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Europe Crisis Imperils U.S. Sales From Chemicals to PCs

WASHINGTON — American exporters from Dow Chemical to Hewlett-Packard are bracing for a decline in demand from Europe as the region's deepening debt crisis threatens to derail a source of strength for the U.S. economy.

JPMorgan Chase cut its forecast for second-quarter growth to 2 percent from 2.5 percent last week, in part because of a deteriorating trade balance. Earlier this month, it lowered its third-quarter estimate to 2 percent from 3 percent, "with much of the downward revision accounted for by an expectation that the pace of export growth will slow," chief U.S. economist Michael Feroli said in a June 1 research note.

U.S. exports to the 27-nation European Union dropped 4.8 percent in the year ended April, the worst 12-month performance since November 2009, Commerce Department figures show. By comparison, total U.S. exports were up 3 percent in April from the same time last year. The slump in Europe coincides with slowing growth in other major markets for U.S. goods, such as China and Brazil.

"The decline in Europe will weaken our exports over the long term," said Michelle Meyer, a senior U.S. economist at Bank of America in New York. "We look for the trade deficit to widen not only to the eurozone but developing economies as well."

Weaker European sales are also reflected in outbound container volumes from U.S. East Coast ports, which fell 2.6 percent in April from a year earlier, according to data compiled by Bloomberg News.

The decline in demand from Europe is just starting to show up in trade data because it typically takes three to six months for goods to be shipped after an order is placed, according to Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington.

"The shoe is going to fall on U.S. exports to Europe," said Hufbauer, a former U.S. Treasury official.

Europe threatens to derail President Barack Obama's goal, stated in his January 2010 State of the Union address, of doubling exports in five years. U.S. goods and services sent abroad totaled $2.1 trillion last year, up 33 percent from 2009. Exports accounted for 13.3 percent of U.S. gross domestic product last year, up from 10.3 percent at the end of 2005.

Overseas sales of goods from computer chips to airplanes have been a source of strength for the world's largest economy as it pulled out of the worst recession since the Great Depression.

Economists at Morgan Stanley in New York on Friday cut U.S. GDP forecasts for 2012 and 2013, in part because of the intensification of the European debt crisis. The United States will expand 2 percent this year, down from a previous estimate of 2.3 percent, and 1.7 percent next year rather than 2 percent.

Overseas sales have helped drive manufacturing, which has been one of the bright spots of the U.S. economy since the expansion began three years ago. That may be starting to change.

U.S. exporters probably can't count on emerging markets to take up the slack left by Europe, as they have in years past. Over the past month, Morgan Stanley economists in Asia and Latin America have trimmed projected growth rates for China, India and Brazil.

"As a result, we've tempered our optimism about U.S. exports," chief U.S. economist Vincent Reinhart said Friday.

Europe Crisis Imperils U.S. Sales From Chemicals to PCs 06/18/12 [Last modified: Monday, June 18, 2012 9:28pm]
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