3 Important Economic Developments You May Have Missed
Business news tends to be the same story over and over: The stock market is volatile, presidential candidates don't agree with each other, there aren't enough jobs, and Europe is a mess. Rinse. Repeat. Same thing day after day.
But some really interesting developments have taken place recently, many of which haven't received enough attention. Here are three.
1. Exports are booming
During the 2008 presidential election, Hillary Clinton worried at a rally in Ohio that "a country that doesn't make anything can't stay strong." Last year, Sen. Sherrod Brown (D-Ohio) bemoaned that this country "needs a real strategy on making things" and said that "we ought to make things in this country." Implying, of course, that we don't.
But we do make things. Lots of things. And the rest of the world is eager to buy our things. Real exports have been booming lately and are now easily at an all-time high:
Source: Bureau of Economic Analysis.
Of the $2.1 trillion America exported last year, $1.5 trillion consisted of physical goods such as food and fuel, and $600 billion were services such as consulting, tourism, and education. Compare that with China, which exported $1.57 trillion worth of goods in 2010, or Germany, which exported $1.3 trillion. For being mocked by its own leaders as a country of shoppers who don't make anything, America is actually one of the top makers and exporters of stuff in the world.
What kind of stuff do we sell? Here's a breakdown of goods exported in July:
Source: Census Bureau.
One of the fastest-growing export categories is fuel products, as the U.S. increases domestic energy production for the first time in decades. The U.S. became a net exporter of finished fuel products last year for the first time since 1949. This, too, doesn't get enough attention.
And the fact that we're selling more goods is a good reminder that we're manufacturing more goods. Real U.S. manufacturing output will probably hit an all-time high this year, some 80% above 1960s levels. Manufacturing employment, however, has plunged. It wasn't until 2010 that China overtook the U.S. as the world's largest manufacturer, and it just barely squeaked by. According to IHS Global Insight, China made up 19.9% of the world's manufacturing output in 2010, compared with 19.4% for the United States.
Going forward, there's a good chance the U.S. won't fall too far behind China in manufacturing. A fascinating recent study by Boston Consulting Group argued that, because of rising Chinese wages, shipping costs, and the higher productivity of American workers, within five years "the cost gap between sourcing in China and manufacturing in the U.S. will be minimal."
That could mean more manufacturing in the United States. "When all costs are taken into account, certain U.S. states, such as South Carolina, Alabama, and Tennessee, will turn out to be among the least expensive production sites in the industrialized world," the report wrote. If true, that might be one of the most important economic trends of the next few decades. And few people are talking about it.
2. Small-business employment is almost fully recovered
Search the phrase "small businesses aren't hiring," and you'll be greeted with thousands of articles arguing why small business aren't hiring -- too many regulations, not enough regulations, high taxes, and so on.
But few of the articles question whether the assumption that small businesses aren't hiring is true to begin with. Turns out, they are hiring. Small-business employment is within 1.5% of where it was when the last recession began in late 2007, having recovered most of its recessionary decline. Compared with large businesses, small businesses are in a hiring boom:
Sources: ADP, author's calculations.
There's a common idea that big businesses recovered quickly from the recession while small businesses have been held back. In terms of profits, that might be true. But for hiring it's the other way around. It was big businesses that savagely cut employment and are now hesitant to rehire. Small businesses have nearly put the recession behind them.
3. Interest payments on the national debt are near the lowest levels in more than 40 years
The national debt exploded over the past three decades (or have you heard that?), from $1 trillion in 1982 to nearly $16 trillion today.
But something else happened during that time: Interest rates fell through the floor. So much, in fact, that the amount of interest paid on the national debt as a percentage of the economy is now at the lowest level since the 1970s:
Sources: Office of Management and Budget, Federal Reserve.
Think about this: In 1995, the national debt was $4.8 trillion and interest payments were about $230 billion. In 2011, the national debt was $15 trillion and interest payments were about ... $230 billion. We tripled the national debt without paying a penny more in annual interest. For perspective, if the interest rate on the national debt were at 1995 levels, annual interest payments would be about $500 billion higher than they are now. That's more than we currently spend on Medicare.
Of course, interest rates will rise one day. When they do, it will be ugly. But the Treasury has taken steps to soften the blow by lengthening the average maturity date on the national debt, helping to lock in today's low rates. As of June, the average maturity on federal debt was 64 months -- the highest in more than a decade, and above the long-term average of 58 months. That won't solve the debt problem -- not by a long shot -- but don't underestimate how much low interest rates are saving taxpayers.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.
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