,

You make a compelling case for cross-disciplinary studies especially in areas such as international politics and history.

At 9/17/2008 8:18 PM, Blogger Lisa Olga said...

Eventually increasing freight rates on export cargo (the supply/demand thingy) will increas the foreign landed cost of US goods to the point where they are far less attractive.

Back in the day all the big carriers were offering ocean rates around $350/TEU of the US West Coast for Hong Kong. Same thing today with the extra fuel added - is +1K.

Thems of us who sell freight don't need no steenkin b-skool to tell us whats going on.


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