Can the U.S. Be an Export Nation in a Difficult International Economy?

The IMF says the global economy will grow slower than expected this year while another recent announcement states that China superseded the U.S. in terms of purchasing power this year. Both are game changing events in what appears to be a long played out economic drama. Even though the news is not positive it does provide an opportunity for the U.S. to focus on improving its infrastructure to lower costs and retool for better managing international markets.  

Slower International Economic Growth:

International markets are expected to experience slow growth in the near future according to an October 7th report by the International Monetary Fund (IMF). The IMF initially thought the world economy may grow as high as 3.7% this year but have revised that number down to a weaker 3.3%. The slowing economy could make it more difficult for companies that are trying to export overseas to locations where the economy is lack luster.

Growth in advanced economies and emerging economies are widely different. Advanced economies should experience a 1.8% growth rate this year and a 2.3% growth rate in 2015. Emerging economies are expected to have a higher rate of 4.4% based upon their riskier investment portfolios.   Companies are attracted to the cheaper and more lucrative emerging economies for new investments.

The IMF argues that one of the difficult challenges facing economies is the ability of countries to enact reform and change to improve upon their competitive positions. Countries should select which changes are needed and beneficial and then move down the path of change to make things happen. Political capital and the ability to share objectives will naturally have an impact on the success of reform efforts. 

Chinese Wealth and Influence:

The IMF states that China’s economy is larger than the U.S. in terms of purchasing power (1). China has surpassed the U.S. on purchasing power parity (PPP) meaning that once the Gross Domestic Process (GDP) is adjusted the Chinese have significant purchasing strength in the global market making them more influential than in the past. They have become a direct competitor and market changer.

National wealth creates influence among business stakeholders. When national wealth is high countries are able to better bargain for deals, influence international stakeholders, and obtain the resources needed to adjust and be more innovative. As China rises on the international scene a new alternative takes shape which becomes viable for nations seeking the best deal between two large economic countries (U.S. and China). 

Needed Improvements:

A slower international economy and a more powerful China is not the end of the game. It provides an opportunity for the U.S. to direct its efforts toward implementing its own growth oriented strategies to draw investments and improve the overall economic functioning of the nation. When difficulties arise decision-makers are encouraged to put down petty differences and focus on solutions through collaborative problem-solving.

Economic hubs act similar to emerging markets but have the additional benefit of being within a more stable national economy. Their growth potential as a localized entity is higher than national rates but can also influence those national rates. Emerging technology and manufacturing hubs are prime examples of flush investment and growth opportunities that have not been fully explored. 

Within the U.S. there are examples of hubs that developed organically through like-minded stakeholders. Understand where these hubs are located, encouraging mutual development within these hubs, and creating awareness of investment opportunities has a long-tail impact on the national economy. As hub members become more innovative they will naturally export products and raise their income opportunities by drawing in more investment interest to feed their growth. 

The point between A and Z has many stops and twists along the path. At times we have become our own worst enemies in the sense that other considerations beyond the health of the nation regularly take precedence. We must only look at the political spectrum to see this distraction at work. Americans desire employment opportunities and this comes through building ground-based products and services that have international penetration. Government should move upwards in its development to lower costs, empower local economies (i.e. hubs and clusters), reduce debt, improve infrastructure (i.e. how hubs interact on a national level) and focus on founding fundamental principles that encourage basic human motivation. 

IMF Report

Manufacturing Rises to Highest Point in 3.5 Years

Manufacturing is heating up and cranking out new products at a rapid pace. According to the Institute of Supply Chain Management, the August PMI rose to 59% (1.9% increase) when compared to the previous month’s numbers of 57.1%. The improvement is the highest experienced in 3 ½ years helping support the smooth running of America’s economic engine. Basic materials have a fundamental impact on the growth of manufacturing within their associated sectors as the products make their way throughout the national supply chain.

