The Last Domino Is Falling: Exports 34 comments
James Picerno
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The trade boom is fading. That's no great surprise, given the weakening state of the global economy. But the slippage in export-related activity comes at an especially challenging moment for the U.S.
Exports remained a bright spot for the U.S. economy last year. As other areas weakened in 2008, the American export machine bucked the trend. It was a timely boost, offering some hope that the approaching recession might be mitigated and perhaps even sidestepped altogether.
The high point came in last year's second quarter, when real (inflation-adjusted) export activity soared 12.3% on an annualized basis while GDP advanced 2.8%. That took some of the sting out of the drop in durable goods spending and a growing sense of unease otherwise in the GDP trend. In the third quarter, the export boom slowed but remained robust, rising 3.0%, in sharp contrast to the 0.5% decline in GDP.
The long-suffering dollar was no small advantage for juicing exports. As the greenback declined, the price cuts on American goods and services became increasingly attractive to foreign countries. Then in July 2008, the dollar began to rally. Although the U.S. Dollar Index has been trading in a range recently, it's still up sharply from its summer lows.
It was a tempting notion to think that exports would save us, although we warned last summer about expecting too much from the trend. "There's a limit to how much economic gain any nation can enjoy through a weakening of its currency," CS wrote in July. "Devaluation may offer short-term benefits, but the U.S. can't devalue its way to prosperity for very long."
The dollar's recent strength surely isn't helping U.S. exporting activity, nor is the credit crisis or the general economic turmoil blowing through economies around the world. Few analysts expected the fourth quarter GDP report to deliver anything other than a negative number. Today's trade update for November only strengthens that forecast. Exports dropped nearly 5.8% last month, the fourth consecutive monthly decline.
No one will be shocked by the trend, although it's a humbling reminder that the economy has nowhere to hide. Employment, consumer spending, and so on have each fallen victim to the ill winds of recession. Exports are no exception. As we discussed on Friday, this is the eye of the economic hurricane and, as a result, all news from the dismal science is likely to be discouraging news for the time being. Not forever, but for a few quarters at least. Time moves slowly when you're waiting for a bottom.
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This article has 34 comments:
On Jan 13 01:29 PM Tradememe wrote:
> But exports are falling all over the world, not just the U.S. It's
> a global recession. Even China which is flooding the world with cheap
> exports is seeing a decrease in exports.
It is whether the bloody parachute will deploy that it is main worry.
Imports fall even more.
stockology.blogspot.co...
Don't get me wrong: We have a very sick world economy. But there's a tendency to look at every number in the worst possible light, and that will lead to miscalculation. Things were not as good as they seemed a year ago to the Pollyannas, but they're not as bad as the Cassandras would have us believe.
The drop in imports from China can be related to overall slowing of the economy and so its somewhat equivocal, but the drop in prices paid for oil is just plain good for the US consumer, and the US economy overall.
Wishful thinking, don't you think?
Here are some more:
*Commercial real estate collapse
*Commodity collapse (food shortages and riots)
*Massive unemployment (due to the exponential properties of a consumer-based economy)
*Banking system failure (after Bernanke fails to obtain several $trillion more in bailouts to continue this quarter by quarter charade to cover the banking systems solvency issues)
*Failure of too big to fail auto industry (of course it's realistic that people will have enough money to buy $25-30,000 hybrid vehicles a few quarters from now)
*Failure of major box store chains that have overbuilt and overextended, based on shortsighted credit policies.
You see, it's really not the last domino. This is only a partial list. I can think of dozens more.
One fine day, American made products will be the benchmark of quality again and will convey the spirit of our people in its craftsmanship.
No way can American made exports made at American wage levels be competitive in A " global economy ". US wages must + will plummet + so the standard of living . just last week , THE IMF stated " that wages worldwide will meet parity " within the next decade ! Welcome to the NEW WORLD ORDER !
1) This notion of government having a preemptive claim on our income is unjust, un-Constitutional (as is the 16th Amendment...I use the word un-Constitutional to mean "does not comply with the intentions of the Founders nor the principles of freedom", not to mean "conforms with current legal status or opinions of corrupt judges").
2) The notion of property taxes is likewise unjust -- the Founders ABHORRED confiscatory taxes -- and the notion that one is never done paying for one's home is anathema to freedom.
