Exports to Recover in U.S. as Global Growth Firms: Economy

Photographer: Ariana Lindquist/Bloomberg

Last year’s fourth-quarter drop in U.S. exports contributed to a widening of the trade gap, which, combined with a smaller increase in inventories, caused the world’s largest economy to slow even as consumer spending and business investment probably accelerated. Close

Last year’s fourth-quarter drop in U.S. exports contributed to a widening of the trade... Read More

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Photographer: Ariana Lindquist/Bloomberg

Last year’s fourth-quarter drop in U.S. exports contributed to a widening of the trade gap, which, combined with a smaller increase in inventories, caused the world’s largest economy to slow even as consumer spending and business investment probably accelerated.

Exports from the U.S. are set to pick up in 2013 after slumping last quarter as global growth strengthens from Asia to Latin America, giving American manufacturers a boost.

Industries in which U.S. companies have a competitive advantage, including agriculture, medical supplies and aviation, will probably benefit the most from improving global demand, said Gary Hufbauer, a senior fellow at the Washington-based Peterson Institute for International Economics. That would brighten the outlook for corporations from General Electric Co. (GE) to Boeing Co. (BA) and Johnson & Johnson. (JNJ)

China reported economic growth accelerated in the fourth quarter for the first time in two years, raising prospects that a regional lift will fuel demand for U.S. goods. Developing nations are projected to grow 5.5 percent in 2013, more than last year, while Europe stabilizes, according to projections from the World Bank.

“The rest of the world is still growing, which means you should have higher exports,” said Maury Harris, chief economist at UBS Securities LLC in New York. “If China is improving, those neighbors are going to have better growth. And if their neighbors have better growth, then they’ll buy more stuff from us.”

Harris forecasts sales to overseas customers will be 6.7 percent higher in this year’s fourth quarter compared with the same period in 2012. The comparable gain in 2012 was an estimated 1.6 percent, reflecting a projected 5 percent slump at an annual rate from October through December.

Gaining Momentum

Foreign demand will grow throughout the year, advancing at a 6 percent rate from January through March and at a 7 percent pace in the subsequent three quarters, according to UBS.

Forecasts from the International Monetary Fund issued today were in line with those from the World Bank. The Washington- based fund projected developing economies will grow 5.5 percent this year, up from 5.1 percent in 2012. It cut its world growth estimate to 3.5 percent, less than the 3.6 percent forecast in October, as Europe is projected to shrink for a second year.

Stocks rose to a five-year high as lawmakers voted to temporarily suspend the federal debt limit until May 19 and technology shares rallied amid better-than-forecast earnings. The Standard & Poor’s 500 Index gained 0.2 percent to 1,494.78 at the close in New York.

U.K. Jobless

Elsewhere today, U.K. jobless claims unexpectedly fell in December and a quarterly measure of unemployment also dropped, underlining the resilience of the labor market in the face of a weak economic recovery.

Last year’s fourth-quarter drop in U.S. exports contributed to a widening of the trade gap, which, combined with a smaller increase in inventories, caused the world’s largest economy to slow even as consumer spending and business investment probably accelerated. Gross domestic product expanded at a 0.7 percent annual rate, the worst performance in almost two years, according to a UBS forecast.

The Commerce Department’s GDP estimate for last quarter comes out on Jan. 30. The economy grew at a 3.1 percent rate in the previous three months.

Nonetheless, the fourth quarter ended on a positive note, according to data from the Institute for Supply Management. The Tempe, Arizona-based purchasers group’s export measure exceeded the break-even 50 level in December for the first time since May. The index’s three-month average leads similar changes in actual exports by a few months, according to UBS research.

China Accelerates

China’s GDP rose 7.9 percent in the fourth quarter from a year earlier compared with a 7.4 percent gain in the previous period, the National Bureau of Statistics said last week. It marked the first pickup since the end of 2010. Industrial output in December climbed a more-than-projected 10.3 percent and fixed-asset investment for the year gained 20.6 percent.

The World Bank’s forecast for growth in developing countries this year compared with a 5.1 percent estimate for 2012. Latin America will grow 3.5 percent, up from 3 percent in 2012 and led by a rebound in Brazil, the bank said.

“As global trade picks up, we’ll gain market share in a growing market,” said Joseph Carson, director of global economic research at AllianceBernstein LP in New York. “The direction of trade continues to favor emerging markets, where about 57 percent of our exports now are directed,” which represents about a 20 percentage-point gain over the past decade, he said.

Plane Orders

South and Central America pushed up purchases of U.S. planes in 2012. The value of orders for U.S. aircraft and parts from the region rose 31.6 percent year-to-date in November to $9.47 billion compared with the same period in 2011, according to Census Bureau data. Demand for U.S.-made automobiles and car parts advanced 16.8 percent to $6.91 billion.

Of the 601 airplanes delivered by Boeing in 2012, 416, or 69 percent, went to foreign buyers, according to data from the Chicago-based company. That is up from 348 sold to customers abroad in 2011.

The company is now dealing with a more immediate challenge as its 787 Dreamliner aircraft is being investigated for mechanical problems.

“International growth is a good offset to that budget pressure that we see in the U.S. and Europe, in particular in the Middle East, Brazil and Asia-Pacific region,” Dennis Muilenburg, president of the Boeing’s defense unit, said Nov. 29 at a Credit Suisse investor conference. “We’re seeing strong growth throughout those three regions.”

More Profit

General Electric reported higher fourth-quarter profit than analysts estimated as emerging-market gains fueled the aviation and health-care businesses, which drove industrial performance and helped build a record $210 billion order backlog, the Fairfield, Connecticut-based company reported last week.

“We ended the year with a strong quarter despite the mixed global economic environment,” Chief Executive Officer Jeffrey Immelt said in a statement. “The outlook for developed markets remains uncertain, but we are seeing growth in China and the resource-rich countries.”

At New Brunswick, New Jersey-based Johnson & Johnson, the world’s biggest maker of health-care products, sales to international buyers at its DePuy Synthes subsidiary account for almost 50 percent of total revenue.

“We are well-positioned to grab the opportunities offered by international markets and especially by Asia Pacific,” Michel Orsinger, chief executive officer at the unit, which manufactures and sells products used in orthopedic trauma surgery, said in a meeting with analysts yesterday.

Canada Cooling

One near-term cloud on the horizon is that Canada, the U.S.’s biggest customer, is cooling, said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York.

Dutta projects U.S. exports will expand 2.3 percent this year after 3.3 percent gain in 2012. Nonetheless, global demand will firm in the second half of the year, he said.

Canada’s “housing market’s cooling, people are bringing up their savings rate a bit,” Dutta said. In addition, fiscal tightening in Europe and an Asian rebound that has had little impact outside the region are working against an acceleration in demand for U.S. goods, he said.

Diane Swonk remains optimistic even as she agrees that overseas demand is more likely to pick up in the second half of the year. The chief economist for Chicago-based Mesirow Financial Inc. forecasts U.S. exports will grow 5.1 percent this year as China recovers and Europe stabilizes. Sales overseas will accelerate by 8.7 percent in 2014, she estimates.

Import First

As developing nations grow, demand for goods such as automobiles that require time to produce domestically will initially be bought from American companies, Swonk said. “The first wave is importing,” she said.

More exports also may have indirect benefits for the broader recovery, said the Peterson Institute’s Hufbauer.

“Exports are a very high-paying sector of the U.S. economy,” he said. “Jobs are more steady in export-oriented companies, they pay better” and the companies do more research and development.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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