Mon, Jun 25, 2012Europe Imperils U.S. Sales From Chemicals to PCs
American exporters from Dow Chemical Co. (DOW) to Hewlett-Packard Co. are preparing for a further decline in demand from Europe as the region’s deepening debt crisis threatens to derail a source of strength for the U.S. economy.
JPMorgan Chase & Co. cut its forecast for second-quarter growth to 2 percent from 2.5 percent last week, in part because of a deteriorating trade balance. Earlier this month, it lowered its third-quarter estimate to 2 percent from 3 percent, “with much of the downward revision accounted for by an expectation that the pace of export growth will slow,” chief U.S. economist Michael Feroli said in a June 1 research note.
U.S. exports to the 27-nation European Union dropped 4.8 percent in the year ended April, the worst 12-month performance since November 2009, Commerce Department figures show. By comparison, total U.S. exports were up 3 percent in April from the same time last year. The slump in Europe coincides with slowing growth in other major markets for U.S. goods, such as China and Brazil.
Exports have contributed 1.1 percentage points to growth on average since the third quarter of 2009, when the recovery began, accounting for almost half of the 2.4 percent average quarterly gains in gross domestic product, according to figures from the Commerce Department. By comparison, sales to overseas buyers boosted GDP by an average 0.8 point in the six-year expansion that ended in December 2007, as the economy grew at an average 2.7 percent annual pace.
The European Central Bank forecast this month that the 17- nation euro area economy will contract 0.1 percent this year before returning to growth of 1 percent in 2013.
Overseas sales have helped drive manufacturing, which has been one of the bright spots of the U.S. since the expansion began three years ago. That may be starting to change.
Manufacturing grew at a slower pace in May as factories tempered production and pared inventories in response to weakness in the global economy, according to a June 1 report from the Institute for Supply Management. The ISM’s factory index fell to 53.5 after reaching a 10-month high of 54.8 in April. Readings greater than 50 signal growth. Its export gauge dropped to the lowest level of the year.
In addition to the weaker demand, U.S. exporters will be hit by a weaker euro, which makes American goods more expensive in Europe, Peterson’s Hufbauer said. “It’s going south from where it is now, and that will hurt U.S. exports.”
The euro has dropped 4.1 percent against the dollar in the three months to June 15, the third-worst performance among Group of 10 currencies after the New Zealand dollar and Australian dollar. The euro traded at $1.2570 at 1:18 p.m. in New York.
Even so, U.S. trade is less vulnerable to Europe’s woes than some other countries that rely more heavily on trade.
A decline in exports “is a weight on GDP growth in the U.S., but this category is not large enough by itself to cause a sharp slowdown,” said Dean Maki, chief U.S. economist at Barclays Plc in New York.
Germany’s economy is “incredibly strong” and the U.K. is performing well, while Spain, Portugal and Eastern Europe “are still declining some,” Robert Dutkowsky, chief executive officer of Clearwater, Florida-based computer products distributor Tech Data Corp., told a May 22 investor conference. “It’s a whole variety of economies.”