The U.S. recovery is foundering, but one unloved part of the economy is showing signs of a comeback.
American factories are booming. Industrial production is the strongest it's been in a quarter century. Five of the 10 biggest companies on the Standard & Poor's 500-stock index earn money from making things. Manufacturers are on track to increase their payrolls this year for the first time since 1998.
There are several reasons for the turnaround, among them higher fuel prices, which are causing some U.S. companies to close their Asian assembly plants in order to bring that work closer to home. But the most important factor is a surprise to many. The renaissance in U.S. manufacturing is the result of something that is taken for granted in countries such as Canada, Germany and South Korea: exports.
The U.S. gave birth to industrial powerhouses such as General Electric and Caterpillar Inc., but it's historically been a relatively lousy exporter.
The world's biggest manufacturer, the U.S. accounts for 21 per cent of global factory wealth, according to the National Association of Manufacturers. But most of that production is sold at home. The percentage of U.S. factory output that is shipped abroad is only 45 per cent of the world average. Twelve nations rank higher; nine of them - including Taiwan, Germany, South Korea, France and Canada - export in excess of the global average.
U.S. factory owners were spoiled by being surrounded by the most voracious consumers on the planet.
"We've got enough growth opportunity in the U.S., why would we invest outside the U.S.?" said David Roberts, recalling management's attitude at Charlotte, N.C.-based Carlisle Cos. Inc., before he was named chief executive officer four years ago. "Through the late 90s and early 2000s, the markets were great. There was no reason to look anywhere else."
The value of U.S. exports rose 20 per cent in 2010 from the previous year to reach $1.3-trillion (U.S.). That's more than double the $612-billion of goods the United States shipped abroad in 1996. The latest trade data show that trend continues to gather strength. The Commerce Department reported Tuesday that U.S. companies exported goods worth $125-billion in May, the second-highest ever after the record $127-billion set in April.
Exports are growing faster than imports, shrinking the current account deficit - the gap between the value of money and assets leaving the U.S. and the value of money and assets entering the U.S. - to about 3 per cent of gross domestic product.
The shift in that deficit shows that even though the rebound from the recession is slow, the economy is dramatically more stable than it was in 2006, when the gap was 6 per cent of GDP.
Some economists warned at the time that the U.S.'s trade deficit had grown dangerously wide, exposing the economy to an external shock. Those economists were proven right. The U.S. current-account deficit, which in 2006 was almost double that of its nearest peer in the Group of Seven countries, is now in line with Italy and Canada, according to the International Monetary Fund.
The U.S. owes much of its new-found stability to manufacturers, which account for about half of the country's exports. The decline in the dollar has been an important contributor to the reversal, making U.S. goods cheaper in fast-growing markets such as Brazil and China. But the real spur for export growth is survival.
The U.S. economy is roughly the same size as it was in 2007, reflecting the severity of the decline suffered in the recession and the weakness of the recovery.
Americans now are setting aside about 5 per cent of their incomes, compared with a savings rate of about zero before the recession. That suggests a shift in consumer psychology that will translate into less demand. For most manufacturers, the only way to meaningfully boost sales is to start seeking customers abroad.
When the U.S. economy collapsed at the end of 2007, most U.S. manufacturers had nowhere to turn. But Carlisle's shareholders got lucky. When Mr. Roberts took over as CEO in June of 2007, he decided to break the company out of its shell. The financial crisis took its toll on the company, a diversified maker of construction materials, tires, electronic cables, brakes and cafeteria dishes. But without a steady growth in international sales, the blow would have been far worse.
"Recognizing that dynamics [in the U.S.]would change is the reason we elected to become more global," Mr. Roberts said. Sixteen per cent of Carlisle's roughly $2.5-billion in sales are international, a figure Mr. Roberts wants to increase to 30 per cent as the company seeks to double sales over the next few years.
That mirrors the target of another CEO: President Barack Obama, who last year set a goal of doubling exports over the next five years.
With little political room to enact further fiscal stimulus that some economists say is desperately needed, the President has become something of a corporate motivational speaker, cheering a revival of Made in the USA campaigns. Last year, the White House introduced the National Export Initiative, which involves leading U.S. companies to new markets and boosting export finance. Last July Mr. Obama established the President's Export Council, which includes 20 executives, including group chairman, Boeing Co. CEO James McNerney. The U.S. Export-Import Bank authorized record funding in 2010. Administration officials led a record 35 trade missions in 2010.
"We as a nation have often ignored trade in the past," Peter Perez, deputy assistant secretary for manufacturing at the Commerce Department, said at an event in Washington earlier this year, emphasizing his point by saying that only 1 per cent of U.S. small businesses export. "A 100-per-cent focus on North America is no longer viable."
To meet Mr. Obama's goal, exports will have to grow at an annual pace of 14 per cent - or double the average of the last 30 years. Currently, U.S. exports are on target, but many economists are skeptical that pace can be maintained. It's one thing to talk about boosting exports, it's quite another to adapt to foreign accounting rules, adapt products to meet various regulatory standards and recruit new business partners.
Andrew Schuman, chief executive officer of Denver-based Hammond's Candies, knows there are huge opportunities overseas. Without trying that hard, he's added customers in the Middle East, Italy, Britain and South Korea simply by setting up at trade shows. Exports represent about 15 per cent of sales of about $10-million. The bulk of Hammond's international shipments of its Candy Canes and other treats go to Canada.
Mr. Schuman has no plans to push harder for international sales - for now. "We can grow working business in our own backyard," he said. "Our goal is to build a $25-million company and take it from there."