Growth in U.S. containerized imports will accelerate this year thanks to an improving labor and auto market, a resilient manufacturing sector and expected gains in the value of the U.S. dollar as the Federal Reserve begins to taper its massive quantitative monetary stimulus. This acceleration hinges upon the major assumption that another debt-ceiling crisis will be avoided.
Imports expanded approximately 3.5 percent in 2013. Third quarter real GDP growth in the U.S. was 4.1 percent, up from original estimates of 2.8 percent, in part because of strong inventory growth. That strength and inventory building were evident in a 4.1 percent year-over-year increase in containerized imports from Asia, slightly higher than my forecast for 3.6 percent growth. The growth pushed imports in that trade to their highest volume since 2007.
The effects of the partial government shutdown on fourth quarter consumer spending will likely be more modest than initially believed, in part because American consumers have come a long way in their debt-deleveraging fight — household debt as a percentage of disposable income is at 110 percent, down from 135 percent in 2007. Further evidence of this can be seen in solid retail sales figures in recent months, with October and November sales beating expectations despite a sharp fall in consumer sentiment data.
Even more encouraging about the economy is the improvement in the labor market. And I say this even after the weak December employment report. Nonfarm payrolls increased only by 74,000 in that month — well below expectations. But we must look at this number with a grain of salt. In the last 12 months through December, the U.S. economy averaged monthly gains of over 180,000 jobs, which is respectable.
The strong job figures will bring talk of tapering back to the table sooner than expected, with significant consequences for the economy and trade. As the Fed begins to scale back its massive bond-buying program, long-term mortgage rates will rise, potentially restraining first-time home purchases. In fact, the housing market has slowed recently. Existing home sales declined in September and October, likely, at least in part, because 30-year mortgage rates rose to more than 4.25 percent. The recovery in the home sales market is critical for containerized imports because it spurs significant demand for foreign home goods, most of which are bulky and take up a lot of vessel space.
In 2014, I expect U.S. containerized imports to grow 5.9 percent to a record 19.03 million 20-foot-equivalent units. That forecast is supported by an anticipated 2.5 percent increase in U.S. real GDP, a significant improvement over the 1.6 percent expansion expected for 2013, and the assumption that another debt-ceiling crisis will be avoided.
I expect the more robust performance in the second half of 2013 to continue through 2014 and 2015, supporting tighter labor market conditions and increased U.S. consumer spending.
Import prices will remain tame throughout the forecast period, assuming the current détente with Iran will extend through 2014 and into 2015. This already has helped to reduce oil prices, which will translate into lower import prices and ultimately lower production costs for suppliers of U.S. imports worldwide.
Moreover, as household and institutional demand increases, interest rates, which have been kept artificially low by the Fed, will begin to rise and attract increased demand for dollar-denominated assets from abroad. This will further restrict growth in import prices.
Although in a temporary lull, robust growth will return to the auto parts trade during the next three quarters, in line with forecasts for sales of 16.6 million units in the light trucks and auto categories, before stabilizing again in the latter half of 2014. And despite a lackluster performance in the third quarter, I expect wearing apparel growth to return in 2014. The first half of 2014 will therefore be dominated by apparel inventory rebuilding, while sales should maintain positive momentum through most of 2014.
The critical furniture trade appears grim, even as the U.S. housing market has clearly entered recovery mode. I don’t expect much better trade in this sector because the pace of household formation is low, and mortgage rates are rising. In addition, Mexico has boosted its surface shipments of furniture to the U.S. in recent years, likely at the expense of Asian suppliers. U.S. containerized imports of furniture via ocean declined in November by 5 percent year-over-year after rising by several consecutive months.
The condition of the global economy changed little in the third quarter of 2013 compared to the first half of the year. The slowdown in the BRICS countries — Brazil, Russia, India, China and South Africa — persists as these economies continue to face shrinking external markets in the U.S. and Europe. Growth in these markets will remain elevated relative to the advanced economies but will fall short of their cyclical peaks. In particular, slowing growth in China is restricting the earnings of major commodity exporters in emerging markets, adding to global challenges.
European economies remain challenged by the financial crisis and remedial austerity measures, while glimmers of light in Japan’s economy have yet to translate into a more robust market for U.S. exporters.
Containerized U.S. exports increased an estimated 1.9 percent in 2013 and likely will grow a similar 2.0 percent this year. That would be enough to push exports to a record 12.4 million TEUs. Global economic growth, excluding trade with Mexico and Canada, will remain at 3.0 percent or below through 2014 with only a slight acceleration anticipated for 2015.
In contrast to recent indications, the U.S. dollar will undergo a mild appreciation during the forecast period as the inevitable Fed tightening draws in foreign capital. Moreover, with growth slowing in emerging markets and the BRICS countries, investors around the globe will rediscover the dollar’s “safe haven” status. The dollar’s appreciation will support a modest increase in export prices, but slackness in the U.S. labor market along with competitive pressures abroad will keep export prices in a tight range for the next two to three years.