3) Confiscatory taxation is a HUGE hurdle to both real freedom and to true economic growth (as opposed to false credit-based economic bubbles), because it imposes a tithe up front and allows government to decide where the first portion of our earnings is to go, rather than allowing the people to have the first choice of IF they want to spend, and if so, on WHAT they choose to spend -- which do you think knows better what our needs are? It is plain inefficient, besides being wrong in principle.
fairtax.org
When we get back to *consumptive* taxation and tariffs as the sole means of funding government at all levels, we will have regained control over our OWN money and over government!! If we don't like bailouts, we stop spending...and Congress' resources dry up!! Of course, this works in conjunction with a Balanced Budget Amendment.
Please read up, people...and then contact your Reps and Senators:
1) Demand that TARP be halted.
2) Demand abolishment of the IRS and confiscatory taxation, in favor of the Fair Tax. The most progressive tax possible is when YOU get to decide whether you are taxed!
On Jan 13 01:50 PM Larry House wrote:
> Thanks. Timely and insightful as always. Your last point about time
> going slowing waiting for a bottom is so, so true. Discipline in
> investing is mentioned but rarely practiced. One must be disciplined
> when in stocks and when out.
My father explained to me,many years ago,that any funds over 8% are a death knell for a business or a family...they are unsustainable.He believed that an emergency note at,say 12%,for 90days,was acceptable...but only in dire times...and only if you were sure the funds would be there to retire the note.
Now we have multinationals happy to pay 12% for long term money in the teeth of a vicious down-cycle....I bet my Dad is spinning in his grave..
Unfortunately people who look at the Constitution as being a complete document in the year 2008 are as delusional as the people in Government today that think things are working as they should.
In 1776 there were 2.5 million people in the United States. Oh yea, and it was 1776.
The Founding Fathers created a document for 1776 and if they were to see the current state of the Constitution and the lack of updates they would probably look around in disbelief and say "really, this is what you've come up with in 300+ years".
Accountability on all levels is needed.
Everyone who thinks there are some easy answers no matter what they may be are sorely mistaken, but let's work towards answers that fit into reality and what is going to occur. You can't just say no taxes, no government and not expect chaos.
Our government is out of control, very boldly giving the American people the middle finger. They obviously do not have our best interests in mind with their policies. Every time we open the newspaper (or our Web browser), we see yet another proposal from our government to make our lives "better". Yet we get more failed policies from people who are obviously too dumb to function... has there ever been legislation passed that actually decreased the size of our government? Is probably outnumbered 1,000:1 by bills that introduce more spending, bigger programs, more inefficiency.
I like the idea of the Fair Tax. It will never get passed, unfortunately, for a variety of reasons. One of the major reasons is the point that Socialist brought up: it will take the power of taxation out of the hands of Federal and state planners. God forbid that happen.
On the other hand, CJJ expresses an opinion that this notion is antiquated. While I can sympathize with his viewpoint, I would make one assertion. It seems CJJ that you are resigning yourself to the "status quo." Look, if the status quo is corrupt, big government, I'm willing to try something radical. The reason being is that we are only a few decades away from complete totalitarianism. We're going to get chaos and death anyway... we really have nothing to lose... let's upset the social order a little bit.
A few decades away ? Dream on . It is like a train coming straight on at us !
Upsetting the status quo is fine, however, I less confidence in people to get together to do something positive then I do in the government(who I think may have some good people but simple is a broken entity). In 1776 there were a bunch of people with 1 idea, 1 movement. Today there are thousands of factions, each with their own ideas and movements. To think everyone agrees on anything these days is just not the truth. I see chaos out of a revolution...Sorry, my vote has to go with status quo at this point in time.
Lin,
This isn't the first national disaster either here in the US or elsewhere(actually at this point it isn't even much of a disaster although as you say its only a matter of time)......When people come to realize we've never see anything exactly like this but we've seen this all before maybe some good will be done. Just letting the world fall into the dark ages over money and debt is silly and it won't happen. War would be the outcome long before any voluntary return to nothing.
Or we can hope for a Star Trek revilation that money really is the root of all evil and no matter how many great solutions or ideas they are, if they involve money they are just a road to the same outcome.
On Jan 13 04:09 PM curbs-in wrote:
> the last domino?
>
> Wishful thinking, don't you think?
