Mid-year Export Trends
Recently released data on U.S. foreign trade for July from the U.S. Census Bureau and U.S. Bureau of Economic Analysis (BEA) show an improvement in exports of U.S. goods. On a month-over-month basis, exports increased $1.8 billion, to $138.6 billion. This rise in exports—which helps to narrow the trade deficit—points to a stronger pace of U.S. gross domestic product (GDP) growth for the third quarter of 2014 relative to earlier this year.
July’s improvement in trade performance also bodes well for the economy of the Seventh Federal Reserve District. As seen below, exported manufactured goods make up a greater percentage of District production than of national production. Moreover, each District state’s ratio of manufactured export value to annual state output meets or surpasses the nation’s ratio of manufactured export value to GDP (7.1%). Notably, by this measure, Indiana and Michigan significantly exceed the nation as a whole, owing to their strong industry concentrations in transportation equipment (cars and trucks).
Chart 1. Manufactured export value as a percent of gross state product
Looking more closely at July’s performance, one can see that the composition of July’s U.S. export growth favored District industries. As the Census/BEA trade report states: “The June to July increase in exports of goods reflected increases in automotive vehicles, parts, and engines ($1.7 billion); industrial supplies and materials ($1.3 billion); and capital goods ($0.4 billion).” In addition to the District economy’s high concentration in the export of transportation equipment, several District states also export significant amounts of capital goods: machinery and equipment such as agriculture, construction, and mining equipment, as well as computers and electronic equipment (see below). Moreover, several District states export chemicals, including both industrial chemicals and pharmaceuticals.
According to measures of export growth in first half of the year as compared to a year ago, not all industry categories have been holding up in 2014 (see below). Of particular note, machinery exports from Illinois, Michigan, and Wisconsin have been lagging compared to last year’s first half. And while automotive sales and production have been generally growing, transportation equipment exports from Michigan, Wisconsin, and Illinois recorded declines in first six months of 2014 over last year.
Table 1. Value of manufactured exports: Seventh District ($ millions)
And so, if continued export growth can be sustained for the rest of this year and beyond, it will be welcome news for the District economy. Following a surge in growth during 2010–11 (see below), District (and U.S.) manufactured exports slumped in tandem with slowing growth in eurozone countries, which are important buyers of District manufactured goods. District manufactured export growth has also faltered on account of slower economic growth in China and in other lesser developed countries. Since global economic growth slowed down, global demands for commodities such as minerals and energy have eased, depressing Midwest exports of mining and construction equipment.
Chart 2. Origin of manufactured exports: United States vs. Seventh District states (percent change in the 12-month moving average)
Rising District manufactured exports in 2014 would be consistent with modestly stronger global economic growth as compared with 2013.1 As of its July forecast, the International Monetary Fund (IMF) expects global growth to be 3.4% this year, up from 3.2% in 2013 (see below). World economic growth is expected to further accelerate to 4.0% in 2015, according to the IMF. As our trading partners continue to experience faster economic growth, we can expect that their purchases of the District’s manufactured goods, such as machinery, transportation equipment, and industrial supplies, will begin to bolster the region’s manufacturing production.
Chart 3. Global GDP growth and outlook (percent change year-over-year)
Note: Thanks to Rebecca Friedman and Paul Traub for assistance.
1 Year to date through June, the five District state total of manufactured exports has risen 1.4% from $91.2 billion to $92.6 billion, according to Chicago Fed Staff calculations using data from the US Census Bureau, the Bureau of Economic Analysis, and Haver Anlalytics.