As the country seeks to capitalize on its new found growth it is important to ensure that a positive business environment employs and develops matching competencies in the manufacturing labor pool.  Economic expansion will have a difficult time continuing unless highly skilled and motivated employees are available to fill future employment opportunities.  Companies should bolster education and training to secure a ready labor supply and raise income based on performance.

Of the total of 18 industries measured 17 achieved a level of growth. They are “Plastics & Rubber Products; Furniture & Related Products; Fabricated Metal Products; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Paper Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Chemical Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; Machinery; and Electrical Equipment, Appliances & Components (1).” In competition with cheaper foreign imports, the Textile Mills is the only industry that predictably lost ground.

The type of industries experiencing growth is fundamental to improving manufacturing in other economic sectors. The basic supplies of manufacturers become resources for other arenas that further refine the materials into a final exportable product. As the fundamental industries grow it is also possible to envision secondary manufacturers picking up pace in the near term.

Backlogs of orders increased 3% showing demand is high in the near term and pushing opportunities for growth into the next quarter. Exports of manufacturing rose 2% and imports rose 4% enhancing an already voracious supply based appetite. Companies are starting to invest in the economy again and attempting to expand their capacities. Orders are matching expectations and some companies will need to wait to obtain supplies for expansion. Company strategic planning will become essential to capitalize on the improved market.

If you read the business news on a regular basis you may also notice that consumer confidence and spending are also rising in a way that supports sustainable growth.  A caveat is the increasing imports over exports. As American companies become stronger, nimble, and reach cost parity with low cost foreign suppliers it is hoped the numbers will slowly shift in the other direction. At present, if these basic materials are manufactured into higher quality exports the economy may raise its financial profile. 

http://www.ism.ws/ismreport/mfgrob.cfm

GDP Rises and Consumer Confidence Recovers

The Bureau of Economic Analysis released optimistic data showing a Gross Domestic Product (GDP) increase of 4.2% in the output of goods and services. The new numbers are a windfall compared to the previous 2.1% decline in the first quarter of 2014. The new release of information uses more accurate numbers than previous measurements which help the business community make investment decisions.

The new numbers show an increase in nonresidential fixed investments with smaller numbers in private inventory investment. Other factors influencing the higher numbers were exports, personal consumption expenditures, local government spending, and residential fixed investments. Confidence in the economy may be encouraging purchasing behaviors, state spending, and business investments.

Consumer confidence and consumer spending are associated in economic theory (Ludvigson, 2004). As consumers become more confident about their employment prospects and ability to earn a living wage they will naturally spend more of their hard earned capital on products that improve GDP. The same psychological principles apply to business and government.

We can see this operate in the decline and growth cycles of consumer spending and consumer confidence. Consumer spending dipped .1% in July after rising .4% in June (1). Despite the dip, consumer confidence is rising and future estimates may adjust consumer spending upwards. The polling company GfK showed that despite a consumer confidence decline of -2 in July the numbers moved up to +1 in August (2).

Economic data rests on a battery of measurements to determine future market prospects. If the consumer confidence and consumer spending association is correct we should see an increase in consumer spending numbers for August. A slow beginning to 3Q doesn’t necessarily mean it is going to end slowly as housing and investments recover to support future GDP growth. As with all projections, confounding variables impact the final results. Time is the greatest predictor.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Ludvigson, S. (2004). Consumer confidence and consumer spending. Journal of Economic Perspectives, 18 (2).

Improvement of American Economic Impressions and Inherent Risks to Sustainability

An August 5^th poll by PEW shows how Americans are having an improved perception of the economy but is unsure of how beneficial it will become. The study uses 1002 adults to gauge their perception of the economy and what it means to them. Whether this impression will continue will depend on whether they realize benefits in their opportunities, income, earning power, and social networks. 

At present Americans 10% hear mostly good news, 24% mostly bad news, 64% mixed news and 3% not sure.  The vast majority of Americans are unsure if the economy is really improving or if it will have positive impact on them. They are becoming more optimistic but with a recession full of skepticism to overcome. 

