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3 Important Economic Developments You May Have Missed

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Business news tends to be the same story over and over: The stock market is volatile, presidential candidates don't agree with each other, there aren't enough jobs, and Europe is a mess. Rinse. Repeat. Same thing day after day.

But some really interesting developments have taken place recently, many of which haven't received enough attention. Here are three.

1. Exports are booming
During the 2008 presidential election, Hillary Clinton worried at a rally in Ohio that "a country that doesn't make anything can't stay strong." Last year, Sen. Sherrod Brown (D-Ohio) bemoaned that this country "needs a real strategy on making things" and said that "we ought to make things in this country." Implying, of course, that we don't.

But we do make things. Lots of things. And the rest of the world is eager to buy our things. Real exports have been booming lately and are now easily at an all-time high:

Source: Bureau of Economic Analysis.

Of the $2.1 trillion America exported last year, $1.5 trillion consisted of physical goods such as food and fuel, and $600 billion were services such as consulting, tourism, and education. Compare that with China, which exported $1.57 trillion worth of goods in 2010, or Germany, which exported $1.3 trillion. For being mocked by its own leaders as a country of shoppers who don't make anything, America is actually one of the top makers and exporters of stuff in the world.

What kind of stuff do we sell? Here's a breakdown of goods exported in July:

Source: Census Bureau.

One of the fastest-growing export categories is fuel products, as the U.S. increases domestic energy production for the first time in decades. The U.S. became a net exporter of finished fuel products last year for the first time since 1949. This, too, doesn't get enough attention. 

And the fact that we're selling more goods is a good reminder that we're manufacturing more goods. Real U.S. manufacturing output will probably hit an all-time high this year, some 80% above 1960s levels. Manufacturing employment, however, has plunged. It wasn't until 2010 that China overtook the U.S. as the world's largest manufacturer, and it just barely squeaked by. According to IHS Global Insight, China made up 19.9% of the world's manufacturing output in 2010, compared with 19.4% for the United States.

Going forward, there's a good chance the U.S. won't fall too far behind China in manufacturing. A fascinating recent study by Boston Consulting Group argued that, because of rising Chinese wages, shipping costs, and the higher productivity of American workers, within five years "the cost gap between sourcing in China and manufacturing in the U.S. will be minimal."

That could mean more manufacturing in the United States. "When all costs are taken into account, certain U.S. states, such as South Carolina, Alabama, and Tennessee, will turn out to be among the least expensive production sites in the industrialized world," the report wrote. If true, that might be one of the most important economic trends of the next few decades. And few people are talking about it.

2. Small-business employment is almost fully recovered
Search the phrase "small businesses aren't hiring," and you'll be greeted with thousands of articles arguing why small business aren't hiring -- too many regulations, not enough regulations, high taxes, and so on.

But few of the articles question whether the assumption that small businesses aren't hiring is true to begin with. Turns out, they are hiring. Small-business employment is within 1.5% of where it was when the last recession began in late 2007, having recovered most of its recessionary decline. Compared with large businesses, small businesses are in a hiring boom:

Sources: ADP, author's calculations.

There's a common idea that big businesses recovered quickly from the recession while small businesses have been held back. In terms of profits, that might be true. But for hiring it's the other way around. It was big businesses that savagely cut employment and are now hesitant to rehire. Small businesses have nearly put the recession behind them.

3. Interest payments on the national debt are near the lowest levels in more than 40 years
The national debt exploded over the past three decades (or have you heard that?), from $1 trillion in 1982 to nearly $16 trillion today.

But something else happened during that time: Interest rates fell through the floor. So much, in fact, that the amount of interest paid on the national debt as a percentage of the economy is now at the lowest level since the 1970s:

Sources: Office of Management and Budget, Federal Reserve.

Think about this: In 1995, the national debt was $4.8 trillion and interest payments were about $230 billion. In 2011, the national debt was $15 trillion and interest payments were about ... $230 billion. We tripled the national debt without paying a penny more in annual interest. For perspective, if the interest rate on the national debt were at 1995 levels, annual interest payments would be about $500 billion higher than they are now. That's more than we currently spend on Medicare.

