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Slowing Export Machine Is Starting To Sputter

Join Date:  2017-03-06

Export growth is expected to fall sharply in coming months, dimming what had been one of the few bright spots for a sputtering U.S. economy. Many U.S. producers are already seeing a slump in new orders and growing hesitation on the part of foreign buyers to move forward on previously negotiated deals. The outlook has dimmed so quickly that economists are having a hard time keeping their projections current. Global Insight, an economic forecasting and consulting firm, announced on Friday that it was nearly halving its projection for fourth-quarter real export growth to 0.73% from 1.34%. "But what we've seen in the last few days suggests we'll see even more trade deterioration," said Paul Bingham, the group's trade economist. Mr. Bingham said a global recession is now all but certain, which will take a bite out of all types of trade. U.S. export growth was already slowing before financial markets went into a tailspin, as a result of more-modest economic growth in many regions of the world and an upswing in the value of the dollar. A stronger dollar makes U.S. products less competitive in foreign markets. Much of this year's export boom was driven by surging prices for commodities such as iron ore and soybeans, fueled in part by a wave of infrastructure spending world-wide by countries rushing to expand rail networks, mines and power plants. This benefited U.S. producers of mining machines, cranes, tractors and conveyor belts. U.S. coal exports surged, as did shipments of diesel engines, computers and scrap metal. The events of recent weeks have pushed down commodity prices and raised doubts about the future strength of these markets. Exporters are also getting burned by slumping U.S. consumer spending. A slice of U.S. exports feeds a circular dynamic in global trade, with foreigners snapping up U.S.-made machines, chemicals and parts to make products that are ultimately sold in U.S. stores. Consider guitar strings. D'Addario & Co., based in Farmingdale, N.Y., is a major producer, selling strings both in retail stores across the U.S. and overseas, as well as to factories, mostly in Asia, which make guitars sold by U.S. retailers. James D'Addario, the company's chief executive, said string exports to Asian factories surged 40% earlier this year, in part, he believes, to ramp up for the Christmas season, which had been expected to be strong for guitars. A big part of that demand is due to the the latest version of the Guitar Hero video game. But as U.S. consumers, nervous about their jobs and savings accounts, slash spending, the chances of strong holiday sales have dimmed. "I'm expecting there'll be warehouses full of guitars at the end of this year," said Mr. D'Addario. Paul Block is also concerned about sales. His company, Galkin Automated Products Corp. in West Babylon, N.Y., makes machines that produce mattresses. He said some people are still buying, but mostly those who see this as an opportunity to press for better prices. "There are people all over the world who know how to wheel and deal," he said. The upshot is that exports will no longer serve as the counterweight to weakness in the domestic economy. Over the past year, real goods exports surged by $114 billion, or 12%, up across every major category. They now make up nearly 13.5% of gross domestic product, the highest percentage since World War II. "Export-oriented manufacturers are going from being a real source of growth to just barely hanging on," said Mark Zandi, chief economist at Moody's, an economic research and consulting firm in West Chester, Pa., adding that each day the credit markets remain in serious distress increases chances that the outlook for exporters will darken even further. Cyril Bath Co. is among those already seeing trouble signs. The Monroe, N.C., maker of aerospace parts and machinery estimates that incoming orders have fallen 25% in the last month. It saw sales nearly double last year to $23 million, for instance, with exports accounting for all the growth. Michael Zimmer, Cyril Bath's CEO, said overseas customers are delaying orders, and he worries that the trend could accelerate if the global turmoil continues unabated.

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