Ezrati’s Economic Outlook: Exports Still a Help

Dollar gains and a slowdown overseas will erode but not eliminate U.S. export growth.

Exports have remained one of the few consistent bright spots in the otherwise sub-par U.S. economic recovery. Their growth at times has added as much as two percentage points to the pace of the economy’s expansion and is a major reason why American manufacturing has staged a comeback in recent years, a “renaissance” some have called it. But of late, with the dollar rising against the euro as well as the yen and growth overseas slowing or, in Europe’s case, falling, questions have arisen about the sustainability of this export strength. Doubtless, the pace of gain will slow, but growth in exports is likely to continue. 

The U.S. export boom actually took off in 2007, held up remarkably well during the 2008-09 recession and has generally picked up momentum since. As the table below shows, exports of goods and services jumped 13.3% in 2007 and continued to grow almost apace in 2008, even as the global financial crisis rocked world economies. Unsurprisingly, exports fell in the global recession year of 2009, but they rebounded into 2010 and 2011 despite the disappointing pace of the global expansion. So far this year, as China reduced its overall growth expectations and Europe fell into recession, export growth has actually accelerated. Because exports amount to barely 15% of U.S. economic output, this performance, impressive as it is, could not turn a sluggish recovery into a rapid one, but it has been fast enough at times to add considerably to the pace of growth. In late 2007, net exports accounted for more than half the economy’s expansion. In 2010 and early 2011, they accounted for one-third of the economy’s growth.

The shift against the yen was even more dramatic. Between mid-2007 and late 2011, the yen rose almost 40% against the dollar. Not only did the currency moves help U.S. producers make inroads into European and Japanese markets, they gave them a huge edge against European and Japanese competitors in faster-growing markets such as China, India and Brazil.

There can be no denying, however, that if the dollar’s recent gains persist, they will strip away some of this competitive edge. In recent weeks, for instance, the euro and the yen have each cheapened almost 5½% against the dollar. But because previous dollar declines gave American producers such huge pricing advantages, even recent dramatic currency moves leave much of this country’s advantage intact. According to calculations by the Organization for Economic Cooperation and Development, underlying measures of comparable pricing—what econometricians refer to as purchasing power parity—put today’s euro, at about $1.25, only just on a competitive par with dollar-based production. Comparable calculations for Japan show the yen still giving American producers a huge 35% pricing advantage against the Japan-based competition.

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About the Author

Milton Ezrati

Milton Ezrati

Milton Ezrati is senior economist and market strategist for Lord Abbett & Co. and an affiliate of the Center for the Study of Human Capital and Economic Growth at the State University of New York at Buffalo. His latest book, Thirty Tomorrows, linking aging demographics and globalization, will appear next summer from Thomas Dunne Books of St. Martin’s Press. See more of his articles about the economy here.

 

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