Jay Shambaugh: Export Strength Sign that 'Economy is not Fundamentally Flawed'

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As much as the US economy is struggling, exports have been strong ever since the recession ended.  According to Jay C. Shambaugh, of the McDonough School of Business at Georgetown, exports have risen 23% since the end of the recession.  This is easily explained by the weakness of the dollar, right?  The costs for US goods abroad have decreased along with the strength of the US economy.  Not so fast, says Shambaugh.  Writing at Econbrowser, he points out that the patterns of where exports have risen do not match the dollar's relative decline:

The takeaway for Shambaugh seems to be that, while exports can not serve as the fix for the US economy's problems, their relative strength is a sign that the foundation might not be as cracked as some suggest:

The ability of U.S. firms to increase production and sell to markets where demand is growing is just more evidence that the U.S. economy is not fundamentally flawed or broken. Firms can find workers and increase output where they have customers. Yet while exports to growing foreign markets have been soaring, at home, residential construction has collapsed, structures investment by firms has collapsed, and state and local government spending has declined. All of these are a serious brake on demand. Compounding all this is the fact that real Federal Government consumption expenditures and gross investment in the third quarter was 2% below that of a year ago. This acts as a further brake on growth in output and employment.

Some businesses may complain about fear of regulation (though in surveys their number one complaint is lack of customers) and some commentators may worry about structural unemployment and a lack of appropriate skills amongst the U.S. work force. There is plenty of reason to always make sure that supply side policies are sensible and worker training and education is adequate. But these do not seem to be the problems of today. Based on exports, the evidence shows that where there is demand for their products, American firms are more than ready to produce and to sell.

Read What can exports tell us about the economy? here.


Posted 11-08-2011 8:10 AM by Graham Griffith
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