>
> Here are some more:
>
> *Commercial real estate collapse
>
> *Commodity collapse (food shortages and riots)
>
> *Massive unemployment (due to the exponential properties of a consumer-based
> economy)
>
> *Banking system failure (after Bernanke fails to obtain several $trillion
> more in bailouts to continue this quarter by quarter charade to cover
> the banking systems solvency issues)
>
> *Failure of too big to fail auto industry (of course it's realistic
> that people will have enough money to buy $25-30,000 hybrid vehicles
> a few quarters from now)
>
> *Failure of major box store chains that have overbuilt and overextended,
> based on shortsighted credit policies.
>
> You see, it's really not the last domino. This is only a partial
> list. I can think of dozens more.
Here is another problem I have with this. The last time I looked it was a federal offense for the officers of a traded company to make false statements to investors or those who may invest in your company.
When these bank CEO's came out and told everyone how safe their banks were and then turned around a week later and took TARP money, to me that would qualify as a false statement. I guess if you have lunch with Bernanke and Paulson the law doesn't apply to you.
I can see the SEC and U.S. Attorney's Office out in the field investigating them now. What a joke!
"There is nothing that says this downward spiral has to end anytime soon or find a normal bottom. If there wasn't this colossal U.S. and world debt overhang with no conceivable rectification"
There is a "conceivable rectification", albeit a painful one: recognize the debts that are unlikely ever to be good, wipe out a lot of shareholders' equity, cram down the debtholders and let's get on with it.
We'll be somewhat poorer, but (notwithstanding our departing Caudillo Bush), we're not at war with anyone, we're a country with a lot of resources, we have many competencies and the most admired companies in the world. In short, we're plenty rich, just not quite as rich as we were living.
The hard part is getting over the pretense: the pretense that some crappy condo outside of Las Vegas was worth $750K, the pretense that you can fight a war and have a consumer driven expansion at the same time.
Clearly that doesn't work. But houses marked down to realistic prices (eg competitive with rentals) still sell quickly. . . "marking to market" may be painful, but it cures a lot of ills.
So there is a "conceivable rectification"-- it just means dealing honestly with some unpleasant realities, tightening our belts, and getting over the "pretend" part of our economy.
Just a thought for you... What you are saying is a matter of degree... As long as most people have jobs, money a future, etc. then things will continue to move along.
I want you to consider something, that burst my own bubble... Every few months I take some of our pet's beds to the local laudermat since they have those giant washers. Much to my surprise, when I went this past week, there was nobody there. I did the wash over a couple of days and there was nobody there. This is a large place and I've always had to wait for washers, but this time the place was empty. So, for the group of people who go to laudermats, they've been priced out of the market. Think about that for a minute... They can't afford to wash their cloths...
CJJ, we have not even seen the tip of the iceberg on this economic problem yet. My hope, in all of this, since many people forgot the past and got us into this huge mess, that we remember what happend to the German people in the 1930's. Change is important, especially now, but we need to make sure it will be positive change, getting us back to the foundations of our country's founding.
If you think it can't happen here. Big mistake. It can happen here and the odds are it will happen here. CJJ, here is something the CEO of Bill Ford stated the other day at the auto show:
He would ask for bailout money if: the world implodes as we know it...
CJJ. ...the world implodes as we know it.. he wouldn't say that if he hasn't thought of it and perhaps discussed it with his management team. I'm sure it's been discussed at the upper levels of all corporations.
This is no joke and it's not going to be one of these passing things that the feel good generation will experience for a quarter or two and go about their mass consuption ways. This is the stuff that brings down governments and socities. Make no mistake about that...
On Jan 13 08:52 PM curbs-in wrote:
> Hoover:
>
> Here is another problem I have with this. The last time I looked
> it was a federal offense for the officers of a traded company to
> make false statements to investors or those who may invest in your
> company.
>
> When these bank CEO's came out and told everyone how safe their banks
> were and then turned around a week later and took TARP money, to
> me that would qualify as a false statement. I guess if you have lunch
> with Bernanke and Paulson the law doesn't apply to you.
>
> I can see the SEC and U.S. Attorney's Office out in the field investigating
> them now. What a joke!
2009-1787 (the year the constitution was adopted) = 222 years. Please enlighten us with your ideal version of the constitution. I can't wait...
but usa exports are suffering less than the exports of other countries. why is debatable.
