Can the U.S. Export Its Way Out of the Slump?

Foreign demand and a weaker greenback boost the economy

Federal Reserve officials, including Chairman Ben S. Bernanke and Federal Reserve Bank of New York President William C. Dudley, are touting a bright spot in the economic data: rising global demand for U.S. products. Both cited the increase in exports as one reason they are forecasting a rebound in the second half of the year.

While U.S. job growth flags, the housing market struggles, and consumer confidence declines, exports have climbed in the past two years and accounted for a record 13.4 percent of gross domestic product in the first quarter. That compares with a decade low of 9.2 percent in the second quarter of 2003, according to Bureau of Economic Analysis data. “I don’t think the export piece is enough to be a cure-all, but it could certainly be a help at the margin,” says Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn.

U.S. shipments overseas reached a record $175.8 billion in April and were just a tad lower in May, benefiting companies from Dow Chemical to Deere, according to the Commerce Dept. Deere, the world’s largest maker of farm equipment, said on June 30 that sales of tractors and machinery to farmers in Brazil are rising, buoyed by high commodity prices. Second-quarter earnings at Deere rose 65 percent, thanks in part to strong Brazilian orders.

The Fed’s easy monetary policy has helped spur foreign demand for U.S. products by weakening the dollar. Since Bernanke hinted last August that the Fed might embark on another round of bond purchases, the greenback has declined 9.4 percent against a basket of currencies for six major U.S. trading partners, according to IntercontinentalExchange’s Dollar Index. UBS now predicts net exports will boost economic growth in the second quarter by 1.5 percentage points, up from an earlier assumption of 0.4 percentage points.

Not all economists are impressed. The U.S. trade deficit widened 15 percent in May, to $50.2 billion, the highest in almost three years, because of a surge in the cost of imported oil. “Trade is still going to be a wild card,” says Drew Matus, a senior U.S. economist at UBS in Stamford. Fed officials should focus on “the inflation outlook, which has gotten quite bad,” and on domestic purchases, he says. “I don’t think trade is the be-all, end-all.”

These objections are not deterring the Fed from spreading the good news. The New York Fed’s Dudley cited “robust” demand abroad for U.S. exports, particularly to Asia, in a June 10 Brooklyn speech as one “reason to expect the economy to recover from this soft patch.” Manufacturers in the American South are a “major beneficiary of globalization,” with auto, aerospace, pharmaceutical, and commodity companies exporting around the world, Federal Reserve Bank of Richmond President Jeffrey M. Lacker said on June 13 at a conference in Roanoke, Va. “Our ports are now jammed with these goods.”

— With assistance by Mario Sergio Lima, and Rich Miller


    The bottom line: In a tough economic environment, U.S. exports, which now account for more than 13 percent of GDP, are proving to be a bright spot.

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