Morningstar
International Investing Presented by Morningstar.com
The Global Gears in the U.S. Economy
Jason Stipp: I’m Jason Stipp for Morningstar. It’s International Investing week on
Morningstar.com and we’re kicking things off by getting a lay of the land.
I’m joined today by Morningstar’s Bob Johnson Director of Economic
Analysis and he’s going to discuss some of the global factors he looks at
in his economic studies. Thanks for joining me Bob.
Bob Johnson: Great to be here.
Jason: First question for you. You typically look at the U.S Economy but in
today’s world it’s almost impossible to think of U.S Economy just an
isolation what are some of the major things what’s the first thing that sort
of comes to your mind as the global influence on how our domestic
economy is going to do?
Bob: Well I think the sort of trade issues probably number one on the docket. I
mean the good news is the trade is only 13% of our gross domestic
product so it’s a relatively smaller number than say Germany or China
where the number maybe more in the 30% range but trade is still very
important and the dollars that we do in trades are still very, very
significant.
Jason: So I know that one of the things that you are hoping will help drive our
recovery is the export situation. What’s your take on how exports may
play out in the future for us and where we might see the most benefit from
exports?
Bob: I’m still bullish on our exports. I think the dollar has certainly come in
here. It has come down and which makes our goods more attractively
priced abroad in the spring will recollect when dollar was strong we had
some pretty bad that is big import numbers and is now as a dollar moves
around we’re in a more favorable situation there so I think that puts us in a
better position having the better dollar or the worst or the weaker dollar I
should say.
Jason: So Bob which areas of our export market specifically might be able to
benefit?
Bob: I think you got a couple of areas where you’ve seen some real continuing
ongoing competitive advantages. Our capital goods industries, caterpillars,
the dears, the ITWs a lot of the core manufacturing capital goods
equipment are still needed overseas. It’s the mining economies through
out China and Australia need more and more mining equipment. Those are
certainly key industries whether I think it will continue to do well in an
export economy.
If Boeing if they can never get their act together on their 787 is a huge
number, those things cost billions a piece and that’s certainly going to be
hundreds of millions anyway and will certainly be a big factor in economy
even 737 airliners are an important overseas product shipment and really
make a difference to our numbers.
Now a huge number but agricultural products is another area and again
we’ve had a number of crop failures this year and as prices move up I
think we’ve got a real opportunity in agricultural products as well. So
those were probably some of the key areas for economic and export
improvement.
Jason: So you know given on that front there’s certainly been some resistance to
weakening the dollar in the overseas community and there’s also been
some concerns of possible retaliation or trade wars start to crap back
again. If we see you know a lot of in fighting or fighting overseas about
trying to protect in their own interest and exports how much might that
effect to the U.S and you know versus other countries.
Bob: Well I think everybody is going to hope well you know the exports are
going to bail me out and I think you can have everybody in the world
doing exports at the same time as being our savior and I think that’s where
we may run into a little bit of trouble and now I hope we don’t get into
such a competitive trade war situation where everybody is devaluating
their currency and that putting up some type of artificial terrace or local
content rules that mess things up because I think in general trade is a good
thing and has really helped growth over the last 20 years.
It may not look so wonderful in the last three years and in jobs lost but
nevertheless the trade has generally been a helpful thing for world growth.
Jason: Somewhat related to trade is the austerity measures that were seeing a lot
of the developed nations Europe for example undertaking. Obviously if
they’re going to be undertaking these measures, they might be buying less
or might have lower exports or imports in the U.S. Are you concerned
about some of the austerity measures that we’re seeing having a negative
effect on our ability to export?
Bob: I don’t think so I think a lot of the austerity measures that you’re seeing
are really to in more developed economies and as we talked about last
spring we saw the European debt crisis or exports Europe are relatively
small. They are 2 to 3% of our GDP. I mean Canada and Mexico are
actually bigger export partners than Europe so austerity measures there
probably won’t hurt us despite was Cisco may have said today that exports
that the foreign governments may have hurt them a little bit but I got
maybe kind of a special taste.
