Saturday, April 7, 2007

Will Export Growth Prevent Recession?

From Barron's (subscription required)

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.