State’s exports slip amid growing worldwide turmoil
The Organization for Economic Cooperation and Development, a Paris-based think tank, presented its latest economic projections for the global economy early last month, which formed the analysis and outlook for the G20 Leaders’ Summit Nov. 15-16 in Brisbane, Australia.
Presenting the global outlook, OECD Secretary-General Angel Gurría pointed out that “global growth is projected to strengthen but will remain modest by past standards.” With respect to international trade, “global trade growth remains sluggish,” Gurría added. He then called for “ambitious structural reforms to boost investment, trade and job creation.”
The latest quarterly indicators on economic growth from around the globe confirm the world economy again has lost its momentum. In the third quarter of this year in the Euro Area, the 18-member club of the European Union that uses the euro as its currency, economic growth edged up by a 0.8 percent annual rate. This was marked by a decline in output in Italy and an anemic growth rate of 0.4 percent in Germany.
Japan slipped into recession in the third quarter as its output shrank by an annual rate of 1.6 percent after plunging 7.3 percent in the second quarter. Although China and India are still considered the main engines to worldwide growth, the speed of their expansion has decelerated amid a weakening in both foreign and domestic demand.
A slowdown in economic growth results in joblessness and stagnant incomes, so demand for goods — both domestic and foreign — fades. Consequently, exports weaken and export-related jobs wane. In September, U.S. exports of goods fell 1.9 percent from August, the second monthly decline in a row, led by drops in foreign sales of industrial supplies and materials, consumer goods, capital goods, and automotive vehicles, parts and engines.
At the state level, the latest export numbers show that shipments abroad from Michigan's exporting companies rose to $4.29 billion in September, which was $28.2 million or 0.7 percent more than in August. Like national exports, the state’s export numbers are adjusted for seasonal variation, a statistical process that smoothes monthly performance for factors such as the number of days in a month and holidays.
How are Michigan's exporters doing compared with the same time last year? In September 2014, state companies sold abroad $427.1 million, or 9 percent fewer goods than in September 2013.
September’s state exports were driven by sales abroad of manufactured goods, which accounted for 82 percent of all state exports. Foreign shipments from Michigan's manufacturers decreased in September by 3.9 percent from the previous month to $3.51 billion, adjusted for seasonal variation.
On an annual basis, shipments abroad from state factories were $442.2 million, or 9 percent lower than in September of last year.
Exports of non-manufactured goods went up 28.4 percent in September to $780.8 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.
Worldwide, in the first nine months of 2014, seasonally adjusted merchandise exports increased a mere 2.6 percent, according to data compiled by the World Trade Organization based on 70 monthly reporting countries, which account for over 90 percent of world trade.
For the United States, so far this year exports of goods, seasonally adjusted, rose by 3 percent in comparison to the first nine months of last year.
How do Michigan's companies measure up in export growth to other states, the national average and the worldwide average so far this year? Michigan ranked 36th in export growth among states during the first nine months of 2014. Compared with the same period in 2013, foreign sales from Michigan's companies, seasonally adjusted, decreased by an annual rate of 2.7 percent.
What are the near-term prospects for Michigan exports? According to the latest business survey, conducted by the Institute of Supply Management, the nation’s supply executives are cautiously optimistic about the prospects of growing export markets at the end of 2014 and early 2015. The Tempe, Ariz.-based research institute reported that its export orders index rose in October.
However, the latest reading also indicates export orders in October went up at a slower pace than in September. This is not good news for Michigan's exporting companies as slow incoming export orders imply a weakening production and no additional jobs in the future.
From the pool of respondents of the largest U.S. corporations that sell their products overseas, 14 percent reported greater export orders, 75 percent reported no change in export orders from October's levels, and 11 percent reported smaller export orders.
Evangelos Simos is chief economic adviser of the consulting and research firm e-forecasting.com. He can be reached at email@example.com.