Southbound - Summer 2018

The economy is booming, but. . .

By Michael Randle, Editor


Welcome to our 25th anniversary edition! This is a good time to mark a milestone anniversary. Most segments of the economy are booming right now. I like to follow the Dow Jones Transportation Average (DJT) to gauge current economic conditions. The DJT has outpaced the Dow Jones Industrial Average so far this year by 9 percent to 6 percent. Large truck manufacturers can’t make enough 18-wheelers to meet demand. Transportation stocks such as railroads, airlines and truckers are all doing well. In fact, Union Pacific and United Continental stocks are near all-time highs. FedEx is seeing its earnings increase by 50 percent.

Amazon announced four fulfillment centers in the South last quarter, the most big deals making our top 10 deals (see page 96) in one quarter by one company in the 25 years we have been keeping count. In other words, there is no shortage of buyers of all kinds of stuff out there right now. It’s so overwhelming that the transportation industry is having a tough time delivering it all.

Yet, one critical economic element of the South’s economy isn’t doing so well. Foreign direct investment fell 32 percent in 2017, and has dropped even more the first two quarters of this year. The total FDI of $259 billion last year is a 41 percent drop from the historic high of $439 billion in 2015.

Why is FDI so critical to the South’s economy? In most years, the South captures roughly half, if not more, of all FDI in this country. Foreign companies love how competitive the South is, especially for manufacturers like Toyota, Nissan, BMW, Mercedes-Benz, Hyundai, Kia, Airbus and the dozen or so new foreign tire plants that have sprouted in the region over the last decade. Together, the small sample listed employ hundreds of thousands of people, both directly and indirectly. In fact, it can be argued that Mercedes in Alabama and BMW in South Carolina have single-handedly transformed the economies of both states.

Last year, the Bureau of Labor Statistics published a report showing that of the 656,000 new manufacturing jobs created between 2010 and 2014, two-thirds were created by foreign-owned companies. Now those companies are cutting back. Why? It centers on the fact that supply chains to the U.S. are threatened by the Trump tariffs. Remember, these are not tariffs implemented by a Republican-run Congress. These are tariffs imposed by President Trump. These are his taxes on goods — most of which are used by domestic and foreign-owned manufacturers — that are finished in the United States. And you will pay for those taxes. It’s not political. It’s math.

Southern states are driving this manufacturing surge that has been going on steadily since 2010 after decades of a bloodletting of those same manufacturing jobs. The U.S. has created over 1 million net new manufacturing jobs since 2010, and the majority of those jobs — about 65 percent — have come from foreign-owned companies, not U.S.-based companies. And the value of what we make here in the U.S. has never been higher. We have never been more competitive for foreign and domestic-owned manufacturers. Now, though, the supply chain is in extreme danger as a result of tariffs.

In 2016, foreign direct investment was rolling, approaching $500 billion. In one year, it dropped to $277 billion. Watch closely, because it is about to drop to $200 billion or less if these trade barriers continue and our president remains hostile to globalization. Welcome to the post-American world economy.

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