Of course, interest rates will rise one day. When they do, it will be ugly. But the Treasury has taken steps to soften the blow by lengthening the average maturity date on the national debt, helping to lock in today's low rates. As of June, the average maturity on federal debt was 64 months -- the highest in more than a decade, and above the long-term average of 58 months. That won't solve the debt problem -- not by a long shot -- but don't underestimate how much low interest rates are saving taxpayers.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

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Read/Post Comments (26) | Recommend This Article (42)

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  • Report this Comment On October 09, 2012, at 4:48 AM, Thaeger wrote:

    "Of course, interest rates will rise one day. When they do, it will be ugly."

    US treasuries are somewhat unique in that its unlikely they'll increase until people feel confident channeling all that capital into something rewarding (like the real economy), rather than merely safe.

    That is, I'd think a change like that would make for a far prettier picture than the one we've already been staring at these past few years.

  • Report this Comment On October 09, 2012, at 2:33 PM, DrLonghorn wrote:

    Wow! That's the rosiest article I have read about developing economic trends....makes one wonder why true unemployment is stuck between 10 and 20%

    Just think what an economic boost the oil and gas boom would be to exports, jobs, and high fuel prices... if only the President and his ideologues would just get out of the way!

    The national debt will bury America some day, despite the low interest rates. And then there's Obamacare...........

  • Report this Comment On October 09, 2012, at 6:29 PM, RouteReflector wrote:

    <Insert entirely unnecessary right-leaning comment meant to preemptively defend a position yet to be attacked here.>

  • Report this Comment On October 09, 2012, at 7:05 PM, TMFCop wrote:

    A couple of things NOT said in the article: while we do export a lot, we import a lot more. The Census Bureau and BEA said that while exports totaled $183 billion in July, that was down from $185 billion in June thus widening the trade deficit to $42 billion.

    It's probably also notable that if the events turn out as suggested, the three "least expensive" manufacturing states also happen to be right-to-work states. That might be a more important factor than anything else.

    As for the ADP employment numbers, the Nat'l Federation of Independent Businesses clarifies that when a local Starbucks with fewer than 50 employees hires people, it's counted towards "small business" hiring, not towards Starbucks' big business with its 150,000 employees. It happens across many businesses.

    Moreover, the much broader small business community doesn't use a payroll provider like ADP so ADP's numbers are biased towards those who use it. I don't think you can extrapolate that small business hiring has recovered from the small subset of ADP customers.

    As for the interest rate debacle, the Fed's policies have devastated those on fixed incomes. It may be politically expedient to artificially lower the interest rates to help one or two segments of the economy (the banks, as always, and perhaps the mortgage industry and/or housing), but it crushes just about everything else.

    Just how long will the party last? Who knows, and as mentioned it won't be pretty, but let's not couch it in language that it's any good for the country.


  • Report this Comment On October 09, 2012, at 8:59 PM, skypilot2005 wrote:

    They send use goods. We send them I. O. Us.

    Who has a higher standard of living?

    Who is smarter?


  • Report this Comment On October 09, 2012, at 9:02 PM, skypilot2005 wrote:

    They send us goods.

  • Report this Comment On October 09, 2012, at 9:20 PM, TMFMorgan wrote:

    <<As for the interest rate debacle, the Fed's policies have devastated those on fixed incomes.>>

    Depends what kind of fixed income products are owned. I don't think anyone who's owned 30-year Treasuries over the last decade are too upset with the returns. They've more than doubled their money in real terms.

  • Report this Comment On October 09, 2012, at 9:40 PM, TMFMorgan wrote:

    Also, trade deficit was $700 billion in 2008. It's $560 billion in the last year. The decline is driven by rising exports. Exports are at an all-time high while imports last month were below 2007 levels.

  • Report this Comment On October 09, 2012, at 9:44 PM, TMFMorgan wrote:

    <<That might be a more important factor than anything else.>>

    I don't know. I'd guess that being states with average wages well below the national average might have something to do with it. Maybe.

  • Report this Comment On October 09, 2012, at 9:53 PM, TMFMorgan wrote:

    ^ Nominal wages, to clarify.

