Friday, August 29, 2008

Export growth: Not your grandpa's run-of-the-mill machine

The financial markets loved the durable goods report. Stocks traded up on the Census Bureau’s latest bit of news: New orders for manufactured durable goods in July increased $2.9 billion or 1.3 percent to $219.3 billion, the U.S. Census Bureau announced today.

Presumably much of the growth in new orders of manufactured goods is due to strong export demand spurred by a falling US dollar. Dean Baker runs a blog over at The American Prospect. He gives some interesting insight into the durable goods report: “The machinery orders are presumably associated with an increase in manufacturing capacity. Increased demand for manufacturing is in turn likely the result of the improved competitiveness of the United States due to the fall of the dollar.”

People are a bit unnerved about the prospect of depending on foreign demand and export growth to sustain the US economy. It will certainly take some getting used to, but in the long run, export driven growth is likely to spur new and exciting innovations.

Search for the word “manufacturing” using the google image search engine. On the first page, one sees several pictures of assembly line workers, a car being built (Subaru, I think), some sort of nut and bolt-looking hardware thing, fire and combustion in a factory. On the second page, something called “digital manufacturing” comes up that features a chart with words like calculation, simulations, computer-based, custom orders, technical data, etc.

My point is: the manufacturing we are talking about in the current US export sector is not like the manufacturing two or three generations ago. We are talking about the US specializing in the production of highly innovative and technically sound machinery. Export-driven growth indicates that the US is specializing in the goods that it is best suitable for producing, technologies and machines in manufacturing, resulting in strong economic growth going forward.

Let me use an example. Several months ago, the History Channel (I think) did a piece on aircraft carriers, and how the plant and animal growth on the hull of the boat was slowing down the carriers; the drag coming from the growth costs the US Navy at least $50 million of the $500 million in gas bills. A science team received a grant to figure out how to reduce the drag on the hull. It turns out that sharks have microscopic tears in their skins that prevent plant and animal life from growing on their exterior. The science team proposes that the Navy do the same. That sounds like a neat technology! See Shark Skin Inspires Ship Coating for more detail.

With strong export growth, the US will allocate more resources toward research and development of really cool machines and transportation equipment (aircraft carriers that burn less fuel because there is less plant and animal life on the hull). There may certainly be an economic transition along the way, but eventually, the higher revenues in the export sector will end up in workers’ pockets.

Please leave comments. Best, Nontruths

1 comment:

  1. Is there a correlation to job growth yet? Actually, i guess the manufacturers can increase productivity before having to rehire and add shifts. The "Shark Skin" will filter down to the small boats on the Bay pretty soon for just the same reason. GO NAVY!!