USA EXPORT BLOG

USA export products are poised for good times!  The governments all over the world want us to believe that the recession is over.  The manufacturing indices of most countries have been steadily increasing this year, month after month.   According to the Institute for Supply Management, the US manufacturing index is leapfrogging to 52.9% in August.  That’s more than 8 percentage points better than it was in June. 

Now that the lethargic summer months are gone, it’s back to work as before.  Eleven of the twelve regional offices of the Fed suggested an encouraging sign: the economic activity has begun to stabilize.  If the US economy really starts growing in the second half of 2009, then the longest recession in 65 years will have ended.

How about some more good news: the US Dollar is losing strength and that’s good for USA export products.  Yesterday and today one USD bought Euro 0.68.  Year after year, the USD stays stronger during the summer and as soon as September comes around it’s value decreases (see: http://www.xl-group.us/files/Currency_Exchange_Matrix_Table5.pdf).  This means that a manufacturer who wants to expand needs to look at export markets.  USA export sales may become easier than domestic sales.  Because the USD is so cheap, Europeans would pay only 68% for an American product compared to a similar European product.  Although, the Europeans may suffer as much as the Americans, they get a better deal buying American products when they do buy.

That is likely to get even better for exporters.  The stimulus package the government promised earlier this year has caused the US Dollar Index to lose more than 10%.  International investors believe that the USD is not as good an investment any more and therefore place their money in other assets.  Although Timothy Geitner continues to assure domestic and foreign investors that their investments in the US are safe, he is unable to prevent them (in the case of the Asian countries) to sell off big chunks of debt they bought from the US.  And that’s very good for the USA export.

Will the G8 meeting have any effect on USA Export numbers?  Eight of the industrialized nations of the world are meeting in l’Aquila, Italy this week.  Other nations will participate as well.  Italy’s Prime Minister, Silvio Berlusconi had decided to change the venue to l’Aquila to draw attention to the need of the region.  Indeed the meeting was originally planned to take place on the beautiful Italian Island of Sardenia.  After a strong earthquake with many afterschocks hit l’Aquila earlier this year, it seemed like a good idea to move the venue there.  But what does that have to do with USA Export numbers?

China and India hold many of the US Dollar reserves and will be in l’Aquila.  Russia is a G8 member and also wants to see changes in the world’s currency systems.  China has been suggesting to start working on a global currency.  It too is seeing what the rest of the world is seeing.  The huge amount of new money that went into circulation for the American stimulus adds to an already weak US Dollar.  All the countries with heavy investments in US Dollars have a double edged sword:
- Their Treasury Departments cannot afford for the Dollar to weaken much more. 
- Nevertheless, any slump in the US Dollar makes it less competitive to export their products into the US. 
However, American manufacturers would have it easier to export their wares overseas.

China will be attending the G8 meeting this week.  It has a great interest into finding ways to start moving away from the Dollar, while at the same time trying to keep its value.  A big decline in its value would have catastrophic consequences on these emerging markets where the global recession has also hit hard.  For the past 45 days one Dollar has been worth about 0.70 Euros. It has been sliding from a year high in February at 0.79 Euros.  US Manufacturers would not mind to see an exchange rate of 0.64 Euros as it was a year ago so that they can increase their USA Export numbers.  But, what about the rest of the world?