Made in America, sold to BRIC

August 18, 2008

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Several events this month have made me feel a tad on edge, at least at first.


First, it was the Olympics. I"m sure many of you saw the opening ceremonies, and like me you probably thought it was quite a spectacle. You probably also remember commentator Matt Lauer"s comment as 2,008 drummers played in unison with amazing precision and ferocity. Paraphrased, he said many American viewers may find such a thing intimidating. That included me.

Scanning manufacturing news at the time, I read a report from the Manufacturers Alliance/MAPI. Daniel Meckstroth, the organization"s chief economist, produced a report stating that though the manufacturing sector had seen a temporary boost, housing activity continues to worsen, job losses continue, inflation is rampant, credit is more difficult to obtain, and firms remain cautious about capital investments in the United States. We think manufacturing will remain in a slow, shallow, downward trend until early 2009.

Yeesh.


A few days later the Financial Times came out with a report with consultancy Global Insight that predicted China will pass the U.S. as the world"s top manufacturer. The report estimates that this year Chinese manufacturers will produce 17 percent of the world"s value-added output, while U.S. companies will make 16 percent.

Yeesh again.

People love one thing just edging out another, and the stories take up a lot of ink. China"s 16 percent versus our 17 percent has the same hook as swimmer Michael Phelps edging out Serbian Milorad Cavic (yes, I had to look up the name) by 0.01 second.

But whatever significance Global Insight"s prediction has, there"s more to the story than one country edging out another.



As The Economist reported, for the first time in many years, China"s exports are growing more slowly than America"s. In the 12 months to June (the latest month available for both countries), America"s exports grew by 23 percent, well ahead of China"s 17 percent. U.S. export growth of 12 percent in the second quarter even beat out China"s 11 percent figure, the magazine reported.




Add to that the fact that shipping costs between China and U.S. has climbed with fuel prices. The Economist again reported that in 2000 it cost $3,000 to send a 40-foot container from Shanghai to America"s East Coast; today it costs $8,000.

Another factor: Consumer spending in China is up a significant amount by any measure (16 percent in real terms, 23 percent nominal terms in the year to July, according to The Economist).




So after burying my brain in all these numbers, I turned my head away from the economic press toward, again, the Olympics. This time I paid attention to the B-roll footage, those shots networks use in the background during sponsor messages and other segments. I noticed how often I saw shopping malls and outdoor retail districts. Look closely and you"ll see these shots showing a lot of shopping bags being held by a middle class with money to spend.

The same could be said about the other BRIC countries. These places also have an emerging middle class, and these people buying wares made in America isn"t a far-fetched notion. Today, it would seem these countries demand more than just infrastructure-building machinery. They have a consuming population, and not even Chinathe workshop of the worldcan meet all the demand.



FMA Communications Inc.

Tim Heston

Senior Editor
FMA Communications Inc.
833 Featherstone Road
Rockford, IL 61107
Phone: 815-381-1314
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