When consumers don’t buy, retailers don’t order and ship. Bad economic news is undermining container lines’ hopes for a strong fall peak season for holiday imports.
Journal of Commerce Economist Mario O. Moreno slashed his forecasts for containerized import volume through the rest of the year, projecting what amounts to a stagnant market amid broad economic developments that have weakened consumer confidence and cut into retail sales.
He expects trans-Pacific imports to decline 2.4 percent in the third quarter instead of growing 2 percent as he predicted in June. He slashed his fourth quarter growth forecast to 0.9 percent from 5.7 percent. Second quarter volume rose 4 percent, matching Moreno’s projection early this year.
Moreno lowered his forecast for overall import growth to 2.7 percent from 4.7 percent for 2011 and to 4.4 percent from 6.8 percent in 2012. He expects total imports to decline 0.7 percent in the third quarter and rise just 1.1 percent in the fourth quarter. The new full year forecast of 17,038,531 import TEUs compares with the previous forecast of 17.37 million TEUs and last year’s total of just under 16.6 million TEUs.
The new downbeat projection comes as all major container lines reported losses or sharply reduced profits in the second quarter and as retailers weather what’s expected to be a mediocre July-September season for back-to-school sales.
A National Retail Federation survey in July estimated that families with children from kindergarten through high school would spend an average of $606.63 on apparel, school supplies and electronics, virtually flat with the $606.40 during 2010’s back-to-school season.
Preliminary sales numbers for July and August have looked better than that, with the Commerce Department reporting a 0.5 percent gain in retail sales in July and early surveys of major stores showing relative strength in August. Thompson Reuters reported top retailers’ same store sales grew 4.4 percent in August, but whether that amounts to more volume or simply higher prices is an open question.
IHS Global Insight predicted back-to-school sales would rise 2.8 percent, but said most of the increase would be because of price increases. Last year’s 5 percent increase preceded what turned out to be a relatively healthy holiday season for retail sales.
“If things do not change soon, retailers are looking at a relatively weak holiday shopping season,” said Chris G. Christopher Jr., U.S. senior principal economist at IHS Global Insight.
“Much has changed since the last half of 2010,” Christopher said. “Consumers are pulling back, and they face tremendous headwinds. The unemployment rate now stands at 9.1 percent, and the employment figures indicate that firms are not going to pick up hiring anytime soon.”
Job growth was flat in August, government data show. The Reuters/University of Michigan consumer confidence index and the Conference Board’s consumer confidence index have plummeted in the last three months and were at recession levels in August.
“Given the dreary employment numbers, the turmoil in the equity markets, and the continuation of consumer debt de-leveraging, it does not appear that U.S. consumers will be in any mood to spend without restraint for the rest of the year,” Moreno said.
July import data from PIERS provided an “early warning” of a sluggish start to the peak season, Moreno said. Soft demand for home goods helped push U.S. containerized imports down 5.4 percent from July 2010 after a 1.7 percent year-over-year decline the previous month.
Year-to-year comparisons were affected by comparisons with July 2010, when importers booked early to avoid capacity constraints, but Moreno said PIERS data indicated retailers and their customers remain cautious. “The downward trend in imports of major home goods such as furniture and sheets, towels and blankets continues on a search for a bottom,” Moreno said.
Imports of furniture and furnishings, which account for approximately 10 percent of containerized imports and are closely related to home sales, slumped 8 percent in July. Sheets, towels and blankets were down 13 percent. Kitchenware imports fell 12 percent while lamps and parts were down 8 percent. Also declining were imports of toys, 18 percent; computers, 9 percent; apparel, 4.5 percent; and footwear, 3 percent.
Many of those commodities are tied directly to a housing market that remains deeply depressed. The National Association of Realtors said existing home sales fell 3.5 percent from month to month in July.
One bright spot was auto parts, up 14 percent, and tires, which rose 7 percent. Automakers are still catching up from supply chain disruptions following the Japan earthquake in March.
Moreno expects auto imports to continue to rise at a slower rate during the coming months. Motor vehicle spending inched up 0.7 percent in June and 0.4 percent in July after declines in March, April and May. “Consumers who are uneasy about their jobs are unlikely to purchase durable goods that aren’t absolutely necessary,” he said.
Economic news offers a few glimmers of hope for trade growth. Industrial output in Japan is recovering from the March earthquake, reduced Middle East strife is helping consumers by lowering oil prices, and major companies are reporting solid profits.
“On the downside, the lack of progress on the employment front has erased the optimism of earlier in the year when it appeared that retail sales were rebounding markedly,” Moreno said.