There will be a lot of statistics going in both directions amid weak economic growth, says Bob Doll, global chief investment officer of equities at BlackRock. But Doll continues to expect 5% earnings growth and 7% gains in the S&P 500 this year as booming exports more than offset the housing slowdown.
The devalued dollar -- which makes US goods cheaper abroad -- obviously helps exports.
However, according to the latest GDP report from the BEA, exports accounted for 11.66% of US GDP in chained 2000 dollars in the 4th quarter of 2006. That compares to 16.37% for gross private domestic investment. That means exports have to increase a bit more than the decrease in investment to effectively negate the effect of declining domestic investment. While exports increased 10.6% from the 3rd to 4th quarter of 2006, gross private investment decreased 15.2%. In other words, gross private domestic investment -- which is a larger percentage of GDP -- won the 4th quarter round.
In addition, exports of goods accounted for 85% of that total. Considering the latest ISM numbers indicate the manufacturing sector is just above recessionary levels, it doesn't look as though exports are going to grow fast enough, at least at current levels. Also in that ISM report was a 1.5% increase in exports from 54 to 55.5. Those levels just don't look like they are strong enough to warrant that analysts optimism about exports.
4 comments:
How about ageing boomers?
Yesterday's jobs release indicates the following:
-general merchandise stores +36,000 (+81,000 in the first quarter of this year).
-health care +30,000 in March (+348,000 jobs in the past year) including
-offices of physicians +9000
offices of hospitals +9,000
-nursing and residential care facilities +7,000
-Also, food services and drinking places also continued to add jobs in March (+19,000). Over the year, employment in the industry grew by 335,000
Compare this with the news release for March 2006:
-professional and business services +52,000 over the month. (including architectural and engineering services, computer systems design, management and consulting services, and services to buildings and dwellings)
[OK, that has disappeared by 2007]
-general merchandise stores +26,000
-Health care +24,000 including
-hospitals +8,000
-doctors' offices and home health care +16,000
-Also, food services and drinking places +33,000
Considering that boomers are between 43 and 61 years old, seems like we have the start of a secular increase in jobs providing health care.
Could the fact that boomers are also in their peak earning years be what is driving the growth in food and beverage jobs?
Any mature expansion ought to have a bit of growth in food and beverage industries, and since this expansion has a very heavy share of income growth in the top fifth of the income bracket, its not surprising that its very strong this time around.
But that is not going to be a growth driver ... that job growth will go away if the growth drivers go away.
And as far as the growth driver, it is important to distinguish between gross and net exports. The short term impacts of increasing (direct ... ie, US$/FX) foreign exchange rates on imports is ambiguous, since it tends to reduce the volume of imports but increase the dollar cost of a given volume. In order for net exports to be a strong growth driver, we would be looking to see gross export increases in US$ value matched by some sign of gross import declines in US$ values.
The short term impacts of increasing (direct ... ie, US$/FX) foreign exchange rates on imports is ambiguous, since it tends to reduce the volume of imports but increase the dollar cost of a given volume.
The 'short term' might last a lot longer than people expect too...
Understand that many manufactured items are designed & sourced way in advance of actual importation & retail sale.
The seasonal goods hitting the shelves of WalMart & Home Depot this spring were probably designed, cost estimated & sourced a year ago or more... They are NOT usually 'double tooled' in different countries so as to be able to avoid currency risk...
The large retail companies are or SHOULD be hedged for that risk but even that is hard to tell. It is not unusual for a large US importer (say a WalMart) to negotiate LTA (Long Term Agreements) with suppliers in Asia in dollars only... the Asians then assume the currency risk. Its unclear whether many of them hedge at all. This hasn't been a big issue up until now since in many cases the central banks of their home countries manipulate their currencies vs. the dollar within a pretty tight band. There hasn't historically been a lot of risk.
But if that should fail - I'm not sure what would happen. The Asian sources might just elect to not ship if the exchange gets too ugly.
And as US manufacturers produce more of their own components (like auto parts) overseas, the horizons get even longer than one year. A typical platform for an automobile (the frame, drive train & such) remains stable for something like 5-7 years.
There will be 'style changes' & redesigns to work around problems & recalls but in general an engine part designed for '08 will still be in production in '13 and maybe beyond.
The capital involved is mind-numbingly expensive. I'm currently looking at a 60 cent part that will stay in production for at least five years and it will require one time up front spend of $150K worth of tooling to produce it.
That doesn't include the design & testing cost - just the mold & fixtures to produce the 60 cent part.
Granted the OEM will buy between a half million and 1.5 million of these per year... but only one part goes on each new vehicle. tens of thousands of parts go into making a new car. Ratios (capital to piece price) this high are not that unusual, some higher & some lower...
Result is companies will not usually double tool or move tools unless they have to. Once sourced the costs are locked in for the duration.
The point is that even if the dollar reversed tomorrow against the RMB, yen & won... it will take years for the full effect to show up as increased US value added & US content. But the inflationary effects from this currency re-balancing could show up at check outs & family budgets across the US MUCH faster... within months.
That is all quite right ... retooling and redesign are a long term effect.
The medium term impacts over and above the short term impacts, where some imports can be shifted to domestic alternatives but many can not, are more along the lines of shifting sector demands as sectors with more import value added built in have prices rising faster than sectors with lower import value added built in.
Post a Comment