Trade Deficit Shows Need to Improve Exports

The Commerce Department stated on Tuesday that the trade gap increased in September 7.6% to $43.03. It is much larger than the estimated $38.1 billion. It is believed that an improving GDP will lend to improvements in exports but this not what happened. The results may be long-term or short-term but do reflect a need for the U.S. to adjust its policies to return to a higher exportation status unseen since a generation ago. Exportation is a solid reflector on internal capacities of a nation to meet market demands.

Much of the recent decline is associated with global economic factors much outside the control of the U.S. The biggest losses were a 6.5% decline in exports to the European Union, 3.2% to China, and 14.7% to Japan. The losses seem to reflect lower economic activity in all three regions of the globe and may simply be a factor of total consumption.  That doesn’t mean the country can’t improve its export capabilities.

Outside of a slower global economy are two major points that should be considered. 

Dollar Value: The dollar has an impact on the total cost of American made products to foreign buyers. When the dollar is cheaper American products become cheaper as well. Research supports the idea that the deflation of the dollar improves exports (Bahmani-Oskooee & Ardalani, 2006). The opposite is also true; a rise in value of the dollar makes imports cheaper and lends to increased trade deficits. 

Regional Export Specialization:  One of the reasons why I am an advocate of regional hubs is that specialization raises exportation but is not so much as to thwart adjustments into complementary products and services when the market shifts. According to Naude, Bosker, & Matthee (2010) and their analysis of exportation found that specializations increased local economic development.  

The dollar amount is difficult to adjust unless you artificially deflate its value while a global slowdown isn’t something in our control. However, ensuring that a greater allocation of international business is in the hands of American companies and worker pockets is important. This requires a level of hub based development focus to create efficiencies that lower the overall cost of production that make companies more competitive. 

When regional hubs are attracting investments, improving their infrastructure, developing the right skills in the local labor market, and generating market breakthroughs they naturally lower the cost of production and improve market relevance. The dollar may be worth more but the cost of production is lower to thwart its damaging effect. A higher dollar can be used to purchase raw materials and turn them into higher profit exports. 

http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

Bahmani-Oskooee, M. & Ardalani, Z. (2006). Exchange rate sensitivity of U.S. trade flows: evidence from industry data. Southern Economic Journal, 72 (3).

Naude, W. Bosker, M. & Matthee, M. (2010). Export specialization and local economic growth. World Economy, 33 (4).

Poll Shows Investors are Optimistic in 2014-Can We Find a Place for Their Money?

A Morgan Stanley poll of high net worth individuals found that 88% of investors are optimistic about their future economic prospects. High net worth individuals are people 25-75 with at least 100K in investable assets. A third of these individuals have at least a million dollars of investment assets and can significantly impact national economic growth if they believe that investing today will earn them higher rates of return in the short, medium, and long-term future.  

Investors are expecting a positive investment environment over the next year. Eighty-eight (88%) believe their worth will rise, 84% believe their investment portfolios will stay the same or improve, and 70% envision a better investment climate. This optimism pushes the belief that investment prospects are growing and a few gold nuggets provide for higher growth sectors.

Positive impressions are persisting despite some looming problems in the governance and the geo-political issues of our times. A total of 90% of those polled are somewhat concerned about prospects of the nation, 87% about government budgets, 82% about international conflict, 81% about trade deficits, and 75% about terrorism. America has a stable but adjustable system that can attract investors if they believe policy makers are trying to solve problems and create win-win situations. 

Starting to make small adjustments in government spending to ensure that money is being wisely spent in a manner that raises the functionality of the nation; economic and human. The very way in which government representatives handle international conflict to reduce risks or the development of stronger treaty management to fosters hub growth can be an important topic of discussion.

This year technology is seen as a hot market by 72% of investors who feel it has high growth potential. New products are being developed at a sufficient pace to make investment returns higher than other markets. Other areas of positive investment include bio-tech (67%), energy (66%), pharmaceuticals (61%) and communications (54%).