Jason: We also got a preliminary report on some. I guess you would call them
austerity measures that might need to be taken in the US that included
some things on social security and on where we might have cut backs in
spending. If the U.S does need to undertake and a lot of folks think that we
need to undertake some cut backs and some measures of austerity what
kind of impact do you think that might have for our economic future?
Bob: Well I mean governments are a decent portion of our overall GDP and so
clearly if they cut back it’s not a good thing in terms of overall spending
numbers but on the other hand austerity and more careful spending means
the more decision making and more money powers in the hands of
individuals which a good thing and people spend the money where they
want and we can adapt and so forth and also the fact the governments
become more careful with their spending whether its here are brought.
I guess people have greater confidence to spend what they’ve got. People
maybe has them to spend their money today because well you know I’m
not really going to get social security. We all know that’s a joke but if they
raise the age and when you collect it. It means to have someone and do
some things to put some parameters around it. Now maybe we got a
program we can trust again and that people say you know what I can
spend a little more because here’s what I know I’ve got coming well sure.
Jason: Is there anything of social security. I think the aging of the baby boomers
and some of the shifts and demographics might seen the U.S is something
else that has been on your radar. Can you put the demographic situation in
the U.S in a more global perspective and some ideas of how that affects
your economic analysis?
Bob: Yes. You know in the short run you can’t do a lot about it but in a long
term demographics come into play and one of the things that the U.S has
always had working for it is that we have more population growth than
almost any other developed nation certainly and they even compared to
China in 20 years, we may be growing faster than they are but because we
tend to have a higher birth rate because we got a stabler more consumer
oriented economy, we are more open to immigrants than a lot of other
countries are and all of those things tend to give us a little bit better
growth than most countries have.
And especially when you’re in a situation with an aging, a baby boomer
phenomenon if you will in Europe you’re going to run into some real
problem with very few people supporting a very large age population in
the U.S. Yes, there is a gap but its not nearly as bad as in most countries
and even China starts to run under some problems in that demographic
with the one child, one family rules that were implemented that begins to
cut a little bit in 20 years in their economy so that certainly is something
that goes on that’s positive for the U.S and obviously U.S productivity still
remains rock solid and that certainly one of the big helps to our economy.
We’ve got so much more leave it a flexibility in almost any other country
so that gives us another long term advantage so people often forget when I
say oh look at our deficit right today and it looks awful but we’ve got this
long term secret weapons if you will productivity and population growth is
far better than many other countries.
Jason: Last question for you Bob. It hasn’t been something that a lot of folks
have been concerned about domestically but inflation seems to be
something that some people internationally have been thinking about me
have seen some rate increases in other countries interest rate increases and
some concerns over inflation. If we see inflation tick it up overseas what
effect might that have and what’s your overall global take on inflation
today?
Bob: Well I think if we continue to see a growing economy in the merging
markets grow and developing markets. Those are countries where they can
have more demand from natural resources and that’s one of the first thing
that happens if you had a little bit larger and larger middle class and I
think that’s going to put pressure natural pressure on commodities and we
can probably live with that but even now that we’ve got this quantitative
easing and some of the money, excess money is flowing in the commodity
second to a little scary.
And on top of that we’ve had a few crop failures around the world this
year and so we’ve seen a lot of increase in commodity prices and food
prices and one of the bad news is that food is relatively small percentage
in the U.S economy but it’s huge in India and China and if you get 20 to
40% of your consumer price index based on food and foods going through
the roof inflation around the world is clearly going to be a problem and
you will probably need higher rates to contain some of that.
Jason: So essentially it said via read flag and a lot of investors radars even if they
don’t seem to see it as a problem today?
Bob: Absolutely.
Jason: Bob thank you so much for joining me and for your insights on the global
economy.
Bob: Great thank you.
Jason: For Morningstar I’m Jason Stipp, thanks for watching.
Transcription by:
Scribe4you Transcription Services