Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The Export Potential of Tenth District States

Academic journal article Economic Review - Federal Reserve Bank of Kansas City

The Export Potential of Tenth District States

Article excerpt

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After collapsing during the financial and economic crisis, exports have grown rapidly in the nation and across much of the Tenth Federal Reserve District. Despite some risks, most economic forecasts for national exports point to continued robust growth. An export boom, however, could have disparate effects across the country, given sizable differences in the volume, composition, and trends of state exports.

Future export growth in the district is likely to be strong, although most states are likely to benefit less from the expected boom than the nation as a whole. Most states in the district have smaller export sectors than the nation and slightly less favorable export industry mixes. There are exceptions in the district, though, and most states have an adequate mix of trading partners. And, as in the past, other factors will play a role in the district's export potential.

This article assesses the export potential of the Tenth District. The first section reviews recent trends in U.S. and Tenth District exports and discusses the importance of export sector size. The second section explains why export growth can vary across states and analyzes the key factors that contribute to recent differences between district states and the nation. The third section assesses the intermediate-term outlook for exports in district states by examining their current export industries, destination mixes, and other factors that could affect exports in the future.

I. RECENT TRENDS IN U.S. AND DISTRICT EXPORTS

Exports have grown solidly both in the nation and the Tenth District since mid-2009. Some U.S. export categories have risen much higher than others, and recent export trends have varied widely across the seven states in the Tenth District.1 While there are exceptions, the recent downturn and rebound have affected the economies in district states less than that of the nation, due primarily to the generally smaller size of the district's export sector.

The national rebound

As the financial and economic crisis intensified in the fall of 2008, world trade collapsed. From 2008:Q2 to 2009:Q2, U.S. exports plunged more than 20 percent, the steepest drop in over 50 years (Chart 1). But exports rebounded rapidly starting in mid-2009 as the world economy began to stabilize. Annualized U.S. export growth in the second half of 2009 exceeded 25 percent, and by the first quarter of 2010 exports were up 16 percent from year-ago levels.

Virtually all categories of U.S. exports suffered during the downturn but had rebounded by early 2010. However, gains across major sectors varied. The fastest year-over-year U.S. export growth through 2010:Q1 was in manufactured goods other than capital goods-especially in automobiles and parts and in materials and supplies. These two export industries suffered the largest declines during the financial crisis and so had more room to rebound. Services exports had the weakest growth during the early rebound but also dropped the least during the crisis.

U.S. exports to all major destinations also had rebounded above year-ago levels by early 2010. But, just as industries rebounded to different degrees, there was considerable variation in the strength of exports across world markets. Exports to Asia jumped nearly 30 percent, and exports to Canada and Mexico also grew solidly. By contrast, exports to Europe improved only marginally from previous-year levels, especially exports to Euro zone countries.

Recent district trends

The collapse in U.S. exports had disparate effects across the country. While exports of manufactured goods fell in all 50 states during the downturn, some states were hit much harder than others.2 Within the Tenth District, for example, New Mexico suffered a manufacturing export decline of over 50 percent, while the declines in Nebraska and Oklahoma were less than 15 percent. (Chart 2)

While manufacturing exports in most states had rebounded by the first quarter of 2010, the rebound in district states varied considerably. …

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