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Now, world buoys U.S. economy
Rising demand for US exports has offset the domestic downturn in home-building.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the December 18, 2007 edition
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With concern growing about a possible recession, the United States is leaning increasingly on other nations as a source of economic growth.
It's not that the export of American-made goods can single-handedly prevent a slump if US consumers start spending less.
But after years when American consumers have pulled the global economy forward, today the roles are largely reversed. A growing global economy is providing the best source of momentum America has right now, as the nation's consumers struggle to cope with high oil prices and a downturn in the housing market.
How big is the momentum? Enough to offset much of housing's negative impact. Over the year that ended on Sept. 30, a rise in US exports has equaled the decline in residential construction that represents the biggest portion of housing's current drag on growth.
"One of the reasons that the US economy has avoided a recession so far, despite a ... prolonged downturn in the housing industry, is because of the stimulus that the US has received from the global boom," says Ed Yardeni, an economist at Yardeni Research Inc. in Great Neck, N.Y. "It's been a big benefit, and I think it will continue be so."
Global growth benefits the US through several channels:
•The most obvious is that exports have been rising, now running at an annualized pace of $1.7 trillion, up from $1.5 trillion a year ago.
•America's largest companies also gain profits from sales of goods and services by their foreign-based operations. The employees are overseas, but the resulting profits provide a cushion for these companies during a US slowdown. Just ask General Motors Corp.
•The US enjoys access to foreign sources of capital that are more abundant than ever. This includes a continuing flow of investment funds – despite the drawbacks of a weaker dollar and the mortgage woes of US banks. It also means direct investment by foreign firms in US operations.
On Monday, for example, the British/Australian mining giant Rio Tinto announced plans to invest $300 million in a Michigan-based nickel and copper mine.
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