American consumers are spending again, fueling optimism that container shipping this year will see something missed the last two years: a robust pre-holiday peak shipping season.
“We expect sustained growth in terms of import volumes,” said Ben Hackett of Hackett Associates, which produces the Global Port Tracker with the National Retail Federation. “Most of the short-term economic indicators are good. Unemployment is dropping. As long as there’s no perceived risk of being unemployed, consumers are willing to spend a little more.”
U.S. consumers have disproportionate influence in the global economy. It’s simple math: The U.S. generates slightly more than 20 percent of global GDP. Some 70 percent of U.S. economic activity comes from consumer spending. That means American consumers account for 14 to 15 percent of global GDP, says Walter Kemmsies, chief economist at port engineering firm Moffatt & Nichol. He notes they have led every upswing in the business cycle since the 1980s.
Retail sales are the main driver of containerized imports, which Journal of Commerce Economist Mario O. Moreno expects to rise 4.5 percent this year from their 2011 volume of 16.9 million 20-foot equivalent units. Moreno forecasts exports will increase 3.5 percent from their 11.9 million TEUs last year.
The Port Tracker report, which covers 10 major gateways for U.S. containerized imports, forecasts solid year-over-year increases from June through at least September. During the last two years, the August-September peak season has been all but invisible as cautious retailers and importers minimized inventories.
“Consumers are spending despite gas prices and other economic concerns, so retailers are stocking up to meet the demand,” said Jonathan Gold, the NRF’s vice president of supply chain and customs policy. “The numbers show imports growing through the back-to-school season and even into the beginning of the shipping cycle for the holiday season. That’s a sign that retailers are expecting a good year.”
Moreno also expects a stronger peak season this year, although high unemployment and concern about economic fallout if the eurozone starts to unravel cloud the outlook.
With demand uncertain, inventory-to-sales ratios have stayed fairly tight and within a narrow range for more than a year. Any significant rise in demand will require restocking. “There’s room for inventory building entering the second half of the year,” Moreno said.
Retail sales account for about one-third of consumer spending. They rose at a slower pace in April than in the year’s first quarter, when retailers enjoyed an unexpected benefit from the warmest U.S. winter on record. Unadjusted total retail sales rose year-over-year for the 22nd consecutive month.
Home Depot, ranked third on the JOC Top 100 Importers list, said the weather added an estimated 3 percent to its first quarter sales compared to a year earlier. Almost one-third of those gains represented sales that otherwise would have come in the current quarter, the company estimated.
Economists say weather has helped retail sales at retailers such as Home Depot and Lowe’s but hasn’t been the only factor. Households continue to make progress in deleveraging, and most economic indicators point to modest growth.
Pent-up demand has generated brisk automobile sales. Analysts forecast 14.3 million units of U.S. vehicle sales this year, the third straight year of double-digit increases. Imports of automotive parts, which go to U.S. factories as well as aftermarket retail stores, jumped 24 percent last year despite supply chain disruptions from the earthquake and tsunami in Japan and floods in Taiwan. Auto parts imports increased 14 percent year-over-year in the first quarter.
The auto industry has been a leader in another bright spot in the economic recovery: manufacturing. The Institute for Supply Management’s manufacturing index rose to 54.8 in April and has been at or above the 50-plus level that signals expansion for 33 consecutive months.
The ISM’s semiannual economic forecast, based on surveys of purchasing and supply chain interests, says manufacturing revenue will increase 4.5 percent this year, with capital investment rising 6.2 percent and capacity utilization, 81.6 percent.
Manufacturing’s recovery has coincided with an increase in containerized exports, which rose 6 percent last year, driven by strong growth in commodities such as meat, lumber and machinery.
Export volume continues to expand, despite concern that Europe’s ongoing sovereign-debt crisis will affect overseas demand and bank lending. Europe is the largest export market for China, where manufacturing activity contracted in April for the sixth consecutive month. A reduction in exports from China could affect demand for U.S. exports to China.
