Some very positive news for the US economy. Just what the doctor ordered. I wonder how long it will last.
Overseas Consumers to the Rescue
As U.S. Shoppers Stay Thrifty, Companies Are Looking to Emerging Markets Like China to Fill Gap
By JUSTIN LAHART
U.S. companies and President Barack Obama himself are betting on consumers abroad as Americans hold tight to their purse strings.
Harley-Davidson Inc., for one, plans to start selling 12 high-end motorcycles in India this year as part of a broader effort to lift its presence overseas after seeing its U.S. sales buckle in the recession.
General Electric Co., which already makes more money abroad than domestically, isn't selling as many health-care scanners and locomotives in the U.S. as it once did—so it is focusing efforts in the last two years to land large orders in foreign markets.
Exports
GE Chief Executive Jeffrey Immelt talks about restoring manufacturing jobs and exports in America. He calls India a centerpiece of growth. In January, GE reaped fruits of its efforts with an order from Cosan, a Brazilian sugar processor, for 50 Pennsylvania-made locomotives.
Corning Inc., a large maker of liquid-crystal-display glass for flat-screen televisions and computers, as well as optical fiber, anticipates that more than 70% of growth in the LCD TV business will come from China and other emerging markets this year.
"For this year in the developed economies, we're looking for a mild recovery—I'll call it a lazy L," says Corning Chief Financial Officer Jim Flaws, referring to the trajectory he anticipates. "In China, we're looking for much higher growth."
The worst recession in a generation hammered the spending habits of Americans, and their new affection for thrift seems to be persisting. Amid high unemployment, lost wealth and tight credit, economists at J.P. Morgan expect consumer spending to grow at an inflation-adjusted annual rate of 2.6% this year—far weaker than the recoveries that followed prior recessions.
Consumer spending rose at a 2% annual rate in the fourth quarter, down from 2.8% in the third quarter.
Exports, though, grew at an annual rate of 28% in the fourth quarter, which the National Association of Manufacturers said is the fastest increase and the largest contribution to economic growth in 30 years. Of the 5.7% growth in the fourth quarter, trade accounted for 0.5 percentage point (exports added 1.9 points, imports subtracted 1.4 points.)
In his State of the Union address Wednesday, President Obama set a goal of doubling U.S. exports over the next five years, which he said would create two million jobs.
That will be tough to achieve, says Daniel Price, a trade attorney with Sidley Austin and former adviser to President George W. Bush. "The laudable goal of doubling U.S. exports is only plausible if we both enhance the competitiveness of U.S. products, including by investing in technology and basic research, and pursue ambitious market-opening trade agreements," he says.
The decline in the dollar's value over the past decade makes U.S. products cheaper for foreign consumers, though recently it has begun to strengthen against other major currencies. Joe Carson, an economist at Alliance Bernstein, says strong gains in U.S. workers' productivity, or output per hour of work, are making U.S.-based manufacturers more competitive globally.
In November, U.S. goods exports represented 26% of U.S. manufacturing shipments, up from 19% five years earlier, according to Commerce Department figures.
Moreover, Mr. Carson calculates that more than half of U.S. exports now land in emerging markets. "We're selling to markets that are growing twice as fast as our economy," he says.
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