Manufacturing Could Help Lift US out of Recession
Weakness in financial and real estate sectors plus sluggish spending by consumers put focus on exports
UNITED States companies may find the domestic market sluggish, but business is brisk overseas.Manufacturing exports will stimulate the US economic recovery, say government and private economists. Representing 23 percent of the nation's economy and 20 percent of the work force, a robust manufacturing sector is key to a rebound and necessary for long-term economic growth. US exports picked up in the late 1980s. According to the Council on Competitiveness, the US accounted for over 11 percent of world manufactured-goods exports last year, up from 8.5 percent in 1986. Recent manufacturing data point to increased activity in the nation's economy. May's 3.8 percent increase in orders for long-lasting manufactured goods was the biggest rise in over a year. June's index of the National Association of Purchasing Management - a survey of 300 purchasing executives - jumped higher than April, continuing a five-month gain. Indexers say the increase shows economic expansion. That contrasts with other leading economic indicators that show few signs of revival. The Commerce Department last week reported a 1 percent fall in construction spending from April to May. Consumer confidence edged up only slightly in June, according to the Conference Board, a private business research group. Consumer spending, roughly two-thirds of the economy, is not likely to rise much because income growth is stagnant, says Barry Bosworth, an economist with the Brookings Institution. "We won't see the disposable income in the next few years that we saw in the 1980s," he says. What all this means, according to Jerry Jasinowski, president of the National Association of Manufacturers, is that manufacturing will drive US economic growth. With the domestic market soft, he says, the best prospects are abroad. Economists, however, are mindful of fluctuations of global interest rates and the value of the dollar, which affect the price of US goods abroad. The dollar has been low during the past year, but is now rising, posing a potential threat to US exports. "Given the weakness in the financial and real estate arenas, and with the consumer tapped out, we'll rely on exports, inventory growth, and investments to pull us out of recession," says Mr. Jasinowski. "Manufacturing is the most important sector with respect to this economic recovery. Others have been driven by housing, or the financial sector." Recession-wary businesses have concentrated on drawing down their stocks over the past year in order to avoid a big buildup of goods. "Current output and economic activity increases are a reflection of the expectation of businesses about what they'll be able to sell relative to where inventories are," says Michael Boskin, chairman of the White House Council of Economic Advisers. "When inventories are quite lean, demand translates into production much more quickly. You don't wait for goods that have accumulated on the shelves to get sold first." Jasinowski says that US business activity will continue well beyond the new order surge necessitated by low inventories. "In stark terms," he says, "the only way we'll achieve strong economic growth in the 1990s is through a robust manufacturing sector," generated by export demand. John Macomber, chairman of the US Export-Import Bank, says roughly 80 percent of US economic growth has been export-driven. The bank's operations - designed to finance US exports through loans, insurance, and guarantees - are driven by growing demand, he says. Mr. Macomber is encouraging small and medium-sized firms to explore export markets. "That's where the growth potential is," he says. But trouble lies ahead, says Jasinowski. "Our strong manufacturing sector is being dragged down by a weak banking sector." Those firms who get their working capital from banks will have trouble securing credit for the next five years, he adds. One of Mr. Boskin's major concerns about the strength and duration of economic recovery is the availability of credit. "The credit crunch," he says "was one of the causes of recession." Jasinowski cites other impediments to business expansion: soaring health-care costs, legal fees, and environmental regulations. Margo Thorning, chief economist with the American Council for Capital Formation, says the high cost of capital plus the need to finance pollution control equipment, for example, is handicapping US business and provides a competitive edge to foreign competitors such as Japan, Germany, and South Korea. Despite these problems, Jasinowski believes growth in US exports will continue to outpace imports. By the mid-1990s, he says, the nagging US trade deficit (currently at its lowest level in seven years) will be redressed. He says US exports to the European Community have increased dramatically, from a $20 billion deficit in 1987 to a $10 billion surplus today. Exports of manufactured goods - some 80 percent of overall exports - have increased by 15 percent annually, over the past five years, twice the gr owth of imports.