One step forward, a half-step backward. That’s expected to be the story of the U.S. economy, and containerized imports and exports, through the rest of 2013.
“I think it will be a continuation of what we have seen, which is slow growth,” said Paul Bingham, economics practice leader at CDM Smith. “It’s looking like another year to muddle through. There will be growth, but it won’t be as fast as people would like.”
JOC Group Economist Mario O. Moreno agrees. “We’ll see an increase, but a small increase,” he said. Moreno forecasts imports will rise 2.3 percent this year, to 17.5 million 20-foot-equivalent units, and that exports will increase 2 percent, to 12.1 million TEUs. Last year, imports totaled 17.1 million TEUs, up 1.5 percent, and exports were 12 million TEUs, up 0.9 percent.
Global Port Tracker forecasts containerized imports will rise 2 percent during the first half of this year in the 10 major U.S. container gateways it tracks. The monthly report, produced by Hackett Associates and the National Retail Federation, says an uncertain economy has tempered rising consumer confidence and led retailers to be conservative with new orders.
“The weak cargo increases expected over the next few months are consistent with other signs that the economy is slowly improving but show that retailers remain cautious, especially when it comes to stocking their inventories,” said Jonathan Gold, the NRF’s vice president of supply chain and customs policy. “We’re looking at barely 1 percent of year-over-year growth through the early summer, and August and September are expected to be basically flat even though they’re supposed to be two of the busiest months of the year.”
Although low inventories can trigger a surge in new orders if demand rises faster than expected, few analysts are counting on that. They say today’s inventory levels may be as much a function of improved supply chain practices as of expectations of future demand.
“I don’t see much in the way of new orders out there,” said Rosalyn Wilson, senior business analyst at Delcan and author of the Council of Supply Chain Management Professionals’ annual State of Logistics Report. “I don’t see anybody that’s saying, ‘The economy seems to be going great and I need to have more inventory.’ ”
Forecasts for container volume reflect mixed economic signals. Data on housing, jobs, and consumer spending are trending upward. Offsetting those positive signs is uncertainty about government policy, Europe’s lingering recession, slowing manufacturing growth and persistently high unemployment, that has been trending down in recent months.
After first quarter GDP growth estimated at 2.5 percent, many economists predict a “spring swoon” as the impact of the federal budget sequestration’s spreads. That’s likely to dampen growth in consumer spending, which generates two-thirds of U.S. economic activity and is a primary driver of containerized imports.
“Despite the Fed pumping liquidity into the market, consumer confidence still has not turned the corner,” said Ben Hackett, founder of Hackett Associates. “We need to see the economy strengthen in the coming quarters before we can begin to see the threat of a further economic downturn dissipating. Trade will remain at low growth levels until we reach this stage.”
Consumer confidence has waxed and waned in recent months, but remains subdued by historical levels, according to surveys from the Conference Board and University of Michigan/Reuters.
Unemployment levels are high, wages are stagnant, and consumers haven’t finished working off debt accumulated before the recession. But they’re feeling more secure about their jobs as the unemployment rate falls, and more confident about their finances as stock and housing prices rise. They’re also heartened by gasoline prices that the Energy Department predicts will average 16 cents a gallon less this year than in 2012.
Household balance sheets are improving. Aided by record low interest rates, household debt has declined to 102 percent of after-tax income from a peak of 126 percent in 2007, the Federal Reserve reports.
Consumers spent 3.2 percent more on an annual basis in the January-March quarter than in the previous quarter, the largest increase in two years. Most economists doubt that level of spending is sustainable. IHS Global Insight said the first quarter increase will prove unsustainable, and that consumer spending will rise at about 2 percent for the rest of the year.
A recent New York Federal Reserve study said this year’s expiration of the temporary cut in payroll taxes is likely to cause “a substantial reduction in spending, as well as contribute to a slowdown or reversal in the paying down of consumer debt.”
Then there’s the federal budget sequestration. Although spending reallocations and delaying measures blunted its early impact, the cuts are expected to be felt increasingly as government furloughs kick in and private contractors lay off staff. That will affect GDP, which most economists expect to total about 2 percent for the year.
The sequester’s biggest impact is expected to be in the second quarter. IHS Global Insight said GDP is expected to dip to 1.4 percent in the quarter, but the annualized pace of real GDP growth is expected to strengthen quickly to 3 percent by year-end.
While Washington bickers, several economic indicators are pointing upward. “The underlying fundamentals of the private economy remain solid, especially in housing markets,” IHS Global Insight said in a recent note.
More jobs are being created, and government layoffs have slackened, although that could change as the sequester’s impact spreads. Payroll jobs increased at a monthly average of 212,000 from February to April, compared with a monthly average of 205,000 in the previous three months.
The unemployment rate fell to 7.5 percent in April, compared with a recession peak of 10 percent in October 2009. Most economists caution that it will be a year or more before the unemployment rate falls to the 6.5 percent level the Fed has set as a target.
Housing markets continue to recover from a five-year slump. Low mortgage rates, easier credit and pent-up demand have rekindled demand for homes and apartments. Rising prices, aided by tight inventories of homes for sale, are reviving a homebuilding sector that was moribund during the recession.
Housing permits jumped 14.3 percent in April to an annualized rate of 1,017,000, their highest level since June 2008. Household formation, which stagnated during the economic downturn, is approaching pre-recession levels.
Besides generating demand for building materials, housing is a bulwark of containerized imports. When people change homes, they often buy furniture and other home goods, many of which are manufactured in Asia and shipped by container.
Furniture annually is the largest commodity in PIERS import statistics. Containerized imports of furniture totaled 1,272,725 TEUs last year, up 5.9 percent. Furniture imports jumped another 6 percent in the first quarter of 2013. It was the sixth consecutive quarter they increased year-over-year.
Growth in manufacturing, one of the first sectors to recover from the recession, has slowed in recent months. The Institute for Supply Management’s closely watched manufacturing index slipped to 50.7 in April from 51.3 in March. The reading was barely above 50, the dividing line between expansion and contraction.
Daniel J. Meckstroth, chief economist at the Manufacturers Alliance for Productivity and Innovation, said manufacturing activity was relatively strong in the first quarter but has softened as manufacturers lowered inventory levels. He said fundamentals “point to moderate 3 percent manufacturing industrial production growth this year — slightly faster than the overall economy, but not much.”
Automobile manufacturing remains a strong point. U.S. sales of light vehicles are expected to total 15.3 million this year, compared with 14.4 million in 2012. IHS Global Insight forecasts sales of 15.7 million in 2014 and 16.2 million in 2015.
The automotive sector’s revival has boosted containerized imports of auto parts. PIERS data show auto imports totaled 822,818 TEUs in 2012, up 14.7 percent from the previous year. Parts imports rose 8.2 percent in the first quarter of this year.
A dark cloud over the global economy is the recession in Europe, which has logged six consecutive quarters of economic contraction. Weak demand in Europe is affecting the continent’s imports, and is cutting into demand by China and other Asian nations for raw materials and components.
Hackett, whose firm produces the North Europe Global Port Tracker with the Institute of Shipping Economics and Logistics in Bremen, said containerized imports at major North European ports are expected to decline by more than 13 percent, although the ports’ total increase including intra-Europe shipments will be off by less than 2 percent.
Moreno said Europe’s troubles will have a ripple effect on U.S. exports to Europe, and to Asian countries that supply European demand. “It definitely will have an effect,” he said. “There’s no escaping the fact that we’re in an interdependent global economy.”