Saturday, May 1, 2010

Increased Investment expenditures ('I") in Developing countries means an Increase in Exports for US...

Caterpillar bringing back 9,000 laid-off workers worldwide

"Developing" economies are getting ahead of the the so-called developed countries (US, Europe, Japan, etc) in terms of economic expansion (GDP growth).  Businesses in some of these countries are replacing capital goods and buying new capital goods in anticipation of an eventual pick up in business from the US and Europe (China and other Asian economies are already steaming ahead, and are major customers for American producers such as Caterpillar).  The US STILL has the Comparative Advantage in the production of medium to large scale construction equipment of all types.
""Exports of heavy equipment to Asia and Latin America are putting employees back to work at Caterpillar Inc. factories in Illinois....The growth in emerging economies is fueling demand for commodities. That is stoking sales of Caterpillar’s big mining trucks made in Decatur and large tractors made in East Peoria. Workers already have been recalled to those factories.""
These immediate purchases increase their domestic spending-- "I" (for Investment Spending) in the GDP equation ("C+I+G+N(x)" ) and, in turn, increases Aggregate Demand.  This is a good thing for them because it creates/ressurects dormant jobs TODAY.  It is a good thing for the US because it puts idle production capacity back to work and "brings back" jobs to the factories...
""By the end of the year, the heavy-equipment maker expects to rehire 9,000 of the 19,000 workers who were laid off worldwide during the worst of the recession, CEO James W. Owens said. The number of workers being recalled “could go higher,” he told Crain’s during an interview this week at a U.S.-Saudi Arabia business summit in Chicago. "We hope it will."
One-third of the rehires will be in the United States; the bulk of those 3,000 workers will be in Illinois, where Peoria-based Caterpillar has several large plants. Another 9,000 to 10,000 jobs will be created at Cat’s domestic suppliers.""

After the initial purchases, these capital goods become part of the nations Capital Stock, or stock of productive capital, for making goods far into the future.  Business spending is significant because it affects BOTH the demand AND suppy side of any economy.  It spurs immediate purchases of high dollar goods on the demand-side, and competition, innovation and, perhaps most important,  productivity on the supply-side, hence more jobs and opportunities now and into the  future...I can feel the ripple effect on the economies of Middle America as we speak!
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