Overall U.S. containerized imports grew modestly in 2011, rising 2.2 percent from 2010 — slightly lower than what I predicted a year ago.
Unemployment remained stubbornly high while consumers worked to rebuild their balance sheets. Disposable income was affected dramatically by rising oil prices during the second quarter of the year and consumer spending fell sharply as a result. Supply chain disruptions stemming from the Japanese earthquake, tsunami and nuclear crisis also affected the economy in the form of lower motor vehicle sales. A second round of quantitative easing early in the year kept mortgage rates at the lowest we’ve seen in at least 30 years, but it doesn’t look like this has put the housing market back on a self-sustaining path.
What level of import volume can we expect in 2012, then? My outlook is positive but modest, and will depend on several assumptions.
Map (PDF): How Deep Are They?
After falling 5 percent in the second quarter of 2011, sales of existing homes stabilized in the third quarter as buyers took advantage of relatively low home prices and mortgage rates. This should provide some relief for imports of home goods in the fourth quarter, particularly for top-ranked furniture.
Nevertheless, pending foreclosures could preclude hopes for a sustained recovery. Home values will drop further if banks seize more properties, prompting buyers to take a wait-and-see stand. This will adversely affect the industry, and imports of home goods will be affected as a result. Tight credit standards and high unemployment also present significant challenges for the housing recovery in 2012.
A true recovery for housing must be supported by significant improvement in employment, and not solely by lower mortgage rates and affordable home prices.
Monthly job gains in the range of 150,000 to 200,000 are needed to bolster home sales at a healthy pace. We are not there yet, and it isn’t clear how we are going to get there as the political gridlock in Washington endures. Unemployment decreased in November to 8.6 percent, but this could be attributed to retailers’ seasonal hiring of part-time employees and an increasing number of discouraged workers.
Unemployment is forecast to average 8.4 percent in 2012 — still stubbornly high.
Uncomfortably high unemployment degrades consumer sentiment, and spending gets distressed as a result. Shippers understand that, and have acted accordingly, as evidenced by falling volumes of major consumer goods such as toys, apparel and footwear that likely continued in the fourth quarter. The outlook for consumer spending in 2012 looks soft as unemployment decreases only slowly, and the high probability that the extension of the Bush era cuts and payroll tax reductions won’t get extended. Moreover, oil prices have risen above $100 a barrel lately, and that poses a real threat to disposable income.
Developments in the fiscal arena of the eurozone must be watched closely. As anemic post-recession growth persists, any shock or combination of shocks could bring the U.S. economy to or close to recession. Europe’s sovereign debt problems have eroded investment portfolios, damaging sentiment. If the situation escalates to a default, a liquidity crunch may result, discouraging banks to lend globally. Availability of credit is essential for the recovery, especially in housing.
On the upside, demand for automotive parts posted remarkable gains in 2011, and will likely see more of the same this year, albeit more modest, as internal demand for automobiles remains solid, and foreign demand for U.S. motor vehicles continues. A risk to consider: Rising fuel prices can deter automobile purchases.
Given these assumptions, my forecast for containerized imports for 2012 calls for modest 2.8 percent growth, to a total of 17.4 million 20-foot equivalent units. At this level, imports will surpass 2008 volumes but still stay below the 2007 peak by a million TEUs.
On the export side, volume appears to have grown at a slightly faster rate in 2011 — up 5.8 percent — than my earlier prediction of 4.6 percent. The foreign exchange value of the U.S. dollar remained competitive in 2011, boosting overall export volumes. Gains were mostly seen in paper and paperboard, scrap metals, grains, meat, and logs and lumber.
China, the top destination market for U.S. exports, drove most of the gains, in part because of rising wages and a favorable currency exchange rate over the U.S. dollar. But recent reports indicate manufacturing activity in China and in other major trading nations is contracting. That’s worrisome, because two top U.S. containerized exports include scrap metals and paper and paperboard, major commodities in the Chinese manufacturing process.
Given the contraction in global manufacturing activity and Europe’s sovereign debt problems, what can we expect for exports in 2012? In my view, exports will continue to grow but at a slower rate than in 2011 due to a couple of assumptions.
The International Monetary Fund has revised downward its global (beyond NAFTA) economic growth projections. Europe’s fiscal issues have hammered global confidence, and downside risks are growing. Banks’ total monetary exposure to European sovereign debt is unclear, but we know they are keeping high levels of liquidity and reducing lending. This will reduce spending and U.S. exports.
In the third quarter of 2011, U.S. containerized exports to northern Europe edged up only 0.4 percent year-over-year after climbing 12 percent in the previous quarter — an unusually sharp deceleration. Exports to the Mediterranean dropped 9.6 percent during the third quarter after contracting only 0.4 percent in the second quarter. It’s clear that severe austerity measures in Europe will have a depressing effect on demand for U.S. exports.
Global commodity prices will remain elevated in 2012, which will sustain overseas earnings for commodity exporters in Latin America and Africa. This will bolster increased investment in primary commodity-producing areas that will sustain the current rise in U.S. exports of capital goods. At the same time, U.S. exporters of agricultural products, including meats, poultry and horticultural produce, will benefit from increased consumer incomes brought about by higher commodity earnings.
One major caveat to this outlook is the price of oil. Further political turbulence is possible in the oil-producing economies of the Middle East, which could boost oil prices to more than $150 a barrel, effectively shutting down economic growth prospects. Recent sanctions against Iran for clandestine nuclear weapons’ work add to this unwanted possibility.
The dollar will appreciate marginally during 2012 but not enough to materially erode its competitiveness, especially with China sticking to its commitment to allow the yuan to appreciate only gradually. China’s recent reduction of the bank reserve requirement ratio — a couple more reductions may come later — will make it difficult to limit further appreciation of its currency as the Chinese Central Bank will have less money at its disposal to intervene in international markets and acquire more dollars. This is positive for exports.
Nevertheless, the U.S. dollar is expected to hold its value against the euro as growth in European economies stalls amid sovereign debt downgrades.
Given these assumptions, my exports forecast for 2012 calls for modest 3.8 percent growth, to a total of 12.3 million TEUs. At this level, exports would have reached a new peak.
Mario O. Moreno is the JOC economist. Contact him at firstname.lastname@example.org.