The latest monthly and quarterly economic indicators from around the globe confirm that the world economy has begun to recover from the recent recession. As a result, we begin to see signs that foreign demand for goods made in Michigan are on the mend.
The nation’s supply executives in manufacturing industries surveyed in October by the Institute for Supply Management reported that their indicator of incoming new orders from abroad rose for the fourth consecutive month, following nine consecutive months of decline.
According to the latest export numbers, shipments abroad from Michigan’s exporting companies leaped to $3,051.8 million in September, which was $171 million or 5.9 percent more than in August and the highest monthly level in the last 10 months. Like national exports, the state’s export numbers are adjusted for seasonal variation, a statistical process that smoothes monthly performance for factors such as the number of days in a month and holidays.
How are Michigan’s exporting companies doing compared with the same time last year? In September of 2009, state companies sold abroad $804.1 million, or 20.9 percent, less goods than September 2008.
September’s state exports for the most part were driven by manufactured goods, which accounted for 88 percent of all state exports. Foreign sales from Michigan’s manufacturers jumped in September by 8.2 percent from the previous month to $2,683.6 million, adjusted for seasonal variation.
On an annual basis, shipments abroad from state factories were $543.7 million, or 20.9 percent, lower than September of last year.
Exports of non-manufactured goods went down 7.9 percent in September to $368.2 million, adjusted for seasonal variation. This group of shipments abroad consists of agricultural goods, mining products and re-exports, which are foreign goods that have entered the state as imports and are exported in substantially the same condition as when imported.
For the U.S. as a whole, in the first nine months of 2009 exports of goods have fallen by 23 percent in comparison to the first nine months of last year.
How do Michigan’s companies measure up in export growth to other states so far this year? Michigan ranked 46th in export growth among the 50 states during the first nine months of 2009. Particularly, compared with the same period in 2008, foreign sales from Michigan’s companies, seasonally adjusted, decreased by an annual rate of 35.1 percent.
Rebounding worldwide economic growth is an important driver of demand for goods made in Michigan. When economic growth deepens, consumers’ incomes abroad increase and, consequently, exporting companies not only see bigger orders from existing foreign clients but they are able to reach out to new buyers as the standard of living builds up around the globe.
What are the prospects for exports for the rest of the year and in 2010 for Michigan’s companies? In its latest semiannual World Economic Outlook, the International Monetary Fund indicated that “the recovery has started; financial markets are healing; and in most countries growth will be positive for the rest of the year, as well as in 2010.”
IMF projects global growth to stay on a recovery path that slowly began in the second half of 2009. Global economic activity is forecast to expand by an annual growth rate of 2.2 percent in 2010 and 3.4 percent in 2011, following a decline at an average annual rate 2.3 percent in 2009.
In the key export markets of the advanced economies, also called industrial countries — the group includes Europe, North America and Japan — economic growth is forecast to be moderate with overall economic activity increasing by 1.7 percent.
However, IMF forecasts growth in the fast growing emerging economies — like China and India — and the developing countries to average 5.5 percent in 2010. Thus, the non-industrial countries will be the major source of global economic growth and, consequently, global demand in 2010.
More important for Michigan’s exporters, presenting IMF’s World Economic Outlook, Olivier Blanchard, IMF’s director of research, amply pointed out that “some advanced countries, especially the U.S. will have to rely more on foreign demand.”
The IMF predicts the volume of international trade will recover next year. The World Economic Outlook forecasts worldwide trade to go down 12.7 percent in 2009, following an increase of 2.6 percent in 2008 and 6.4 percent in 2007. The volume of global exports is forecast to head back up 2.8 percent in 2010.
Evangelos Simos, chief economist of the consulting and research firm e-forecasting.com, is editor for International Affairs in the Journal of Business Forecasting.