Bloomberg News

Record U.S. Exports Led by Caterpillar Seen in World Markets

December 13, 2011

(Updates Caterpillar and Standard & Poor’s 500 Index prices in paragraphs 15 and 19.)

Dec. 5 (Bloomberg) -- U.S. exports, a driver of expansion in the world’s largest economy, will grow next year even as a sovereign-debt crisis pushes Europe into recession.

The euro area’s share of overseas sales for American-made goods has dwindled to 13 percent from 19 percent at the peak in the early 1990s, according to Joseph Carson of AllianceBernstein LP. A trade shock that cuts all euro-zone imports by 10 percent in the next 12 months would trim U.S. economic output by only 0.2 percent, UBS AG estimates.

Total U.S. exports -- responsible for almost half of growth since the 18-month recession ended in June 2009 -- reached a record $180.4 billion in September, even as Europe’s woes were escalating. America’s push into faster-growing emerging markets such as China is helping to sustain demand for goods from Caterpillar Inc. machinery to Apple Inc. iPhones.

“The best thing for the economy is that growth in the rest of the world is positive,” said Carson, director of global economic research at AllianceBernstein in New York and a former Commerce Department economist. “It is likely our exports slow down, but it doesn’t mean they collapse. We’ll still have an investment- and export-led expansion next year.”

Sales of U.S. goods abroad have jumped 29 percent in the nine quarters of the recovery, the fastest growth at the start of any economic rebound in the past five decades, as the country “piggybacked” on demand in developing nations, said Carson, who is also a former chief U.S. economist at Deutsche Bank AG.

U.S. merchandise exports to emerging economies climbed 20 percent through September from a year earlier, while sales to the euro area grew 14 percent, Carson said. Developing markets now account for 55 percent of U.S. goods shipments, which include crude oil and natural gas, up from 40 percent in 2000.

Net Exporter

The U.S. has become a net exporter of oil products for the first time since 1949 as companies from Valero Energy Corp. to Marathon Petroleum Corp. process more crude to feed demand in Mexico and Brazil, where growth outpaces the U.S.

“Europe is important but not nearly as important” as in the past, said Jim Paulsen, Minneapolis-based chief investment strategist at Wells Capital Management, which manages about $340 billion. “At the heart of the U.S. export story is a consumer- based emerging world.”

President Barack Obama, during a trip last month to the Asia-Pacific region, repeatedly highlighted the need to boost exports to Asian markets to accelerate expansion and reduce unemployment, which was 8.6 percent in November. In a Nov. 17 speech to Australia’s Parliament, he said he’s made a “deliberate and strategic decision” that the U.S. must have a long-term role in Asia, which accounts for half the global economy.

Key Partners

U.S. neighbors also remain key trade partners. Merchandise exports climbed 22 percent last year to Canada, which receives 19 percent of America’s shipments and 27 percent to Mexico, whose 13 percent share matches the euro zone’s.

The 17-nation currency bloc is already in a “mild” recession, with growth forecast to slow to just 0.2 percent in 2012 from 1.6 percent this year, the Organization for Economic Cooperation and Development said Nov. 28. The U.S. will expand 2 percent next year after 1.7 percent in 2011, it projected.

Even with Europe’s slump, a combination of factors bodes well for U.S. exports. The dollar’s 11 percent decline since June 2010, as tracked by IntercontinentalExchange Inc.’s Dollar Index, has made American goods cheaper abroad. Rising emerging- market wages also mean more purchasing power for consumers and a shrinking cost gap that helps U.S. exporters, Paulsen said.

Demand in developing countries may reaccelerate by the middle of 2012, after having cooled as central banks, including those in China and India, raised borrowing costs earlier this year to tame inflation, he said.

‘Pretty Big Pickup’

“The U.S. could see a pretty big pickup in exports even without Europe,” Paulsen said, adding that this will boost stocks tied to exports and manufacturing, including industrial and technology companies.

Goldman Sachs Group Inc. raised Caterpillar, the world’s largest construction and mining-equipment maker, to “conviction buy” from “buy” on Nov. 13, with a 12-month price estimate of $118 a share. It was $97.55 at 11:43 a.m. in New York. The Peoria, Illinois-based company forecasts revenue will climb as much as 20 percent in 2012, assuming “not a worldwide recession, but actually quite poor growth,” Michael DeWalt, director of investor relations, said in a Nov. 8 teleconference.

