For some time there's been a puzzling divergence between the government's economic statistics and industry reports. Government statistics have shown a small but significant rise in domestic business spending on information-technology equipment and software since the fourth quarter of 2001. Yet most tech companies keep reporting weak and falling revenues. The latest was Oracle Corp., which on Sept. 17 estimated that its sales for the quarter ending in November would fall by as much as 7% from the year before.
But the foreign trade numbers from the government provide a simple yet disturbing answer to this puzzle. While domestic demand may be growing, albeit slowly, the trade statistics show a sharp collapse in the demand overseas for U.S. technology exports. For example, in the first seven months of 2002, exports of semiconductors were down by 15% from the same period the year before. Exports of computers and computer accessories slid by 25%, as did those of telecom equipment. All told, exports of these information-technology goods fell by 21%, about double the 11% decline in imports.
Moreover, the decline in technology exports includes not just information technology but the whole range of what the U.S. Census Bureau calls "advanced technology products." This includes 500 categories of products that represent leading edge technology, from semiconductors to vaccines to aircraft. In the first seven months of the year, advanced technology exports declined by 16%.
Past slowdowns had a much smaller impact on advanced technology exports. For example, in the downturn of the early 1990s, tech exports just kept rising and barely dipped afterward. Further, the U.S. continued to run a technology trade surplus, which hit $38 billion in the 1991 recession year.
But this time, tech exports have fallen off a cliff. As a result, the latest trade statistics for July, 2002, show the biggest deficit ever in advanced technology products, plunging to an annual rate of about $12 billion (based on a three-month average). By comparison, the U.S. was running a $6 billion trade surplus the year before on these products.
Beyond information technology, the numbers show big declines in exports of aircraft parts and laboratory testing equipment, among other things. Any gains in exports came in nontech categories, such as automobiles and wheat.
In part, the decline in tech exports results from slowing growth in Europe. The latest forecasts from Goldman, Sachs & Co. predict that Europe will grow by only 0.8% in 2002 vs. 2.4% anticipated growth in the U.S. But the real question is whether falling tech exports are also a sign of a possible decline in the competitiveness of U.S. tech companies. Unfortunately, there isn't any way to answer that question until growth picks up again. For decades, experts have debated the relative merits of nonprofit vs. for-profit hospitals. The latter group claims that its business orientation promotes greater efficiency and lowers costs. The nonprofits worry that too much stress on the profit motive can compromise the quality of care.
A study by Stanford University economists Daniel P. Kessler and Mark McClellan (currently a member of President Bush's Council of Economic Advisers) suggests that for-profits may have a point. The two researchers analyzed data on expenditures and health outcomes for a large nationwide sample of elderly Medicare patients hospitalized for new heart attacks from 1985 to 1996. They found that per-patient hospital costs in communities with for-profit hospitals were about 2.4% lower than in similar areas without them. But despite the lower medical expenditures, the quality of care did not seem to suffer. Patients exhibited similar rates of complications and deaths in both types of communities.
Interestingly enough, it took only a minimal presence of for-profit institutions to foster lower expenditures. Almost all the savings reflected the difference in expenditures between areas with no for-profit hospitals and areas with a very small share of for-profits. "Apparently," says Kessler, "just a little competition goes a long way." Many economists view the drop in the unemployment rate from 6% in April to 5.7% in August with suspicion--especially since payroll employment has hardly grown in the same period. But economist Ian Morris of HSBC Securities Inc. thinks it would be a mistake to dismiss the good news from the jobless numbers.
That's because historically, the unemployment rate, which is derived from a survey of the population, has been an excellent "real-time gauge" of the economy's strength, which has pretty much held up in later revisions. By contrast, in the early stages of a recovery, payroll estimates, which are based on a survey of companies, are often revised sharply upward as more data come in.
That's exactly what happened in the wake of the early 1990s recession. After joblessness peaked at 7.8% in June, 1992, payrolls in the next six months were originally reported to grow by an average of only 42,000 a month.
But since then, they have been revised up to an average gain of 121,000.
Similarly, the average monthly gain in payroll in the first half of 1993 was originally estimated at 132,000 but is now pegged at 212,000. Meanwhile, the jobless rates for the period have hardly been revised at all.
In sum, Morris says, the recent fall in unemployment suggests that the labor market has been considerably stronger than is commonly believed.