Optimism is not abundant in this fifth year of recovery from the Great Recession. Employment, consumer spending, home sales and starts are past their worst points but have not yet recovered to their 2007 levels. In the housing market this may not happen for many years. Similarly, container volumes handled at ports, railcar volumes and truck tonnage are below their historic peak levels. Nonetheless, some types of activity like production and transportation of export commodities are at all-time highs. This trend is the most important for the outlook on the economy and the transportation industry. As exports grow, so too will employment and eventually a sense of hope for the future.
Employment trends carry the most weight when it comes to sentiment, consumer spending, economic policy and the outlook for transportation. Long-term employment trends have not been positive and the current situation is depressing. Since the 1970 recession, the length of time it takes for employment to recover to its pre-recession peak has been increasing. The main reasons for this are the openness of U.S. markets to foreign trade, falling transportation costs due to containerization and the very slow process of shifting labor from industries prone to import substitution (offshoring production) to those more oriented to exports.
Containerization began in the 1960s and, by the 1970s, Japanese companies learned to use the decline in transportation costs, thanks to Japan’s investment in container terminals, to increase their share of the U.S. consumer electronics market. With lower labor costs, Japanese companies out-competed U.S.-based manufacturers. Since then continued global investment in containerization and more free trade agreements have seen a growing number of U.S. commodity markets become dominated by imported goods. This has effectively displaced U.S. manufacturing-sector labor since the industries in which the United States continued to increase production were those that had high transportation costs and/or were able to substitute capital for labor. Since 1950, U.S. manufacturing has increased seven-fold, but manufacturing employment in 2012 was 25 percent below the level in 1950.
Bureau of Labor Statistics, National Bureau for Economic Research, Moffatt & Nichol.
In the 1990s, as the Cold War ended, the telecommunications industry was deregulated. Similar to the effect of commercialization of NASA technology in the 1980s, sales of telecommunications and technology products surged. Development of modern telecommunication infrastructure and equipment helped increase employment in the United States during the 1990s. However, the manufacturing jobs soon shifted to Asia and, as China joined the World Trade Organization in 2001, further manufacturing employment erosion occurred. Employment trends were also impacted by the longer-term effects of communication and computing technology innovations in that automation began to increase. The period between the recessions of 2001 and 2007 was the lowest employment growth period in the United States since World War II.
Overall employment and investment patterns in the United States seem to have lagged changes in the global economy’s structure. The middle class in emerging markets, particularly Asia, is on track to continue swelling and with it demand for many commodities in which the United States has a comparative, if not competitive, advantage in terms of exports. U.S. exports of such products, which include agricultural goods, high-end capital goods and fuels, have been growing stronger since the recovery officially began in 2009. Given the outlook for economic growth in Asia and the competitive position of the United States in terms of serving this market, it is likely that this will be the main source of U.S. economic growth for many years.
Focusing on exports is not just important for the U.S. economy. The transportation sector would also benefit from the export growth trend, if it can become more oriented to supporting that.
Kemmsies, chief economist, and Solomon, senior economist, both work for marine infrastructure engineering firm Moffatt & Nichol. They can be reached by email (Kemmsies and Solomon) or telephone at (212) 768-7454.