All Clear

“We are all clear, not by a huge margin, but that is what the analysis tells me.” That essentially was the message economist Walter Kemmsies of industrial development firm Moffatt & Nichol brought to last week’s Georgia Foreign Trade Conference.

In other words, he said, the U.S. economy has broken through a barrier, the threat of a double-dip recession is past and we can expect to see growth this year. He said giving the “all clear” was “not an easy call to make. In past financial sector-driven recessions the time it took to reach some sustainable growth has been longer than four years.”

But Kemmsies said he could cross off enough items on his recovery checklist — banks expanding loans, auto sales increasing, pent-up demand driving retail sales, rating agencies upgrading much more debt than they’re downgrading — to make a very encouraging call from an economist many in the ocean shipping industry respect.

If there is one indicator he singled out, it’s the robust recent automobile sales numbers. He said that tells you more people are working and they need cars to commute. “If you want a really good sense for how we’re tracking, look at auto sales; it’s the best leading indicator for how things are going,” Kemmsies said.

But in sounding the all clear, Kemmsies wasn’t telling the assembled terminal, carrier, shipper and third-party logistics companies that the good old pre-recession days of unyielding volume growth are on the verge of returning. To the contrary, the economy coming out of the Great Recession isn’t the one that went into it. Shipping flows will look different, as will international trade generally.

The drivers behind the recovery — such as exports — aren’t the same as other recoveries, and that has major ramifications for anyone handling international trade. For example, Kemmsies noted housing, which led the import of literally millions of containers worth of furniture, building supplies and appliances, is “bouncing along the bottom” and isn’t poised for a comeback any time soon.

“The housing market is way over-invested. We can’t expect housing in the next business cycle to be the driver of economic growth,” he said. Exports, however, are a different story. That President Obama’s goal of doubling exports in five years is on track is an indication that exports are for real. Unemployment rates in farm states are much lower than the nation overall, and “the agriculture sector has not stopped investing in four years,” he said.

Kemmsies said there are significant reasons for this, among them that the U.S., with abundant water and the world’s highest rate of agricultural productivity, has a clear advantage over other major agricultural countries.

He cited soybeans, the world’s most important agricultural commodity, and one in which the U.S. has the highest per-acre yield, far higher than that of major consuming nations such as India and China. “The guys at the top will export to the guys at the bottom,” he said.

Kemmsies made a distinction between sounding the all clear for the U.S. economy and heralding a recovery around the rest of the world, where news is less positive. To withstand the recession, China, India, Brazil and other developing countries invested heavily in the short-term stimulus that comes with infrastructure spending, he noted. That gave those economies “a boost, but it can’t last unless we can start buying the goods that are produced in India and China.”

Those economies need to see growth in consumer product exports, and with Europe likely in recession this year, “all eyes are on the U.S. consumer,” Kemmsies said. The answer lies with the U.S., as it always has, he said. Even though the United States’ share of global GDP is smaller than it used to be, “There hasn’t been a business cycle since World War II that wasn’t led up or down by the U.S. It’s still large enough to make the difference.”

There’s good news on this front: Pent-up demand is asserting itself as a factor in U.S. retail sales, which jumped 4.7 percent last year. “Retail sales have picked up substantially; what is happening is that people are buying things that they went without for the last few years,” Kemmsies said.

One area of the U.S. economy Kemmsies doesn’t see returning, is manufacturing. That sector has been growing sharply in recent months, but Kemmsies says long-term demographic trends undercut factory prospects. The aging U.S. population isn’t well suited to manufacturing, so other nations with a younger work force will continue to lead in this area. “America is not going to do back to the 1980s and become a manufacturing economy,” he said. “That ship has sailed.”

Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.

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