International trade forecast is less favorable
Signals from economic and business indicators from around the world point to a slowdown in the pace of recovery in the emerging economies of Asia and Latin America and a stalling of growth in Europe.
The weakening of economic growth abroad curbs the appetite of foreign consumers for American goods and begins to drag on incoming foreign orders of Michigan's exporting companies.
Business executives and experts from 117 countries see the prospects for international trade for the rest of 2011 and early in 2012 to be less favorable than in the first half of this year. Lower trade prospects will ultimately determine the demand for Michigan's foreign sales with a strong impact on local jobs and overall economic development.
According to the latest findings of the World Economic Survey, conducted in the third quarter of 2011 by the Ifo Institute of Economic Research at the University of Munich and the Paris-based International Chamber of Commerce, the global economic climate has "clouded over" in the summer.
Reporting the results of the survey, Hans-Werner Sinn, president of the Ifo Institute, pointed out that “the global economic upswing is faltering, after having improved in the first two quarters." In the third quarter of this year, the overall World Economic Climate indicator of the Ifo Institute — which synthesizes all participants’ views — “lost all the gains of the first two quarters,” said Sinn.
About 1,100 executives from around the globe participating in the international survey appraised the current worldwide economic conditions to be nearly stagnant and slightly better than a year ago. Looking forward at the next six months, the executives expect the global economy to experience moderate growth significantly slower than in the first half of the year.
The findings of the World Economic Survey about international trade are important to Michigan's exporting companies. The business experts from around the world anticipate the global volume of imports to continue increasing in the last quarter of 2011 and in the first quarter of 2012, but at a slower speed from the previous two quarterly surveys of this year.
Strong import trends, which will become export trends for the selling countries, are expected from Latin America (especially Argentina, Brazil, Colombia and Guatemala), Asia (mainly India, Japan, Korea and Philippines), Saudi Arabia and Russia.
According to the latest snapshot of domestic international trade numbers, foreign sales of made-in-Michigan goods dipped $17 million or 0.4 percent in June, following a decrease of 0.9 percent in May.
The latest dip brought monthly exports to the $4.19 billion mark, adjusted for seasonal variation — a statistical technique that mitigates monthly fluctuations for factors such as the number of working days in a month and thus gives a clearer picture of monthly trends similar to the national trade numbers.
In comparison with last year, June’s numbers of state exports show that Michigan's companies posted gains in selling their goods overseas. This June, exporting companies shipped overseas $584.6 million, or 16.2 percent, more goods than in June 2010.
The June figures of Michigan's sales abroad reflect a blend of foreigners’ likings for goods made by the state’s major exporting industries. International shipments of manufactured goods — an important contributor to the state’s economic development and a vital creator of jobs — accounted for 83 percent of all exports in June.
Exports from Michigan's manufacturers decreased in June by 5.8 percent from the previous month to $3.48 billion, adjusted for seasonal variation.
Compared with June of last year, the latest reading of shipments abroad from state factories was $295.3 million higher. This is important news for economic development and jobs in the Wolverine State. It is estimated that one in every four local factory jobs is tied to exports because of the industrial mix of state exports of manufactures.
Exports of non-manufactured goods went up 38.9 percent in June to $701.9 million, seasonally adjusted, from May. This group of shipments abroad consists of agricultural goods, mining products, and re-exports, which are foreign goods that entered Michigan as imports and are exported in substantially the same condition as when imported.
At the national level, exports of goods fell 3.2 percent in June to $121.2 billion, adjusted for seasonal variation, from May reflecting declines in sales of capital goods; foods, feeds and beverages; and industrial supplies and materials. In the first six months of 2011, U.S. exports of goods increased by 18.4 percent from the first six months of 2010.
How did Michigan's companies fare in export growth through the first half of this year, which in turn impacts jobs and economic development in the state? Michigan ranked 36th in export growth among the 50 states during the first six months of 2011. Particularly, in comparison with the first six months of 2010, foreign sales from Michigan's companies, seasonally adjusted, increased by an annual rate of 13.3 percent.
Leading economic indicators point to a weakening outlook for exports. According to e-forecasting.com worldwide leading indicators, a monitoring system of future economic activity in 47 countries, the probability of a new global recession has recently increased.
The 47-country composite leading indicator declined 0.4 percent in June, for the fourth month in a row. “According to the rules of recession signals, if declines in the global leading index continue for two more months, the global economy may enter a double-dip,” said Suwen Duan, economist at e-forecasting.com.
Last June, leading indicators declined in several major trading partners like France, Germany, Italy, the United Kingdom, Switzerland, Canada, Brazil, India, Japan, Korea, Hong Kong and Russia.
“The evidence from individual countries’ leading indicators implies that international trade flows will moderate in the coming months,” Duan added.
Evangelos Simos is chief economist of consulting and research firm e-forecasting.com. He may be reached at firstname.lastname@example.org