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EXPORTS GO Pffft
One of the few heartening aspects of the U.S. economy in recent years has been the nation's surging growth in exports. As spending by consumers and investment by business dwindled, double-digit jumps in exports during the late 1980s gave American business a rush so real it seemed almost addictive.
No question, a persistently weak dollar has helped American-made products sell in Europe and Japan. And falling import barriers opened Latin America to a deluge of U.S. goods. But whatever the reasons, when the U.S. economy sank into its recessionary double dip last year, a 6.4% expansion in exports cushioned the fall. It even set economists to jabbering about an export-led recovery.
COLD TURKEY. But now, America is going through what could be a nasty case of withdrawal. As economic growth rates in Japan and Europe head into the tank, the American export boom is winding down. The latest evidence: On July 17, the Commerce Dept. announced that the merchandise trade deficit in May widened 4.5%, to $7.38 billion. Despite a dollar so weak that central bankers of many nations on July 20 were forced to rush to its rescue, exports declined 2.5% in May, to $35.5 billion. That's a 5.8% fall from February, when 1992 merchandise exports peaked at $37.7 billion. Exports of goods and services are expected to grow only 5% this year.
The upshot? At a time when Americans are watching pennies ever so closely and businesses are loath to make new investments, economists and executives are worried that anemic exports may slam the brakes on an already sluggish recovery. Asks Lester C. Thurow, dean of Massachusetts Institute of Technology's Sloan School of Management: "Where will the jump start come from?"
That's what corporate executives in industries ranging from heavy equipment to chicken farms are wondering. Caterpillar Inc., to take one example, is having trouble hawking its heavy construction equipment overseas. Poultry giant Tyson Foods Inc. also has lost foreign sales. Computer companies including IBM and Digital Equipment Corp. have seen once-soaring overseas sales stagnate. Says Jeff A. Werner, senior vice-president at Dallas-based Chaparral Steel Co., whose overseas sales have fallen to 3% of total revenues from a peak of 10%: "The turndown has been steep."
No industry has been hit harder than aircraft, once America's big bully boy on the export front. Civilian aircraft shipments account for 60% of the export decline since February. Now, Seattle-based aircraft manufacturer Boeing Co. is taking a few blows, getting pummeled by European rival Airbus Industrie. Gone are the days when Boeing could prop up U.S. export figures by shipping its widebody planes around the world. Beyond competition from Airbus, Howard A. Rubel, an aircraft industry analyst with C. J. Lawrence Inc., notes that a key reason for the recent softness in Boeing's exports is simply that aircraft demand has peaked. Rubel says Boeing will ship about 50 of its 747 widebody jets this year, compared with 59 in 1991. Boeing suggests that May's sharp drop was an aberration. "There's plenty of room to grow," says a spokesman.
Probably the single biggest culprit for the easing in exports is slower economic growth abroad. Japan's economy is expected to expand only 2.5% this year, in the estimate of Long-Term Credit Bank of Japan economist Masahide Tsuru. That's down from 4% last year and 5.7% in 1990. As a result, U.S. exports to Japan declined 4% during the first five months of the year. Especially hard hit are wood, aluminum, and semiconductors. In Europe, it's the same story, says 3M corporate economist John McDevitt. The slowing of U.S. exports to the Continent, he notes, is directly related to the sluggish economic growth there of around 1.5%.
Germany's tight monetary policy isn't helping matters, either. On July 16, the Bundesbank, citing inflationary pressures, hiked its discount rate to 8.75% from 8% (page 34). More expensive borrowing should further dampen Germany's appetite for U.S. manufactured goods, especially such big-ticket items as construction equipment. Annette Fuhr, an economist at the German Industry & Trade Chamber in Bonn, estimates that American exports to Germany will grow 5% this year, a sharp drop from last year's 16% rise.
At the same time, Japanese companies are trying to export their way out of a recession, stiffening competition for U.S. exporters in Asian markets. Japan's worldwide trade surplus hit a record high of $49 billion during the first half of this year, up more than 50% from last year. Tenneco Automotive President John P. Reilly, says Japanese rivals have begun challenging the auto parts supplier in Southeast Asia, where it controls as much as 50% of the market for shock absorbers. To make inroads, he says, the Japanese have slashed prices 15% and cut margins in half to 10%. Tenneco has responded by chopping its prices. Vows Reilly: "We're not going to give up any market share."
But other companies haven't been able to use price cuts to hang on to their piece of the international market. At Caterpillar Inc., for example, second-quarter foreign sales, more than half of them exported from the U.S., fell 13%, to $1.35 billion. Industrywide sales of the company's construction equipment are off more than 30% in Japan and 10% in Europe, reckons Smith Barney, Harris Upham & Co. industry analyst Tobias Levkovich. Donald V. Fites, Caterpillar's chairman, puts it plainly: "We have a demand problem."
And it's not just the big, old-line manufacturers who are hurting. Novellus Systems Inc., the San Jose (Calif.) manufacturer of computer chipmaking gear, saw first-half profits fall 49%, to $4.2 million, on a sales decline of 7%, to $36.1 million. Sales to Japanese companies, which last year made up 35% of revenues, are off by 40% this year. And although the company is boosting marketing efforts in Japan, it doesn't expect a rebound soon. Says Chief Financial Officer Gary Harmon: "They're going to have to ride out their own recession" before Novellus sees new business.
LATIN CUSHION. There's precious little the U.S. government can do. The dollar already has plummeted against the yen and the German mark (chart). Further depreciation, amid weak demand overseas, is unlikely to help. "American suppliers are cost-competitive at this level," says Tenneco's Reilly.
Federal Reserve Chairman Alan Greenspan was peppered with questions on the sluggish economy and the falling dollar when testifying on July 21 before a Senate panel (page 22). But Greenspan remained resolute: "I certainly see no benefit to the U.S. economy from depreciating the dollar at this time."
Optimists see some bright spots. Forecasters think European and Japanese growth rates will pick up by next year. "The good news is that U.S. goods are incredibly cheap overseas," says economic forecaster Laurence H. Meyer. When foreign markets eventually pick up, he argues, U.S. exporters will be well placed. That's true at Caterpillar, which faces no strong European rival for its biggest construction gear and recently boosted its dealer network there.
Meantime, U.S. companies are counting on developing countries to cushion sinking demand elsewhere. Mexico, for example, is expected to grow 3% this year, making it an appealing market for U.S. exporters. Truckmaker Freightliner Corp. says its sales to Mexico will jump 25% in 1992 to $100 million, up from zero three years ago. But the promise of more exports in Latin America tomorrow is doing too little for the American economy today.Kevin Kelly in Chicago, with Michael J. Mandel in New York, and bureau reports