Better world economy may hurt Michigan exporters

January 3, 2012
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The last snapshot of international trade for 2011 shows that sales abroad from Michigan's companies dropped 8 percent in October from the previous month, following a decrease of 0.8 percent in September.

In October, $3.9 billion worth of goods were shipped from Michigan to foreign markets, which is $340.3 million less than the value of exports recorded in September.

Michigan's numbers on exports are adjusted for seasonal variation — a statistical process that smoothes out monthly statistics for factors such as the number of days in a month and holidays — thus making them comparable to the national numbers.

Manufactured goods led state exports, accounting for 82 percent of all foreign sales. Shipments abroad from Michigan's manufacturers decreased in October by 12.1 percent from the previous month to $3.2 billion, adjusted for seasonal variation.

On an annual basis, exports from state factories were $10.7 million, or 6.1 percent, higher than in October of last year.

Exports of non-manufactured goods went up 16.2 percent in October to $710 million, adjusted for seasonal variation. This group of shipments abroad consists of agricultural goods, mining products and re-exports, which are foreign goods that have entered the state as imports and are exported in substantially the same condition as when imported.

In the first 10 months of this year, national exports of goods have increased at an annual growth rate of 17.6 percent from the same period in 2010, compared with an increase of 21.1 percent in 2010.

Have foreign sales been spread evenly across the nation’s exporting companies so far this year? During the January-October period, exports of goods from Michigan, seasonally adjusted, increased by an annual rate of 14.5 percent from the same period of 2010. Consequently, Michigan ranked 31st in export growth among the 50 states during the first 10 months of this year.

Worldwide economic growth is an important driver of demand for goods made in Michigan. When economic growth decelerates, consumers’ incomes abroad weaken and, consequently, exporting companies not only see smaller orders from existing foreign clients but also it becomes difficult for them to reach out to new buyers as the standard of living declines around the globe.

What are the prospects for global economic growth in 2012, which will ultimately shape the demand for Michigan's exports, the state’s overall economic development and the generation of export-related jobs?

In its end-of-the-year global economic outlook, the Organization for Economic Cooperation and Development — the Paris-based economic think tank of the 34 richest countries in the world — wrote that the global economy has “deteriorated significantly,” and the Euro Area — the 17 European countries using the euro as their common currency — is in a “mild recession.”

Reporting OECD's global economic and trade projections Nov. 28 in Paris, Pier Carlo Padoan, deputy secretary-general and chief economist, pointed out that “international trade growth has weakened significantly. Contrary to what was expected earlier this year, the global economy is not out of the woods.”

Looking forward, OECD forecasts economic activity for its members to decelerate in 2012 to 1.6 percent from 1.9 percent in 2011.

In terms of Michigan's major trading partners, OECD predicts Canadian economic conditions to slow down in 2012. Following an increase of 3.2 percent in 2010, Canada’s total income, adjusted for inflation, is estimated to have grown by 2.2 percent in 2011, and OECD forecasts growth in Canadian income to further slow down to 1.9 percent in 2012.

In the Euro Area, economic conditions are forecast to become substantially worse in 2012. OECD forecasts EA incomes, adjusted for inflation, to be nearly flat in 2012 — growing at 0.2 percent — after solid gains of 1.6 percent in 2011.

The emerging countries in Asia, led by China and India, are expected to be the forerunner of growth in global incomes and thus global demand. Particularly for 2012, OECD predicts Chinese and Indian economies to expand by 8.5 percent and 7.2 percent, respectively.

Most important, OECD predicts world trade to moderately grow by 4.8 percent in 2012, following an increase of 6.7 percent in 2011. The volume of world trade is forecast to expand at a faster pace in 2013 advancing at an annual rate of 7.1 percent.

The projections on global growth and international trade suggest a slowdown in incoming export orders for Michigan companies. The weakening of foreign demand will lessen production activity at the state level and, as a result, there will be no gains in export-related jobs next year.

Evangelos Simos is chief economist of the consulting and research firm e-forecasting.com. He may be reached at eosimos@e-forecasting.com

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