Exports Spur U.S. Economy’s Recovery

[M.D. Holloway]

Exports Spur U.S. Economy’s Recovery
By Jeannine Aversa, AP Economics Writer
Manufacturing.Net - August 28, 2008


WASHINGTON (AP) -- The economy shifted to a higher gear in the spring, growing at its fastest pace in nearly a year as foreign buyers snapped up U.S. exports and tax rebates spurred shoppers at home.

The Commerce Department reported Thursday that gross domestic product, or GDP, increased at a 3.3 percent annual rate in the April-June quarter. The revised reading was much better than the government's initial estimate of a 1.9 percent pace and exceeded economists' expectations for a 2.7 percent growth rate.

The rebound comes after two dismal quarters. The economy actually shrank in the final three months of 2007 and limped into the first quarter at a feeble 0.9 percent pace. The 3.3 percent growth in the spring was the best performance since the third quarter of last year, when the economy was chugging along at a brisk 4.8 percent pace.

Still, the growth pickup is not likely to be seen as a lasting sign that the fragile economy is back on solid ground.

Federal Reserve Chairman Ben Bernanke recently warned the economy will be weak through the rest of this year. A growing number of analysts fear that the country will hit another economic pothole in the fourth quarter, as the bracing impact of the tax rebates disappears. And there are concerns exports could tail off as other countries' economies slow down.

GDP measures the value of all goods and services produced within the U.S. and is the best barometer of the country's economic health.

The economy is the top concern for Americans. Democratic presidential contender Barack Obama favors a second government stimulus package, while Republican rival John McCain supports free trade and other business measures to energize the economy.

Housing, credit and financial troubles have pounded the economy.

In turn, employers have clamped down on hiring, driving the nation's unemployment rate up to 5.7 percent in July, a four-year high. The Labor Department said Thursday that the number of people signing up for jobless benefits declined last week for the third straight period, but claims remained above 400,000, an indicator of a slowing economy.

Employers have cut jobs every month this year and wage growth is trailing inflation. That combination raises concerns about the future of consumer spending, one of the pillars underpinning the economy.

The biggest factor in the second-quarter's rebound was robust sales of U.S. exports to other countries. The weaker value of the U.S. dollar has bolstered those sales. Exports grew at a 13.2 percent pace in the spring. That was much stronger than the government's initial estimate of a 9.2 percent growth rate, and more than double the 5.1 percent growth rate logged in the first quarter.

Imports, meanwhile, fell at a 7.6 percent annualized pace in the spring, as economic troubles in the U.S. crimped demand for foreign-made goods.

The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980.

U.S. consumers boosted their spending at a 1.7 percent pace in the second quarter. That was slightly better than the 1.5 percent growth rate initially report and marked the best showing in nearly a year. Government stimulus checks of up to $600 a person helped energize shoppers who had hunkered down amid the economy's problems.

One of the country's biggest problems -- the housing collapse -- was evident in the GDP report.

Builders cut back at an annual rate of 15.7 percent in the second quarter-- although that was a better showing than early this year and late last year.

Businesses trimmed spending on equipment and software in the spring. And, they reduced investment in inventories, but not as much as initially estimated by the government. That was another factor contributing to the improved GDP reading.

One measure of corporate profits showed companies losing ground in the second quarter. After-tax profits fell 3.8 percent in the spring, compared with a 1.1 percent increase in the first quarter.

An inflation gauge tied to the GDP report showed all prices rising at a rate of 4.2 percent in the second quarter, the same as initially estimated.

Taking out energy and food, prices rose 2.1 percent. That also was unchanged from the government's previous estimate but remained outside the Federal Reserve's comfort zone.

With the economy still coping with fallout from housing and credit problems, the Fed is expected to hold interest rates steady at its next meeting on Sept. 16, and probably through the rest of this year.

[The Gaijin]

There is no good news in the US economy and none will be reported until and unless Obama is elected.