  • Report this Comment On October 10, 2012, at 7:56 AM, TopAustrianFool wrote:

    "I don't know. I'd guess that being states with average wages well below the national average might have something to do with it. Maybe."

    You forgot that these are also states with taxes, regulations, wellfare and government debt well below the national average, so cost of living is lower thereby the low wages argument.

  • Report this Comment On October 10, 2012, at 8:18 AM, TMFMorgan wrote:

    ^ I didn't forget. Please read comment directly above yours. Nominal wages.

  • Report this Comment On October 10, 2012, at 8:23 AM, TMFMorgan wrote:

    Also, Tennessee has the 4th highest rate of welfare recipients per capita in the country. So well above, not well below.

  • Report this Comment On October 10, 2012, at 12:15 PM, TMFDarwood11 wrote:

    Yes, we do "make a lot of things."

    We also have about 72 million baby boomers who will be retiring at an unbelievable rate, averaging 3.78 million per year each and every year for 19 years.

    So who is going to get to work and make all of these things? Who will have the education, skill and motivation to go to work every day to make these things?

    That's one big "fly in the ointment." Most projections ignore changes in the work force. Sure, let's take someone laid off by WalMart and put them on a $5 million machine tool? Or hire a bunch of high school dropouts and put them to work building "Dreamliners?"

    I agree that there is a tendency to ignore "facts." That's inevitable given the state of politics and the popular news media in this country. Facts are generally confined to "Who got shot by whom" and "Pres. Obama said [whatever] this morning" or "NASA announced a 2017 unmanned mission to the moon to be followed up in 2021 with a manned flyby" [Yeah, I'll hold my breath; perhaps they were talking about the Chinese?] and "Snookie had a baby" etc. etc.

  • Report this Comment On October 10, 2012, at 12:22 PM, TMFMorgan wrote:

    ^ The baby boomers had a lot of kids.

    Breakdown of US population by age:

    <20: 83.9 million

    20-45: 105.3 million

    45-70: 95.7 million

    >70: 28.8 million

    The demographic percentage shift as baby boomers retire, but we're not exactly facing a shortage of young people like, say, Japan is.

  • Report this Comment On October 10, 2012, at 1:38 PM, StopPrintinMoney wrote:

    given the foolishness of your attempt to give credibility to govt data, you might want to replace the word IMPORTANT with BOGUS in the name of your article

  • Report this Comment On October 10, 2012, at 1:41 PM, TMFMorgan wrote:

    ^ I noticed your screen name is "stop printing money." If you breathlessly write off all government economic data as bogus, how can you be so sure the Fed is printing money?

  • Report this Comment On October 10, 2012, at 1:46 PM, TMFDarwood11 wrote:


    I agree "we're not exactly facing a shortage of young people like, say, Japan is."

    What we are facing is a shortage of willing, able and capable people. That is what it will take to continue the "rosy" projections that straight-line statistics imply.

    Just this morning there was an article in the online WSJ entitled "Many Apples, Few Pickers

    Shortage of Immigrants Keeps Washington's Growers From Cashing In on Crop."

    Yes, we have lots of work in this country. We apparently don't have enough "qualified" workers, and as we all know, it takes exceptional skill to pick apples!

  • Report this Comment On October 10, 2012, at 2:01 PM, TMFMorgan wrote:

    ^ That doesn't show that immigrants aren't willing to work. It shows that they're not willing to pick apples for rock-bottom pay. Big difference.

    Key line from the WSJ article on apples:

    "Mr. Carranza believes he can do better in construction work, which is picking up."

  • Report this Comment On October 10, 2012, at 2:13 PM, Stender89 wrote:

    This is the nth time I have come across an article by Morgan Housel and have liked it. Good job Morgan. Keep it up :)

  • Report this Comment On October 10, 2012, at 2:40 PM, TMFDarwood11 wrote:


    It isn't the recent immigrants that are a concern. They came here to work, and to prosper. They do the jobs we refuse to do.

    It's the age groups "<20: 83.9 million, 20-45: 105.3 million" that are my real concern.

    These are the groups who will be required to provide the backbone for the export jobs that fuel our "export" economy, which includes working in "factories," oil fields, or gas plants.

