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Michigan exports hit record but world economy bleak
Following a remarkably strong recovery in 2010, the growth of global trade has slowed down according to the latest available monthly statistics on trade flows from around the globe.
Recovery in major industrial countries has been hit by strong headwinds, such as the persisting adverse effects of the earthquake and tsunami in Japan and the prolonged budget deficits and credit downgrade in the United States. The ongoing Euro Area sovereign debt crisis has now hit large economies such as Spain and Italy after the initial calamities in Greece, Portugal and Ireland.
Disappointing economic growth and employment data for the first two quarters of this year around the world have damaged business and consumer confidence and contributed to a new turmoil in international financial centers.
The growth in the volume of worldwide merchandise exports, measured by the World Trade Organization as the dollar value of exports adjusted for price changes to focus on the quantity of goods traded, reached an impressive peak of 14.1 percent in 2010, after a negative growth rate of -12.1 percent in 2009.
On Sept. 23, the WTO announced it has scaled back its 2011 forecast made early this year of 6.5 percent growth in the volume of worldwide merchandise exports. As the volume of “trade has grown more slowly than expected in recent months and the outlook for the global economy is increasingly uncertain,” WTO now forecasts worldwide merchandise exports “to increase by 5.8 percent in volume terms in 2011.”
Following a year of strong sales abroad, Michigan's exporters now see the first signs of weakening in their orders from overseas as downside risks in foreign markets intensified in the last few months.
A global economic slowdown — which may reach recession levels in some countries — implies that foreign buyers would have lower income to spend for goods in general and goods made in Michigan in particular. This is the so-called “income-effect” that drives foreign demand for state exports and ultimately incomes and jobs in the local markets.
In the latest trade numbers, $4.67 billion worth of goods left Michigan for international markets in July, which was 11.5 percent more than in June. State exports are adjusted for seasonal variation — a statistical process that smoothes out monthly fluctuations for factors such as the number of days in a month and holidays, thus truly providing a clear picture of state performance similar to the national numbers.
On an annual basis, Michigan's exporters posted gains in selling their goods abroad. In July, foreign outbound shipments from state companies surpassed the mark set in July 2010 by $965 million, or 26 percent.
Exports of manufactured goods dominated the state’s international trade, accounting for 84 percent of all exports. In July, shipments abroad from Michigan's factories increased 12.4 percent to a seasonally adjusted volume of $3.92 billion from June and were 18.6 percent higher than in July 2010.
Exports of non-manufactured goods went up 6.9 percent in July to $750.5 million, adjusted for seasonal variation. This group of shipments abroad consists of agricultural goods, mining products and re-exports, which are foreign goods that entered the state as imports and are exported in substantially the same condition as when imported.
For the country as a whole, exports of goods, seasonally adjusted, rose 4.7 percent from June to July to $126.9 billion. Through the first seven months of 2011, national exports of goods declined by an annual rate of 18.2 percent in comparison with the first seven months of 2010.
How did Michigan's companies fare in export growth during the first seven months of 2011, which in turn impacts jobs and overall state economic development? In comparison with the same period of 2010, overseas sales from Michigan's companies — seasonally adjusted — increased by an annual rate of 15.1 percent. As a result, Michigan ranked 30th among the 50 states through the first seven months of 2011 in export growth.
Looking forward, leading economic indicators from around the world point to a weakening outlook for state exports. According to e-forecasting.com's worldwide leading indicators, a monitoring system of future economic activity in 47 countries, the risk of a new worldwide recession has increased.
The 47-country composite leading indicator declined 0.5 percent in July for the fifth month in a row. Other long-term recession signals from the leading indicators now confirm that the risk of a worldwide recession has been substantially elevated.
In July, the combined leading indicator for the 17-country Euro Area declined for the 10th consecutive month. Most important, the combined leading indicator for the emerging economies group of BRIC (Brazil, Russia, India and China) — which is considered the engine of last year’s global recovery — declined for the fourth month in a row.
The anticipation of weakening in worldwide economic activity translates to a slowdown in the demand for goods made in Michigan. In the next six months, orders from abroad are expected to subside, which would lower production and dampen export-related jobs in the local economy.
Evangelos Simos is chief economist of consulting and research firm e-forecasting.com. He can be reached at firstname.lastname@example.org