U. S. Investors are wondering what to expect in terms of earnings growth for domestic companies. Prosperity Concierge believes that further dollar devaluation, rising domestic demand in emerging countries and ongoing household debt contraction in the U.S. will favor industries and companies that export to emerging markets.
Rich Miller, Bloomberg columnist, shares the following to support the case for increased exports to emerging markets.
Mr. Miller:
Emerging-market and developing economies will expand 6 percent as a group this year, compared with 2.1 percent for developed nations, according to a Jan. 26 report by the Washington-based International Monetary Fund.
“The U.S. is well positioned to take advantage of the strength in the emerging markets because the U.S. manufacturing sector has been generating big productivity gains and improving its competitive position,” Carson said. U.S. employee output per hour grew 3.8 percent last year, the largest gain since 2002, according to the Labor Department.
Rising Machinery Sales
Caterpillar, the world’s largest maker of bulldozers and excavators, said Feb. 23 that its dealers reported a 1 percent increase in Asia/Pacific machinery sales for the three months through January from the year-earlier period. The increase is the first since November 2008 and compares with a 40 percent drop in North America, according to data from the Peoria, Illinois, company.
The strength in manufacturing is leading to some hiring. Factory payrolls increased 1,000 last month after rising 20,000 in January, according to the Labor Department. Employers added workers for a second straight month, the first back-to-back gain since 2006.
Shipping companies are also benefitting from faster growth overseas. Atlanta-based UPS, the world’s biggest package- delivery company, saw the volume of its international business grow 11.8 percent in the fourth quarter from a year earlier, while domestic volume fell 1.9 percent.
President Barack Obama is perhaps the biggest proponent of the new-mix model, arguing the U.S. needs to shift the locus of its growth away from the bubble-driven consumption of the past toward exports and investment. He plans to increase government- backed export financing for small businesses by 50 percent, to $6 billion a year.
Alternative Energy
Obama, 48, is also using some of the original $787 billion stimulus program Congress passed last year to encourage investment, including more than $90 billion directed toward alternative energy. Some $524 billion of the package hadn’t been spent by the end of last year.
The lift to the economy from exports and government support is starting to help housing, the tripwire for the financial crisis. Home Depot Inc., the largest U.S. home-improvement retailer, raised its dividend on Feb. 23 for the first time since 2006 after reporting a fourth-quarter profit that topped analysts’ estimates.
“This gives us some cause for optimism in 2010,” Frank Blake, chairman and chief executive officer of the Atlanta-based company, told analysts.
XHB, an exchange-traded fund that tracks homebuilder, construction and home-improvement companies including Home Depot, has risen 9.7 percent this year, although it is down 64 percent from an April 5, 2006, high as the housing bubble began to burst.
UBS, Merrill Lynch
Carson has worked for a variety of financial-services firms since 1981, including Zurich-based UBS AG and New York-based Merrill Lynch & Co., which Bank of America Corp. bought in January 2009.
Prior to that, he served as a senior economist at Detroit automaker General Motors Co. and a staff economist at the Commerce Department, where he represented the department at the Council of Wage and Price Stability during Jimmy Carter’s presidency.
While working at Deutsche Bank in 1997, Carson developed a broad index that consists of consumer, producer, housing and equity prices after then-Fed Chairman Alan Greenspan questioned whether the stock market might be infected by “irrational exuberance.” The aim of the index was to give greater weight to asset prices in assessing the forces at work in the economy.
Sustainable Recovery
Carson, 57, also uses a proprietary liquidity index that focuses on credit and money to chart the future. Gains in this index led him to conclude last March that the economy was on course for a sustainable recovery later in the year, even as it contracted by 6.4 percent in the first quarter, the biggest decline in almost 30 years.
Exports accounted for 2.32 percentage points of the fourth quarter’s 5.9 percent advance in gross domestic product, according to the Commerce Department — its biggest contribution in 13 years and almost twice the 1.23 point share for consumption. Housing contributed 0.13 percentage point.
Investment in software and equipment climbed at an 18.2 percent pace in the period, the most since 2000, and accounted for 1.09 percentage points of GDP growth, its largest in almost four years based on Commerce data. Such spending is a “critical indicator” of businesses’ “animal spirits,” Maury Harris, chief economist at UBS Securities in New York, said in a Feb. 19 report, predicting it will rise 5.7 percent in 2010 and 7.1 percent in 2011.
Temporary Boost
Advocates of the new-normal paradigm argue the economy was boosted in the fourth quarter by temporary factors such as fiscal stimulus and inventory rebuilding and say growth will ebb later this year as consumers, companies and banks conserve cash.
Investment did cool off in January, with bookings for capital goods excluding aircraft falling 4.1 percent after rising 3 percent in December, Commerce figures show.
“Recoveries following financial crisis are more moderate and disappointing compared to traditional economic recoveries,” Richard Clarida, global strategic adviser at Pimco, the world’s largest bond-fund manager, said in a Feb. 23 Bloomberg Radio interview. “And I think that’s what’s in store.”
Carson said he doesn’t dispute many of the details of the new-normal paradigm, just its conclusion: that the U.S. economy will be saddled with 2 percent annual average growth for an extended period. The economy has grown on average by more than 3 percent a year since 1948, and Carson sees no reason why that can’t continue.
“The surprise will not be in the raw numbers for growth but rather in their composition, which will be transformed forever by companies and industries that probably don’t even exist now,” he said.
Related Information in Prosperity News
- Emerging Markets are Hot – Low Debt and High Growth Prospects
- Debt, Unemployment and Slow Growth Continue to Hurt Economy
- Frontier Markets: Lower Price/Earnings Ratio than Emerging Markets
- Emerging Markets – China Export Prospects
- Global Investment, Productivity and Job Growth Ramping Up
- Emerging Markets: China: Rising Incomes and Consumption, Upgraded Factories
- Household Debt Up?: Savings Rate Unchanged, Incomes Rise Little, Spending Up
- Economic Recovery Looking V-shaped As Business Spending Climbs
I think Greenspan is getting senile, today he said that you can stop asset bubbles by increasing capital requirements. That just increases the cost of credit. The next time you have a real estate bubble, you’ll have the same problem, assuming that banks are still in the business of loaning against real estate. If you want to stop this problem, then eliminate the federal subsidies for real estate development and investment, then require people in that industry to put their own money at risk instead of someone elses. If Greenspan really wants to change the banking system, though, then simply ban 95% and 90% LTV loans. Require a bigger equity cushion. BTW, the “too big to fail” argument is a fallacious one. During the Great Depression, Canada had no bank failures. The reason was that their banks were very large. The banks closed branches, etc., but none of them failed. By contrast, the US was dominated by thousands of very small banks, and we had more than 10,000 of them fail. So there is nothing inherently unsafe about a banking system dominated by large banks. The real problem with large banks is that during good times, they don’t provide enough competition for each other.