    Or perhaps the "old fogies" such as myself will be willing to work until 80 and pay for unemployment benefits for the rest AND fuel the export boom? Not hardly, speaking for myself!

    The issue isn't 2012. I live in a debtor nation and the issue to me is the sustainability and filling the employment blanks over the next decade. That takes us into an altogether different area including education and "workability." My opinions become the stuff of projection, which will have no bearing on the results for this year. However, as a long term "buy and hold" investor, that's a perspective I prefer, and which I must put into practice if for no other reason than protecting my "retirement nest egg."

    There are some serious systemic problems here in the U.S, and they include the "education system" which is supposedly preparing millions of children to fill the jobs vacated by the retiring boomers. It isn't. But most of us will be unawares of this for another decade or so.

    For this reason, I suspect that the sometimes pessimistic projections about China are inaccurate. There remain hundreds of millions in China who want to escape poverty and get a job. Here in the U.S., with generous umbrellas provided by the government, a substantial segment of our population prefers to escape work. So who would I rather bet on? A billion motivated Chinese, or a few hundred spoiled Americans? I'll let you guess.

  • Report this Comment On October 10, 2012, at 2:48 PM, TMFMorgan wrote:

    <<There remain hundreds of millions in China who want to escape poverty and get a job>>

    Very true. But there are also hundreds of millions in China fed up with low pay, long hours, and squalor conditions.


    "The young migrant workers whose labor has fueled much of the growth of China’s economy and the global manufacturing sector have begun to change in demographics and desires. That labor pool is shrinking, according to experts, as workers from China’s provinces have become better educated and hold higher expectations for their lives.

    I don't buy the blanket argument you propose that Chinese are motivated and Americans are lazy. It's not that black and white. You can find as many examples of lazy workers in emerging markets as you can Americans who will work for years on end to change the world.

  • Report this Comment On October 11, 2012, at 9:17 PM, Bert31 wrote:

    The comment and link about TN above refernces data from 2003? Is that correct?

  • Report this Comment On October 12, 2012, at 5:59 AM, cfravel wrote:

    One thing not mentioned or even touched on by this article is the ratio of exports to jobs. Take a good look at the big circles vs. the small circles in the exports by type. All the big circles are industries which have become highly automated over the last 50 years. When our leaders bemoan that "we" don't make stuff, what they're really bemoaning is that that less people are making more stuff. Sure, their language isn't 100% accurate, but it is a real problem.

    And now that I've defended politicians I will now go shower a few dozen times to get rid of this dirty feeling...

    Let's also be honest about the language. The politicians are only repeating what they are hearing from their constituents, who are bemoaning the lack of manufacturing jobs. It's doubtful they're bemoaning that we're not making stuff, because they actually want to make stuff. Anyone who becomes a politician clearly has no ethical issues or worries about taking money they haven't earned through labor.

    "Making things" makes people feel a lot more useful than carrying food from the kitchen to the table, ringing up things on a cash register, or handing things to people through a window.

    I expect neither politicians nor journalists nor financial professionals to have any real appreciation for worrying about whether or not the contribution of their labor has meaningful value. Thus, it's disingenuous to hear anyone from any of these "professions" comment on "making stuff" when they make nothing.

    Modern trade, law, and automation have all distorted the ratio of human contribution to value provided. The people responsible for ensuring that ratio is fair are the people with the least incentive to do so.

  • Report this Comment On October 12, 2012, at 6:32 AM, cfravel wrote:

    Also, to refute point #2 of this article, saying that small business hiring has reached the same level as the "height" of 2007, is misleading, because the entrepreneurship rate is in decline. Thus, new businesses are NOT the reason for this data.

    There is a trend away from hiring and instead using contractors at all sizes of business. That alone would explain why data has shifted toward smaller business sizes -- businesses are shifting toward smaller employee counts.

    Here is just one example of many that one can find citing data that entrepreneurship is declining:

    For more, simply search "entrepreneurship decline" at Google.

  • Report this Comment On October 12, 2012, at 6:57 AM, TMFMorgan wrote:

    <<One thing not mentioned or even touched on by this article is the ratio of exports to jobs.>>

    The jobs issue as it relates to manufacturing is mentioned. "Manufacturing employment, however, has plunged."

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