The U.S. is considered the best place to invest money by 52% of investors followed by China (41%), India (39%), Japan (38%) and Brazil (34%).  National investment positions are a vote of confidence in the entire environment that includes everything from infrastructure to political stability. Those who prefer one nation over another due so based upon risk assessment and their personal affiliations with that culture. 

High optimism are rare opportunities to boost improving growth by putting together investment pathways through better open data management. Economic growth is heavily influenced by human psychologies (Dhaoui, et. al., 2013). Encouraging investors to find locations where their personal investment optimism match with local clusters that need investment capital can make a difference in national growth. 

Approximately 2.5 trillion dollars are held by institutional investors in the U.S. (Voorhes & Humphrey’s, 2013). Factoring in sustainable and responsible principles among the decision-making matrices institutional and capitalist investors use can better ensure this money is making it to areas that have the widest sociological and economic impact. When investors and labor both reap the benefits societal stability increases and motivation rises.

American growth relies on many factors that are too numerous to mention within a short article. It is possible to say that improved investment optimism, stronger political decision making, and stronger information on investment “hot spots” within local clusters and hubs can ensure that optimism doesn’t go to waste. Optimism can beget more optimism with paths open to more opportunities.

As Robert Trout the WWII news broadcaster known as the “Iron Man of Radio” stated with eloquence, “A successful society is characterized by a rising living standard for its population, increasing investment in factories [i.e. hubs and clusters] and basic infrastructure, and the generation of additional surplus, which is invested in generating new discoveries in science and technology.”

The Report: http://www.morganstanley.com/about/press/articles/e1f23a70-90cd-4948-bc41-ba663837dd8f.html

Dhaoui, A. et. al. (2013). The impact of investor psychology on stock markets: evidence from France. Journal of Academic Research in Economics, 5 (1). 

Voorhes, M. & Humphreys, J. (2011). Recent trends in sustainable and responsible investing in the United States. Journal of Investing, 20 (3).

Fostering Economic Development Through Industry Clusters

The development of higher economic states requires linkages between like minded individuals and their resources to start a generative process. A paper by Popa and Vlasceanu (2013) highlights how clusters, policies and sustained economic growth work together to prove development.

There is a natural lack of trust between economic elements as well as business and government. It is important for economic actors to find shared perceptions and work together on common principles and goals.

Regional clusters should understand their strength and weaknesses and find  competitive strategies. They should also understand how their cluster fits with other clusters and regional economic development.

When clusters develop they do so within a wider network of companies and economic activities. Their core competencies and tighter connections separate them from other hub clusters.

To develop stronger clusters, policies will need to have the wisdom to work with economic actors to create pro growth and trust building policies that foster the widest advantages for the most amount of people. Without trust and the right economic environment growth is unlikely and therefore cannot lead to sustainable development.

Pops, I & Vlasceanu, C (2013). Cluster policies in the European Union-engines for sustainable economic development and competitiveness. Annals of the University of Oradea, Economic Science Series, 22 (1).

Will The U.S. Soon Be a Hot Manufacturing Nation?

Will American make its way back into leading manufacturing status? A report by the Boston Consulting Group indicates that the U.S. will see increases in manufacturing over the next couple of years as parity is achieved due to lower natural gas prices, stagnated wages in the U.S. and higher costs overseas. With a decline of energy costs from oil shale dropping to 50% and increases in the cost of manufacturing in countries like China there is much to cheer in the U.S. The good times can roar again.

American workers are becoming more productive, Chinese workers are more expensive, and the associated costs of manufacturing overseas have risen. A report by the Congressional Research Service found that the U.S. share of global manufacturing declined 30% in 2002 and that number dwindled  to 17.4% in 2012 (1). The new report by the Boston Consulting Group indicates that the costs of manufacturing in the U.S. versus many other places like China will be about the same giving the U.S. advantages. 

At present the advantage of producing products in low cost countries such as China and Asia is less than 5% (2). The U.S. and Mexico are starting to look like great places to manufacture items again. Mexico has had some increases in wages but their productivity has risen much more making them a local cheap labor supplier (3).  The U.S. as a producer of high technology and advanced manufacturing with a regional partner in Mexico is covering both the high and low demographic markets of production. 