Last quarter growth of 3.1% is to be ignored.

[DanielDudley]

Everything is fine. Just ask Fannie and Freddie.

[SLO-BOB]

Until our govt levels the playing field on trade, we are gonna be a hurtin. I'm happy to see an increase, but there is a long, long way to go. Ironically, we should look to China as a "how to". They will not allow imports unless there is a factory producing goods by that company in China.

[imcarthur]

Originally Posted by SLO-BOB

They will not allow imports unless there is a factory producing goods by that company in China.

Actually they do - with astounding duties. Real Western goods are often double the price that we would pay & they are highly coveted.

Ian

In Beijing:

[SLO-BOB]

In the case of the medical equipment manufacturer I do work for, the factory had to be relocated from France to China. There may be exceptions, but either way, there is a huge imbalance. as a result, our economy is a house of cards. The problems associated with sending domestic jobs overseas are now coming to fruition.

[M.D. Holloway]

hmmm

[widgeon13]

This freight train has been cooking for a long time. Labor costs and raw material costs have been going up in North America for a long time and unfortunately industry has known this but has not been able to counter this other than through some increased efficiency and cost reduction by packaging older employees. Even the service sector is now being sent offshore.

Can someone give me their insight on how it's expected that we can bring manufacturing back to the US given issues of labor, raw material cost, health care and energy.

I'd love to see it happen but to me it's just a pipe dream.

[SLO-BOB]

Originally Posted by widgeon13

Can someone give me their insight on how it's expected that we can bring manufacturing back to the US given issues of labor, raw material cost, health care and energy.

I'd love to see it happen but to me it's just a pipe dream.

There are many "foreign" car manufacturers here now. They aren't doing it out of the kindness of their hearts. Also, as transportation costs rise, it will be less cost effective to make plastic dog***** abroad and ship it here. I doubt we can ever see a total reversal, nor do I even think it would be in our best interests, but I believe we can find a balance. There will be a price to pay. Retail items are dirt cheap right now. We might have to get used to paying $100 for a Milwaukee battery drill vs a $50 Ryobi or $50 for a lawnchair instead of $4.99 at Walmart. Also, I'm pretty sure that if we took the same stance as China, they would find a way to make many goods here and still keep it profitable.

[widgeon13]

Your point on the auto industry is valid, German and Japanese manufactures are dealing with the same issues we were dealing with 5 -10 years ago but the big issue for them is also Korean manufactures that are stealing market share. The other things is that these new plants are much more efficient than the traditional US producers and most likely the German and Japanese producers in the US are not dealing with labor unions.

I spent 30+ years in the paper industry and the major US producers are almost nonexistent these days as they have either been bought by European producers or have had to curtail operations because of high energy, material and labor cost. It's (paper industry) is also sensitive to environmental issues. Paper is coming from offshore, South America, China, Japan and Scandanavia where new equipment has been installed in the last 10 years. Very few, if any new paper machines have been built in NA in the same timeframe because of the cost to install, labor/benefit cost and very difficult environmental restrictions.

Just trying to make some points. Hope I'm incorrect in my assumptions and manufacturing returns to NA. With labor unions, environmental issues, material cost and healthcare as they are today, we will need to make major changes to rejuvenate American manufacturing.

[SLO-BOB]

EPA issues will certainly factor. Countries such as China do not currently have the restrictions we do giving them a huge advantage. Factor cheap labor and their overhead is a fraction of that in an American company. Transportation costs will factor, but in industries like that, I don't think they will offset the difference by a longshot. Selfishly, I'm not opposed to having goods that have a greater environmental impact produced elsewhere.

It will take some serious cajones on the part of our Govt to straighten this one out though. It would have to start with such simple things as not allowing foreign concerns to bid on domestic jobs such as providing planes to the Armed Forces. It would also take significant tax breaks to spur domestic growth in industries that have gone 3rd world.