Rockwell Automation Inc., a maker of factory-automation software and products, is “cautiously optimistic” about 2012 even with “the possibility of a mild recession in Europe” proving a headwind for profit, Chief Financial Officer Theodore Crandall said on a Nov. 17 conference call with analysts.

‘Unsettled Global Economy’

Deere & Co., the world’s largest farm-equipment maker, forecast 2012 profit on Nov. 23 that topped analysts’ estimates even as it cited an “unsettled global economy.” Farm-machinery industry sales in the U.S. and Canada will rise between 5 percent and 10 percent for the year, may be little changed in Western and Central Europe and South America, and up “strongly” in Asia, it said in a statement.

Investors also may find developing-country equities a good bet, especially as they’ve become “much less popular now,” Paulsen said. “That makes for a good entry point.”

The MSCI Emerging Markets Index has lost 20 percent since this year’s peak on May 2 of 1,206.49, while the Standard & Poor’s 500 Index has fallen 7.2 percent.

Exports added 1.14 percentage points to America’s 2.4 percent economic growth since the second quarter of 2009, Carson said. Overseas shipments, adjusted for prices, may expand 6.4 percent in 2012, compared with 6.9 percent this year, he forecasts.

Small Share

American goods exports to the euro zone make up less than 2 percent of U.S. gross domestic product, said Stephen Stanley, chief economist for Pierpont Securities LLC in Stamford, Connecticut. Even a 20 percent plunge in the shipments, which “would require something close to a depression” on the continent, would shave less than 0.4 percentage point from U.S. growth, he said.

One reason is that almost 75 percent of goods shipped to the euro area go to Germany, the Netherlands, Belgium and France, its relatively resilient economies, Carson said. All four countries are predicted to expand in 2012, he said.

“Europe would have to have a catastrophic collapse to make a real significant dent on our GDP, and even then, it would be evident in our financial system long before it shows up in our exports,” said Stanley, a former Federal Reserve Bank of Richmond researcher.

Cheaper Borrowing

To prevent such a collapse, six central banks led by the Fed made it cheaper last week for banks to borrow dollars in emergencies, in a global effort to ease Europe’s debt crisis. European policy makers gather this week under pressure from investors to intensify their crisis-fighting or risk deeper financial turmoil and perhaps the breakup of the single currency region.

The European Central Bank’s Governing Council, under the chairmanship of new President Mario Draghi, meets in Frankfurt Dec. 8, hours before European leaders begin convening in Brussels for another round of talks.

Demand for American goods also may wane if the global slowdown worsens, exacerbated by economies more dependent on exports to Europe. Forty-seven percent of the U.K.’s overseas shipments and 17 percent of China’s are bound for the euro zone, UBS economists estimate.

While trade between the U.S. and Europe may never become “trivial,” the expanding role of non-euro destinations indicates “exports will remain one of the bright spots for U.S. growth,” Pierpont’s Stanley said.

Vulnerable States

Even so, some states are more vulnerable, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Almost 6 percent of Utah’s GDP is tied to exports to the European continent, followed by South Carolina, West Virginia and Louisiana, he said.

Utah’s outlook is tempered by the fact that its largest exports, gold and silver, go mainly to the U.K. rather than a euro nation, said Vitner, who tracks U.S. and regional economic trends. Slowing demand for West Virginia’s coal may be cushioned by Germany’s desire to move away from nuclear energy, he added.

As part of a goal to double exports by 2015 from 2009 levels, Obama is trying to forge the Trans-Pacific Partnership with Chile, Peru, Australia, New Zealand, Malaysia, Singapore, Vietnam and Brunei. Europe’s crisis, which will slow exports rather than tip the U.S. into recession, underscores the need to diversify, Vitner said.

“The takeaway is that companies need to be nimble and be able to adapt quickly to changes in the global economy,” he said. “If exports are a big part of your business, you don’t want to be locked into any one area.”

--With assistance from Simon Kennedy in Paris and Carlos Torres and Alexandre Tanzi in Washington. Editors: Melinda Grenier, Gail DeGeorge

To contact the reporter on this story: Sho Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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