There's a great myth that goes around the Internet: the US doesn't make things anymore. If that were true, then we would have exported $1.8 trillion dollars of goods in 2008. And in 2008, we exported $108 billion of foods and beverages, $388 billion of industrial supplies, $457 billion of capital goods, $121 of automotive products and $161 billion of consumer goods. In other words, exports account for about 13% of GDP. And they may become far more important to US growth:In the process of gorging on overseas goods and services, the US by happenstance fired up emerging economies such as China, Korea, Taiwan, India, Brazil and Mexico to build their productive capacities and spawn their own middle classes and consumer cultures. Paulsen has long called this trend the US's "emerging-market Marshall Plan."
As US consumer spending slows we will import less, thereby lowering the total amount of imports in the trade deficit formula. At the same time, Emerging economies have seen a growing middle class which will want to buy more goods and services. And some of those will come from the US.
Now we have confirmation of that fact:
Asia has led the world out of the global economic downturn thanks in part to a welcome burst of consumer consumption. It appears the spending spree will continue into 2010.
Strong government stimulus programs enacted during the depths of the crisis helped spur domestic economic activity across the region. Most of Asia's economies are growing and private consumption has been key. China, India and South Korea are rebounding smartly, a step ahead of the U.S. and Europe.
Now some see consumer spending in Asia picking up support from more than stimulus. Businesses are showing profits. Unemployment rates are falling in most of the region, making households more confident. And unlike the West, consumers have low debt levels and banks are expanding credit rather than shrinking it.
Domestic consumption takes up just over a third of China's economy, compared to two-thirds in the U.S. and well above 50% in most advanced economies. Even with Chinese retail sales that have exceeded 15% growth on a year-to-year basis this year, it will take years for the economy to reach a level where domestic consumption is above 50%.
In other parts of Asia, the story is slightly different. As in China, consumers from India to the Philippines are spending with increasing zeal. But unlike China, private consumption already makes up more than half of GDP in other Asian economies. That means higher consumer spending will make a bigger contribution to overall growth in those countries.
"Households have now become a driver in the recovery" across the region, says Frederic Neumann, Asia economist for HSBC. He notes that consumption grew faster than overall output in most Asian economies in the third quarter, a change from earlier in the decade.
One of the things that throws most people's analysis is they are use to the U.S. being the engine of worldwide economic growth. But they are wrong. This time around we're the caboose.