President Obama’s call to make the U.S. an exporting powerhouse (i.e., double their volume within five years), is a plausible goal, according to Milton Ezrati, senior economist and market strategist at Lord Abbett.
“Dollar weakness, among other things, has already lifted American exports smartly during this cyclical recovery and likely will continue to do so for some time, even if Washington dithers,” Ezrati said.
Back in July, Obama stated that export growth leads to job growth and economic growth. At a time when jobs are in short supply, building exports is an imperative.”
However, a doubling in export volumes over five years would require a 14.9 percent yearly rate of growth – given the lack of specific measures on how exactly to boost export business, skepticism abounds about this target.
Ezrati believes the dollar could come to the rescue, even if Washington D.C. does not.
“The dollar’s fundamental drop on foreign exchange markets may give the president his wish anyway,” he noted.
Ezrati cites that during the last three months, the dollar has lost 9.9 percent against the euro, 3.6 percent against British sterling, 8.6 percent against Japan’s yen, and 2.3 percent against Canada’s dollar.
Moreover, the U.S. dollar has even dropped 1.3 percent against China’s yuan.
“But impressive as these recent moves have been, the longer-term, more fundamental story is still more dramatic,” Ezrati stated.
“Since 2000, the dollar has dropped 67.1 percent against the euro, 16.9 percent against the sterling, 22.5 percent against the yen, 33.8 percent against the Canadian dollar, and 20.1 percent against the yuan. Currency, of course, is never the whole story with global sales, but these currency moves, especially over the longer term, make American goods that much cheaper than the competition in Japan, Germany, or wherever it exists, even including China, and that price edge should boost U.S. overseas sales accordingly, especially after such a long, cumulative move.”
Ezrati thinks some of this may have already occurred, noting that over the past twelve months exports have grown 18.0 percent --faster even than the president needs to meet his target.
“Exports of goods have grown at an even faster pace, 21.5 percent, than exports of services, which are always less volatile, at a still-robust 10.6 percent rate of advance,” he indicated.
“Of course, much of this surge reflects the ongoing global recovery -- a force that is bound to weaken over time. But even as that cyclical pattern plays out, the currency advantages should persist.”
These advantages are also already evident. Ezrati explains that the greatest gains have occurred in those areas where U.S. producers formerly had faced the greatest competition. For example, while export sales of American consumer goods have expanded only 7.6 percent, but foreign sales of industrial supplies have risen almost 28 percent. Sales of capital goods have risen almost 21 percent, and sales of transportation equipment, including earth-moving equipment, have risen almost 27 percent.
“Looking forward, strong gains in these areas seem likely, as long as the dollar stays as weak as it is, and a currency reversal hardly seems likely,” Ezrati opines.
“Even if the dollar ceases any further weakening, just today’s relatively low levels offer enough pricing edge to American products to sustain impressive export growth for some time.”
The lasting leverage of a weak dollar is revealed in the longer history of American exports.
Ezrati cites that while exports generally have expanded about 7 percent per year since 1960, the last time the dollar weakened dramatically against the world’s currencies, in the 1970s, exports surged at an annual rate of 17 percent.
“Of course, currency movements back then were even more dramatic than now,” he points out.
“But even if the pace of export growth is considerably slower than it was in the 1970s or slower than the president wants, the prospects for still-robust growth look good enough to make foreign sales of American goods and services more of a basic overall growth engine going forward than in a very long time.”