Exports, though down keep Michigans economy afloat
In the last two years, strong foreign demand for American goods — driven by a weak dollar and robust growth in the emerging economies of Asia and Latin America — has significantly contributed to Michigan’s economic development and job growth. State exports have acted as a cushion to anemic and fragile domestic demand for goods made by local companies.
In the latest quarterly report of the nation’s GDP, a measure of the nation’s output of goods and services produced in the first quarter of 2011, the contribution of exports of goods accounted for one half of the growth in the U.S. economy, which grew at an annual rate of 1.9 percent from the last quarter of 2010.
Simply put, if national export growth had been nil instead of 10.2 percent, the national economy would haveregistered a growth rate of just 1 percent in the first quarter of 2011 with adverse effects on incomes and jobs.
In its June update of the 2011 World Economic Outlook, the International Monetary Fund assessed for the first half of the year a slowdown in global economic activity with an increase in “downside risks.” According to the report, “the world economy expanded at an annualized rate of over 4.3 percent during the first quarter. In addition, the mild slowdown observed in the second quarter of 2011 is not reassuring.”
According to recently released international trade statistics, exports of goods for the country as a whole fell by 1.1 percent in May to $125.1 billion, adjusted for seasonal variation. Despite the May decline, national exports registered their second highest monthly mark on record. So far this year, U.S. exports of goods grew by an impressive annual rate of 19 percent from the same period a year ago.
How does Michigan match up to the 50 states in export growth in 2011? In the first five months of the year, foreign sales from Michigan's companies — seasonally adjusted — increased by an annual rate of 12.7 percent compared with the first five months in 2010.
As a result, Michigan ranked 38th among states in export growth so far this year.
Looking at the latest state snapshot of international trade numbers, Michigan's foreign sales fell in May by 0.9 percent, after a decrease of 8.1 percent in April. Michigan's exporters sold $4.207 billion in goods overseas in May, adjusted for seasonal variation — a statistical technique that, like with national numbers, smoothes out monthly fluctuations for factors such as the number of working days in a month and thus portrays a clear picture of monthly trends.
Compared with a year ago, Michigan's exporting companies surpassed their export performance by $405.7 million, or 10.7 percent.
Michigan's foreign sales reflected the mix of trends in foreigners’ demand for goods made by different industries in May. Overseas shipments from Michigan's manufacturers, which accounted for 88 percent of all exports, increased to $3.701 billion, seasonally adjusted, which was 0.2 percent more than April’s level of factory shipments abroad.
Exports of non-manufactured goods went down 8.8 percent to $505.3 million in May, adjusted for seasonal variation. This group of foreign sales 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.
What is the outlook for growth in the world economy, which drives demand for goods made in Michigan?
IMF’s latest outlook predicts economic growth in the industrial countries to register 2.5 percent during 2011-12, a modest deceleration from an average of about 3 percent in 2010. In 2011, growth in industrial countries is expected to slow down to an annual rate of 2.4 percent.
IMF forecasts economic growth for emerging and developing countries — the group includes China, India and Brazil — to hit 6.5 percent during 2011-12, compared with 7.5 percent in 2010.
Important for Michigan's exporting companies is IMF’s outlook on international trade. The Washington, D.C., based international organization forecasts the volume of global trade to grow 8.2 percent in 2011 and then slow down to 6.2 percent in 2012, compared with an increase of 12.4 percent in 2010.
IMF’s outlook predicts worldwide imports of the industrial countries to grow by 6 percent in 2011 and to further decelerate to 5.1 percent in 2012, after jumping 11.6 percent in 2010. Foreign sales opportunities for state exporters will be high in the emerging and developing countries. IMF predicts their imports will grow by 11.2 percent in 2011 and 8.3 percent in 2012.
Consequently, driven by emerging and developing countries’ robust demand, Michigan's exports will continue to be a key contributor to local production and the creation of local jobs. Exports are expected to continue to keep the state economy afloat given the risk of the U.S sinking to a new recession due to weak domestic demand.
Evangelos Simos is chief economist of consulting and research firm e-forecasting.com. He may be reached at email@example.com