To people not directly involved in fixing, analyzing, or monitoring the Eurozone crisis, it can take on the character of black magic. And it’s easy to think that the dark arts of the European Central Bank’s low-interest lending initiatives, national bond auctions, and bailout talk have little bearing on our daily lives.
In fact, they very much matter.
Economists say Europe’s ongoing sovereign debt difficulties could very well plunge the continent into a double-dip recession, if it hasn’t already. And, as America’s recent history demonstrates, when the economy’s on the downswing, not many people are anxious to buy anything. Those jitters ultimately hit the export economy…and when orders slow down, so does demand for workers to make the stuff we ship overseas. Although tiny New Hampshire isn’t exactly a Rustbelt-style manufacturing powerhouse, the state makes a lot of advanced, high-demand products, which means it’s heavily exposed to what’s going on in Europe.
NH’s Export Economy Exposed
A big part of New Hampshire’s edge in the world export market is tied to what is made here. Last year, Mexico was the Granite State’s top trading partner, buying more than $943 million in product, with Canada in the #2 spot with $648 million, followed by China. Germany and the UK round out the Top 5, with the Netherlands and France among New Hampshire’s Top 10 trading partners.
The problem, however, is that more than 18 percent of New Hampshire’s exports are Europe-bound. That works out to a little less than one-out-of-five exports exposed to the volatile economic situation across the pond.
At a recent presentation sponsored by the Business and Industry Association, University of New Hampshire economist Evangelos Simos pointed toward a densely packed, brightly colored bar graph on a PowerPoint presentation. While overall it seemed to indicate a growth pattern, if you squinted toward the very last bar, representing the latest stats from January 2012, you could see a steep drop.
“[We're down to] levels equal to the previous recession a few years ago. Levels that we observed in ’05 and ’06, that’s where we are right now, in January of 2012,” Simos said. “So our state economy, it seems, has fallen a lot. And since one-fifth of our exports go to Europe, we can obviously conclude, in general terms, that that’s a major source of decline in our exports.”
That change over the course of a month reflects the downward trend in New Hampshire’s overall exports last year. The Department of Resources and Economic Development reports that overseas sales in 2011 were down by nearly 1.7 percent from the year before. A news release from DRED, however, noted that 2010 was a “record year” and the 2011 decline “was less than we anticipated.”
In other words, New Hampshire is exposed to the Eurozone, and already feeling the effects. Last year, the state saw a slight downward trend in overseas sales, which was more pronounced in January of this year. The key question is, to what degree could New Hampshire’s export economy be hit in the long-term?
An Exporter’s Story
You may not have head of David Greer’s company–Wire Belt Company of America, based in Londonderry. But you’ve likely seen its products all over the place. “We manufacture wire mesh conveyor belting that’s used in food processing equipment as well as all other types of manufacturing processes,” Greer said. “Most people would notice our belt in a Pizza Hut, or a toaster over in D’Angelo’s or Dunkin’ Donuts. We’re a little niche industry, but it treats us well.”
The small manufacturing company owns other small manufacturers in Europe. Thirty-five people are in Germany, 65 in England and another 100 employees are based in New Hampshire. “All I can say is what I see and what I hear on my visits to my small company,” Greer said.
An outsider looking in might be tempted to call Greer’s corporate setup “quirky.” While his three companies are stand-alone entities, he owns them all, so what happens in Germany and the UK affects his bottom-line in New Hampshire. The three companies also divide the world into “territories,” with New Hampshire’s Wire Belt focusing mainly on North and South America. The UK facility handles the bulk of European markets along with India and China. But all three companies make different products, so they also export to each other.
In short, Greer’s ventures are highly diversified, if intricately connected. He says the set-up offers him some insulation from Eurozone volatility. But it also makes planning for the future incredibly difficult.
“We did our budgets this year, and we look at each other and say, ‘Ok, how do we plan?’” Greer said. “And we planned for business to get a little bit worse this year versus last year. Last year business was very good, for all three companies. But the talk in England is already, it’s not if there’s a double-dip. What I have heard is they’re in the second recession. It’s just not strong in England, and Germany is still doing well, but the cracks are there.”
Those cracks are manifesting in some interesting rumors that can be tough to verify across a wide stretch of ocean. When we first spoke with Greer, Germany had not agreed to yet another Greek bailout, which would once again save the euro. “It makes us nervous,” he said.
State Help For A Global Problem?A potential resource for businesspeople with ties to Europe is New Hampshire’s Department of Revenue and Economic Development (DRED). The agency’s probably best known for its cross-border business poaching operations against Massachusetts and its fierce New Hampshire boosterism.
What DRED is less well-known for these days is its work in the export sector. Like New Hampshire government in general, the agency is lean and mean. That’s become more true over the past couple of years as the department’s taken its fair share of budget cuts. The upshot is, state-funded trade missions overseas have been written out of the budget. A $300,000 grant from the Small Business Administration is helping DRED to visit the Farnborough International Air Show in England this summer with representatives from the state’s aerospace industry. And trips to Canada and Asia are in the offing. But if you’re an active exporter, most of the help you get from DRED will likely be training in regulatory compliance and culture, or finding financing for new market ventures.
When we asked Office of International Commerce Program Manager Tina Kasim what kind of advice DRED is offering exporters concerned about the Eurozone situation, she noted diversification is key. “When things aren’t looking so well across the pond, then maybe they should look someplace closer to home. Our relationship with Canada is improving, it’s very strong,” Kasim said.
“Look to Canada” was a recurring theme in the conversation with Kasim and DRED’s Interim Director Christopher Way. Both insisted that they’re not implying exporters should stay away from Europe. In fact, DRED still maintains a European Logistics Center in the Netherlands in partnership with various state and Dutch entities. And, there’s the Farnborough event coming along this summer.
But a big part of developing a state’s economy–bringing new businesses in and nurturing native firms–is maintaining a relentless sense of optimism. And digging below that can be tricky. After Way and Kasim noted that New Hampshire firms are well-diversified and that exports have been “holding steady” over the past couple of years, we asked if the agency’s heard anything from companies that haven’t fared well thanks to over-exposure to Europe.
“You do hear about those companies coming in,” Way said. “But suffice it to say, if a company is having a problem we work with them to find out how can the state be supportive? Maybe we might want to put you in touch with other resources to help…But a lot of times, it’s case-by case.”
That’s a big wrinkle when it comes to getting behind the data of New Hampshire’s export exposure. How many companies have shuttered or taken a heavy economic hit since the Eurozone crisis heated up? Nobody really knows. “That is a question that doesn’t really have an answer,” Way said. “Because companies that are doing fine sometimes will have issues, and they’re still doing fine…You know, a company’s health over the years, there are ups and downs.”
But the exporting issues tied to the Eurozone crisis could take on a broader scope. As UNH economist Evangelos Simos pointed out at a recent BIA presentation, other major export powers, including Germany, India, and China, are also seeing a decline in sales. And that’s thanks to dwindling demand in cash-strapped European markets.
“So now, the Chinese companies receive less orders from Europe. Now the Chinese economy goes down,” Simos said. “But myself, as an exporter in New Hampshire, I’m getting now smaller orders from China….This is the indirect effect of the [Eurozone crisis].”
If you’d like to see Simo’s BIA-sponsored presentation with UNH international business professor Massood Samii, we’ve embedded the document below.