Protectionism was tried during the 1930s - the result was global trade quickly diminished by a massive 2/3! Let's learn from the mistakes of the past and do our best to keep global trade moving.
I think trade agreements are beneficial for the USA and you need to differentiate between good imports and bad imports.
1) With NAFTA, for every dollar the US spends in Canada (the USA's largest trading partner), Canada spends 85 cents back into the USA.
For every dollar the US spends in Mexico (the USA's 3rd largest trading partner), Mexico spends 65 cents back into the USA. The money the USA spends on Canadian and Mexican imports are "Good imports". These imports are mainly gas, oil, water, electricity, timber and various metal ores used to feed the creation and growth of United States GDP.
2) Contrast this with the arrangement (i.e. no trade agreement) with China. China spends 20 cents on US goods, for every dollar the US spends on Chinese goods. Chinese goods are "Bad Imports" which deteriorate the US GDP and saturate landfills with cheap discarded goods.
3) It gets even worse with trade with Middle Eastern countries. For every dollar the US spends on imported ME oil, less than one cent is spent back on US goods. Furthermore, a portion of that money is used to fund terrorism against the United States.
In the end, in your scenario, everyone starts over anyway. This is a global issue right now, globalization and debt is rampant throughout the globe. You can have a global society that decides it is going to be poor or you can have a global society that decides it is not going to be poor. Sprinkle in war in there and I think thats the future.
Snake Driver- Obvious math mistake there, 200 versus 300, not a big difference to the point I was making. I'm not going to lob over a Constitution I'd like to see, the point is the Constitution was created for a time and a place that is nothing like the US is today. It was created expecting to be changed and revised. And no, I don't call the changes that have been made to date what the Founding Fathers would have expected.
Soon we could see insufficient buyers for our 0% treasury bond auctions, just as Germany recently experienced (and they even pay interest!). When that occurs, the government will be buying its own bonds and basically funding itself by money creation, a sure sign that inflation is around the corner.
War? Maybe with sticks and stones. During Gulf War II we couldn't even afford to up-armor our troops vehicles. It seems we may be priced out of modern warfare...
On Jan 14 10:28 AM CJJ wrote:
> Curb-ins - I am not doubting the world economy could fall off a cliff(are
> we not seeing this sort of thing now)...My point is "preparing" for
> such an event is impossible. Think about the technical idea of Disaster
> Recovery. Basically in true Disaster Recovery you build a replica
> of your environment so in the "remote" chance your production environment
> is destroyed you can move to your Disaster Recovery site and continue
> away. Great idea, but in terms of the economy, where does the money
> to pay for 2 times infrastructure come from when the only way it
> would ever pay off is in the off chance a disaster occurs. Thats
> a hard sell. Also, what if the disaster is so big it destroys both
> your Primary site and Disaster site. Point being, preparing for disasters
> is never worth the upfront price when you only gain if the disaster
> occurs and you were properly prepared, but more often than not the
> disaster overwhelms the prevention plans(think Katrina)...so in the
> end not only do you have the Disaster, but you've also wasted money
> on the disaster prevention.
>
> In the end, in your scenario, everyone starts over anyway. This is
> a global issue right now, globalization and debt is rampant throughout
> the globe. You can have a global society that decides it is going
> to be poor or you can have a global society that decides it is not
> going to be poor. Sprinkle in war in there and I think thats the
> future.
>
> Snake Driver- Obvious math mistake there, 200 versus 300, not a big
> difference to the point I was making. I'm not going to lob over a
> Constitution I'd like to see, the point is the Constitution was created
> for a time and a place that is nothing like the US is today. It was
> created expecting to be changed and revised. And no, I don't call
> the changes that have been made to date what the Founding Fathers
> would have expected.
"Protectionism was tried during the 1930s - the result was global trade quickly diminished by a massive 2/3!
"
Yes, but in the 1930's the USA was a huge exporter to the world. It was China times 2 or 3. So, of course it was hammered back then. Now however, the USA is net importer, so it would do alot better and it would be the big exporters like China, Germany, and Japan, that would collapse as the living standards of the American worker would shoot through the roof, in my opinion.
Of course, the capitalist elites would lose access to the massive excess labor in the world and would no longer be able to perform their maximum labor exploitation for maximum profit. Just a thought but protectionism does sounds pretty good to me.