My Focus on Exports Not Employment

The monthly jobs report came out and is viewed as slightly better than expected but provides both sides of the political debate sufficient fodder to spin it to their advantage.

While equity markets want to put a happy face on the report (an increase in non-farm payroll of 163,000 jobs along with an uptick in the unemployment rate to 8.3%), I have little real confidence in the report signaling meaningful improvement in our economy.

Why am I concerned that our economy is poised to slow and potentially contract? Forget the employment report, let’s look elsewhere to get a better read on economic growth going into year end.

As reported the other day by the Institute of Supply Management, net exports have fallen off a cliff over the last two months. That development is so troubling because prior to the last two months our net exports had grown for 35 straight months. Let’s take a harder look at the ISM report,

ISM’s New Export Orders Index registered 46.5 percent in July, which is 1 percentage point lower than the 47.5 percent reported in June, and represents the second month of contraction in the index since June 2009, when the index registered 49.5 percent. Prior to this current two-month period of contraction, the New Export Orders Index had registered 50 percent or above for the past 35 consecutive months.

Some in the audience may say that I am over emphasizing the impact of exports on our overall economy as it has historically represented approximately 15% of our overall GDP. Well, I think we can discard a lot of those historical models. Let’s review an essay released recently by an economist and analyst at the St. Louis Federal Reserve aptly entitled, Get By With a Little Help From My  . . . Other Exports,

During the 2007-09 recession, the decline in exports did not affect GDP growth as severely as declining consumption and investment, but the recovery scenario has been quite different: Exports accounted for almost half of the average GDP growth in 2010-11, a much larger fraction than during the pre-crisis period.

Moreover, while many analysts are focused on developments in the EU, the authors highlight that in terms of exports, our economy is increasingly more impacted by the slowing in emerging economies.

Here are two great BEA produced bar graphs highlighting these two key points:

Contribution of Components to the U.S. Real GDP Growth Rate
U.S. Exports Share in 2000 and 2011 by Destination

With the global economic engine centered increasingly within the emerging economies, when they slow down — as they are — our economy follows.


About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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