The Housing and Exports Do-Si-Do

From Paul Krugman:

Why we havent had a recession (so far) - Paul Krugman - Op-Ed Columnist - New York Times Blog: Why we haven’t had a recession (so far) The housing bust has lived up fully to my expectations. So far, however, the economy has held up surprisingly well (ask me again in a few months). How come?

It’s the exports, stupid.

I haven’t seen this chart published elsewhere, but it seems to me that it tells the story. The blue line shows residential investment as a share of GDP (left scale). It has plunged impressively. The red line shows exports as a share of GDP (right scale). Thanks to the weak dollar, they’ve risen almost enough to offset the housing plunge.

Meanwhile, consumer spending has held up, and there has been a modest plus from state and local government spending.

No particular policy moral here, just an observation.

I think that there is a policy moral here. Most of the macroeconomic disaster scenarios I have been painting over the past five years had domestic construction spending falling before exports began rising rapidly. We do seem to have dodged that bullet completely.

God does indeed look after fools, children, and the United States of America...

Comments

[Michael Carroll]

My gut tells me, if the PRC does any meaningfully revaluation over the next 12-18 months, if we can bring Pacific Rim trade into balance, the next president's first term could be one of those special moments in history.

[howard]

i'm thinking along similar lines as michael, and prof, i'm interested (deeply) in your opinion: what is surprising to me is that even as the fall of the dollar has helped exports (just as one would have expected), it has not led to a surge of inflation (or even inflationary expectations), which is not what one would have imagined.

[Abby]

The only problem with this graph is that it shows percentage of the total. Even if exports remained steady, if housing shrinks, exports will increase as a share of GDP...because GDP is smaller! Obviously exports are going up, but they aren't necessarily completely replacing housing, despite appearances of the graph.

[invictus]

not so fast Brad... as the the ECB and BOE start thier rate lowering march, the dollar will likely strenghten and exports will no longer be the almighty saviour. Asset deflation and a strenghtening dollar (meanining exports will not mask the weakness in the U.S.) have not run its course yet.

[vt codger]

Can anyone explain to me what price sensitive commodities other than aircraft (a special case with long leads and lags between order and delivery) the US exports? Seems to me that decades of strong dollars have largely limited our export industries to things like films and computer software that are not enormously price sensitive. I understand the concept of a weaker dollar means more export. I see how a weaker dollar in say 1960 would have benefited the US when we still made widgets. What I'm questioning is whether there is that much stuff produced in the US today that has suddenly become competetive because of lower prices. Could the numbers have some other meaning or interpretation?

[not_scottbot]

Well, exports have to climb, if only to keep America current on paying the bill on its current account deficit.

And as billions (and tens) (and hundreds) (do I hear trillions?) of dollars 'evaporate' from whence they came on the books of various American mortgage lending related institutions, I'm not sure that the growth in exports is going to offset the loss of anticipated spending on the part of America's trading partners, who actually thought their dollar assets would be worth something in the future.

Another interesting point to ponder - how much of the export rise is simply because America is one of the last countries with exportable grain supplies? In which case, the rise in exports is as real as the rise in home values - that is, it tends to be a matter of perspective more than a fundamental change in a dynamic situation.

[Jonathan King]

This is an interesting graph, but a longer history portion would be interesting to see.

Further, as Calculated Risk continually points out, there is plenty of room for greater decreases in both residential *and* commercial (real estate) investment. I simply do not know if there is as much room for exports to grow (especially if there is any weakening in export markets). Holiday season sales were apparently disappointing, so we might not have robust consumer spending to help out. It will be interesting to see how the markets react to this kind of information.

[PeterE]

As the dollar plummets, our exports should increase. And other advantages: Armies of tourists scouring our department stores and shopping malls for bargains, filling our concert halls, visiting theme parks, sending their children to our universities. Foreign companies will outsource their work to U.S. workers. Chinese and Europeans will buy condos and houses in the Bay Area, NYC and Martha's Vineyard as vacation homes. Jobs will be saved, property values will be buoyed up, the GDP will increase at a healthy pace! We are truly blest!

[Aaron]

Rising exports are good news, but they haven't "made up" for the decline in housing. They've just about "made up" for the contractionary impact of higher costs of oil imports. The trade deficit, you'll notice, has barely moved. So I'm still nervous as hell.

[malcolm]

I think the salient question is : if there is an export boomlet, is it creating jobs that replace the lost construction jobs? I am not convinced; the home construction slough has been offset by non residential
construction gains as far as I can tell.

[Robert Waldmann]

the 4 in 0.045 looks like a 1 even thyough the 4 in 0.04 doesn't. This confused me until I saw the graph at Krugman's blog.

[George J. Georganas]

Just a couple of days ago I was told by a structural engineer visiting her parental home in Athens, Greece that her practice in Chicago has held on to something close to normal activity because they have had to build hotels in a hurry for tourists flying in from Europe to do their Christmas shopping in the malls ringing Chicago ! Apparently, those tourists take along shopping lists from relatives and friends, too.
What a relief for the economy !
Economics professors managing to track the real economy really well used to be a treasured rarity. Could this be tidings of a change ? A side-effect of opening up to the outside world through writing for a newspaper and blogging, respectively ?

[Jeff Graver]

vt codger: Don't know if they qualify as commodities, but the CNC lathes our company designs & manufactures have been blowing out the door like a programmer at 5:01 for the last two years.

Most of our growth has been in developing countries. (Most of our installed base, OTOH, is in USA and EU.) I might be using my language wrong, but the way things loosened up in response to the falling dollar makes "price sensitive" seem like a really good description.

I don't think I've ever worked for a company that wouldn't benefit from export growth. Small companies, all of them, and two of five went out of business during the dollar's period of greatest strength.

PS: I'm delighted to have found this blog, along with Egregious Moderation, in the last couple of months. Both the posts and the comments are among the highest caliber I've run across.

[Doug]

As someone who has lived across Asia for nearly 13yrs, i am often surprised at how little people back the US and Europe understand about the fundamental change being undertaken out here. I see it at the level of banking and technology and while issues of decoupling are beyond my remit, i have seen signficant investments by banks and corporates to become efficient, growth-focused entities. Wonder if this is being considered when people discuss the potential of Asia... over and above some flashy, Chinese IPOs that capture the attention of punters... but do not really represent the depth of growth all across Asia. Thoughts anyone?