Wednesday, February 24, 2016

The Export Conundrum

As we have seen over the past few months, the global economy is showing increasing signs of weakening at the same time as the U.S. economy is showing signs of modest strength.  In today's global economy, this makes little sense; with global trade, when one nation's economy sneezes, others catch cold.  There is, however, one indicator that is showing what lies ahead for the American economy.

Here is a graph showing the value of U.S. exports over the past five years:

Exports reached a peak of $197.8 billion in October of 2014 and have fallen to $181.5 billion in December 2015, a decline of 9 percent.

Let's look at the ten year record of U.S. exports:

As we can see, the value of U.S. exports dropped markedly during the Great Recession, recovered quite quickly through to the beginning of 2012 then levelled off during the remainder of 2012 through to late 2014 when the level began to drop.

Here is a chart showing the nominal value of U.S. exports from 1950 to the present:

You can quite clearly see the drop in exports that took place during both the 2001 recession and the 2008 Great Recession.  You can see that the current drop in exports that I have outlined above is quite unusual.

This decline in exports is a reflection of the poor state of the global economy.  The economies of both Europe and China, two of the world's major traders and consumers, are weak at best.  This weakness and the ongoing interest rate meddling by the Federal Reserve has resulted in a rising U.S. dollar which makes U.S. products far more expensive to foreign consumers.  Here is a chart showing how the U.S. dollar index has risen in value since mid-2014 when the Fed began to telegraph its higher interest rate policy:

With U.S. exports showing significant weakness and no sign of accompanying weakness in the United States dollar, we have an interesting explanation about why the economy simply doesn't feel like it is still in an expansion phase. 

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