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European contraction impacts U.S. exports

Mitchell Hartman Jul 2, 2012

European contraction impacts U.S. exports

Mitchell Hartman Jul 2, 2012

David Brancaccio: For financial markets, the second half of 2012 started today. In Europe, stock prices remain higher at the moment, the afterglow of the big Friday surge. European leaders last week took expectedly specific steps put money into troubled Spanish banks and to buy Italian government bonds. There are financial markets and there are Europe’s real economies.

Marketplace’s Mitchell Hartman has been looking into this. Mitchell, good morning.

Mitchell Hartman: Hi David.

Brancaccio: Before we get too captivated by stock numbers: how is the economy doing in Europe, the one that supposed to be producing goods, services, maybe buying stuff from overseas?

Hartman: Not all that well. Today there’s a report that unemployment in the euro zone has hit 11.1 percent. That is bad: it’s the highest it’s been since the single currency was established back in 1999. And factory activity is slowing — not just in Southern Europe, but in the most robust economies, France and Germany.

Brancaccio: Clearly, the euro countries are heavily dependent on each other for trade. How about American companies? How much difference does this weak set of European economies make?

Hartman: Well, Europe gets 20 percent of our exports, so it’s an important market. And for high-end stuff: chemicals, transportation, computers, sophisticated machinery. This is exactly what’s been helping to juice the U.S. recovery such as it is, says economist Gregory Daco at IHS Global Insight.

Gregory Daco: It’s true that U.S. exports had been providing one of the few boosts to real GDP growth in the recent quarters. A lot will depend on how the European situation evolves. I would say that export growth is not falling off a cliff, but rather that it’s going down a steep hill. But it’s not time to panic yet.

Now, keep in mind, Europe will still be importing from the U.S., just not as much. The danger is that the slowdown in Europe will hit U.S. manufacturers — companies like Caterpillar, let’s say And then they could hold off on hiring. That’ll make job growth even worse than it already is here.

Brancaccio: Marketplace’s Mitchell Hartman, live. Mitchell thank you.

Hartman: You’re welcome.

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