Despite concerns that Europe’s problems will ricochet, most economists predict modest expansion for the U.S. economy. The Philadelphia Fed’s quarterly Survey of Professional Forecasters has a consensus prediction of real U.S. GDP growth of 2.3 percent this year and 2.7 percent in 2013. The New York Fed sees moderate growth of about 2.5 percent this year, with activity rising 3 percent in 2013. The economy expanded at a 2.2 percent annual clip in the first quarter, largely on the strength of consumer spending.
Surveys indicate rising consumer confidence, bolstered by stock market gains through April, a gradually improving job market and less expensive gasoline. Prices for regular gasoline fell to $3.73 per gallon on May 14 from a peak this year of $3.94 in early April, according to the American Automobile Association.
The Thomson Reuters/University of Michigan consumer sentiment index for May rose to its highest level since January. For the first time since the data began in 1978, the index has risen for nine consecutive months.
Nigel Gault, chief U.S. economist at IHS Global Insight, said improving household balance sheets are laying groundwork for modest economic growth that will accelerate in 2013 and 2014. “We are essentially one year further into the adjustment that had to take place following the financial crisis.”
But he cautioned, “At the moment, consumer spending growth is outrunning income growth … Given the income picture, without some major willingness of households to take on a lot more debt, and willingness of banks to lend to households, it’s difficult to get spending growth.”
The personal savings rate in the first quarter slipped to 3.9 percent from 4.5 percent in the fourth quarter of 2011 and an average of 5.1 percent from 2008 through 2011, Moreno said. “That can’t continue indefinitely,” he said.
Consumer borrowing rose 10.2 percent in March, led by an increase in student loans, the Federal Reserve said. Many household balance sheets, especially for those at lower income levels, remain strained. A recent University of Michigan report said one of every five U.S. households owe more on credit cards, medical bills, student loans and other non-collateralized debts than they have in savings and other liquid assets.
“Even though average savings levels have gone up since 2008, our data show that there has been no improvement in financial liquidity between 2009 and 2011, except among families with more than $50,000 in savings and other liquid assets,” said Frank Stafford, an economist at the university’s Institute for Social Research and co-author of the report.
Despite tepid job and income growth, few economists expect a sudden halt to consumer spending. Savings rates, Hackett said, have been above historical levels, providing some capacity for spending. “I think it can continue at least a few more months under current conditions,” he said.
U.S. job growth slowed in April as employers added a seasonally adjusted 115,000 jobs, the smallest increase since October. The unemployment rate slipped a notch to 8.1 percent, but that was mostly because 342,000 people left the work force.
During the first four months of this year, nonfarm payrolls increased an average of 201,000 a month, with private sector employment rising 207,000 on average. “The economy is still growing below its potential unfortunately, and not adding jobs fast enough,” Moreno said. “This economy should be adding 200,000 to 250,000 jobs a month. We’re not there yet.”
High unemployment has affected housing markets, and vice versa. The bursting of the housing bubble five years ago has rippled through the economy. “Housing has played a central role in magnifying the recession and delaying the recovery,” Federal Reserve Governor Sarah Bloom Raskin said in an April speech.
Slumping real estate prices have erased $7 trillion in household wealth, making consumers less willing to spend money. Slow housing markets have affected production and shipments of building materials and home-related goods such as furniture, the largest U.S. containerized import commodity.
Recent increases in building permits and construction starts suggest housing’s fortunes are improving, although home mortgage applications and real estate prices are stagnant. Michelle Valverde, U.S. economist at IHS Global Insight, projects housing starts will rise from 610,000 in 2011 to 740,000 this year, about half the level considered to represent a healthy market.
“There continues to be some pent-up demand for housing as young adults stay at home, and at some point it will have to be released,” she said in a commentary. “The housing market will make further improvements in 2013, but housing starts are not expected to finally climb above the 1.5 million threshold until the end of 2014.”