Each region of the world has some high and low cost manufacturers. Large multi-national firms can move into areas that seek them the best advantages. These advantages can come from a whole range of factors that may include production costs, labor costs, labor skill, infrastructure, tax rate, telecommunications, science development, shipping costs, etc…  They have also not considered economically suppressed areas within the U.S. that could benefit from increased investment while being supported by stronger tertiary areas.

Many companies are likely to move back to economically stable nations. The U.S. with its increasing competitive costs and relatively stable political structure can be attractive to large multi-national firms. If a windfall of re-investment in the nation comes forth it will likely adjust the shipping and distribution channels across the world to ensure that more products move in and out of the country before heading to their final destinations. Asia will also likely become a larger consumer base where products are sold and a slightly slower manufacturing base where products are built.

Boston Consulting Group (2014). Made in America, Again. Why Manufacturing Will Return to the U.S. Retrieved April 25^th, 2014 from https://www.bcgperspectives.com/content/articles/manufacturing_supply_chain_management_made_in_america_again/

The Economic System as an Avenue of Needs Fulfillment

The economic system permeates our entire existence from cradle to grave. From our socialized beginning to our elder years we are constantly making choices that impact our social and financial positions in society. Our very first experiences in life help us internalize certain cultural traits that become the foundation for our viewpoints and our ability to compete on the market. Economic hubs and nations are collective traits of our economic values that maintain patterns across society. All systems start with very personal biological, sociological, and psychological choices we may not be fully aware of and make their way throughout society to determine the success or failure of a nation in the global market.

Our economic system starts in our biological, psychological, and sociological core. Neuroeconomics is a concept that tries to explain how we make subconscious choices to purchase products, trust one another, or engage in certain activities beyond the simple mathematical equations of present day economists. It is a deep process that connects to our biology but also takes into account our psychological and social needs.

Culture influences our viewpoint of the world and our ability to compete in it. As we internalize the values of our society and behavior we ultimately set upon an acceptable way of viewing the world and viewing ourselves within that world. This defines what behaviors are acceptable and what behaviors are not acceptable within society. Such behaviors become a vantage point of life and make their way in repeated form throughout our history.

On a conscious level we compare and contrast our limited resources to determine where we are most likely to compete. We use our limited experience and known skills to compare against the potential acceptance in our social networks to choose our occupational paths. Some will go to college and others will move into trade schools. Each offers opportunities to redefine ourselves and obtain needed skills to adequately fulfill these psychological, sociological, and biological needs.

If we were to add up all of the choices people make, and the culture vantage point  they use to make those choices, we will have the economic indicators for a state, city, or regional hub. Indicators will include the economic choices of education, occupation, expended effort, skill development, innovative ability, employment opportunities, social outlets, recreational pursuits, etc…(i.e. demographic trends) When certain economic similarities in choice, sociological behavior patterns, and psychological streams of conscious begin to define an area you have found the segmented borders of a hub and market.

Diversity of perspective that maintain shared goals can improve upon the abilities of participants within an economic hub. As all understanding is socially negotiated it is important to connect those with diverse opinions to each other to develop a more accurate understanding of the world, market, product, lifestyle, etc… When diversity, knowledge, and experience are used to enhance decision-making and find new and more accurate solutions to problems you have maximized human capital  development.  Maximization of human capital can be seen as the motivational  pressures and available pathways to achieving biological, sociological, and psychological fulfillment within a particular system.

Economics is the added sum of all of our choices and opportunities. Those nations with greater choices and opportunities have better economies than those without. Each economic system is based upon hundreds of thousands of choices that include education, occupation, purchasing behavior, social relationships, and recreational activities. Each choice made by members of an economic system is a result of how they see themselves within their environment and their internal subconscious pressures that result from their biological, psychological, and sociological needs. No one can escape the market as much as no one can escape their own needs. To improve the market means to improve the choices and the factors that lead to those choices. The greatest freedom in society is the lawful maximization of available opportunities to achieve fulfillment based upon one's own skills and abilities.