Despite the mixed results there have been some improvements since a similar poll in February. The amount of people hearing positive news increased 5%, those hearing bad news dropped 9%, while mixed news increased 4%. There appears to be an adjustment going on that will impact consumer behavior in terms of purchasing, seeking employment, and savings rate that could support sustained growth.

Hearing about the economy from media and politicians does have an impact on how people perceive the economy but is not the final word. These words will only have so much meaning unless it impacts their employment opportunities and chances to earn living wages. People must experience the same phenomenon in their personal lives and hear confirmation of improvement in their social networks. 

They are more optimistic about jobs with 20% hearing good news, 34% bad news, 41% mixed news, and 4% don’t know. That is an improvement since January with an increase in 8% hearing good news, a decrease in 8% hearing bad news, a decrease in 3% hearing mixed news and an additional 1% unsure. 

The results of the study are limited by their sample size but offers a small glimpse of what could be improvement of perception of the economy by Americans. Lasting positive impressions will only occur if the continued news is confirmed within the way they live their lives and among the people they associate. 

That proof comes in varying forms but is often seen through employment and wages. It can also be realized in earning power as it relates to prices of everyday items such as gas, household products, rent/mortgage and food. If these prices rise and cut their spending and saving potential the overall impact will be muted and short lived. 

That should be the end goal. Americans want to see improvement on the ground level. The recent news of growth is less than a year old and benefits on the corporate level may not have yet trickled down to the masses. This financial boost will be a major sticking point with people. If opportunities do not both improve upon the profit margins of companies and the livelihoods of people than their impression will change again and the positive news seem more like wishful thinking. 

http://www.people-press.org/2014/08/05/modest-improvement-in-views-of-economic-news/

Does the Improving Economy Offer Opportunities to Raise Social Mobility?

The word “economy” is on everyone’s lips.  Things are looking bright for those who have a stake in the economic system. Markers in the service and manufacturing sectors are progressive and provide opportunities to put people to work while lowering the nation’s growing income disparity. The new economy offers the possibility to resize an unbalanced ship so that it finds benefits in hydroplaning to new levels. 

The Institute for Supply Management’s non-manufacturing index increased to 58.7% while sixteen U.S. non-manufacturing industries led by construction and education also experienced growth (1).  To complement this growth the service sector also realized expansion adding further strength to the recovery and providing higher levels of employment.

According to the Commerce Department manufacturing also received positive growth numbers (2).  The U.S. is moving into a stronger competitive position that furthers its ability to maintain momentum. Manufacturing increases employment opportunities and heightens income opportunities for families that need a solid wage and opportunities.  

A particular problem rears its head when the cost of education is increasing thereby creating a class of people who do not have the skill to go to college or the financial resources to finish a degree program. The inability to obtain a meaningful education leaves them out of many highly skilled manufacturing jobs and thereby locking them out of Middle Class lifestyles. 

Despite the positive economy there are some serious risks if the income is not spread properly among varying social classes and peoples. According to a new report by Standard and Poor income inequality is reaching extreme levels that may hamper future national growth (3).  The problem has become so pronounced that it retards future forecasts by 2.5% creating a drag on the economy.

The benefits of improving on middle class wages and raising people out of poverty outweigh many other expensive programs. Those with financial resources and high incomes are becoming wealthier leaving behind the masses causing instability. Changing public policies and avoiding poor economic decisions is important for encouraging higher overall human development to meet national needs.

The S&P report also mentions that raising minimum wages is not the answer as even though income rises the opportunities may decrease leaving less total jobs. It could also push inflation rates where the dollar is worth less tomorrow than it is today. Part of income disparity is based in actual earning power beyond the amount of dollar bills obtained.

Education is a major component for social mobility. Traditional sports arena oriented college models have become unsustainable with its expensive tuition, declining state budgets, large buildings and the re-shifting of financial responsibility onto families. Reforming higher education will help in bringing more people forward with the necessary skills to work in this century helping them reach Middle Class status and creating greater social mobility that helps raise opportunities for the future of everyone.