Now Creating American Jobs: The Boom in Emerging Markets

A presidential election year is fast approaching. And as politicians and the press know well, few things get voters' attention like talk about the U.S. losing its economic advantage to other countries.

It shouldn't be surprising, then, that both parties have upped their rhetoric on what America needs to do to stay ahead, and major press outlets are featuring the story prominently.

But investors should be more discerning when it comes to the constant metaphors used to frame the world economy as if it were a war or zero-sum competition. While worries about China overtaking the U.S. get plenty of ink, investors should remember that economies cooperate as much as they compete when it comes to how things work on the world stage.

And as fast-growing emerging-market economies trigger a U.S. manufacturing boom that's finally showing marked job gains, that cooperative element of world trade is on full display.

Production and Hiring Are Surging

Fears of currency wars generated plenty of unneeded anxiety last year, and shrill accusations of countries stealing jobs from each other continue to abound. But rather than merely creating competitors, the red-hot growth in emerging economies also helps the developed world. Despite widespread cynicism about their prospects, manufacturing powerhouses like Japan and Germany are getting a major boost from the rise of the developing world.

The U.S. is witnessing a much-needed manufacturing renaissance as well. Production across the country is surging, and that's leading to big employment gains in the manufacturing sector.

Goods-producing employment rose by 70,000 in February, led by "healthy manufacturing gains" of 33,000, analysts at TD Economics wrote in a research note this week. Given the pessimism that has plagued the U.S. outlook, the potential for a virtuous cycle may have been easy to dismiss.

Consumer Strength Is Undermining the "New Normal"

A year ago, some analysts had bucked the prevailing gloom to predict that rising emerging-market demand would trigger a manufacturing boom in the U.S. and help rebalance the domestic economy. But a far more pessimistic outlook put forward by bond giant Pimco, which it called the "new normal," got all the attention. According to that view, investors would have to go overseas to find growth as U.S. consumers focused on paying down debts for years and dampened demand at home.

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While the "new normal" got the spotlight, instead it's the "new mix" view that's proving to be correct. For starters, the U.S. consumer is hardly as moribund as those in the "new normal" camp were predicting. As job losses abate, consumers are becoming more confident and willing to take out loans again. Witness the unexpected gains in consumer credit in to start off the year.

Increased hiring is likely to make consumers even more comfortable and boost overall demand. And booming global growth is further helping U.S. consumers, much as the "new mix" camp predicted.

"Jobs -- at leas in the private sector -- appear to have finally showed up at a party that started a long time ago," analysts at TD Economics wrote. "Economic growth is likely to accelerate further in the second quarter, which should make [200,000 plus jobs a month] the new normal." At that rate, in the coming year the U.S. will make up for 2.4 million of the 8.7 million jobs lost during the downturn.

A Healthy Rebalancing Is Underway

Other analysts also see the potential for strong manufacturing sector job growth ahead. Working off data from the Conference Board, analysts at Ned Davis Research wrote in a research note that hiring is expected to continue in March in both manufacturing and services.

"Notably, the net share of manufacturing firms planning to add to their payrolls rose to the highest since July 2007," the analysts wrote.

As presidential elections get closer, politicians will espouse plenty of big ideas to get America on the right track. But investors should take the rhetoric with a grain of salt. A healthy rebalancing of the world economy is already underway, and the U.S. is far more competitive than it's often given credit for.