Signs The Economy Is Back to Normal - The "Trouble" at the Ports of Los Angeles and Long Beach
Written by Steven Hansen
For those who read my 22 October 2014 post on sea containers, you would have understood that imports of sea containers are at historic highs. There are loads of mass media reports on ships waiting at anchor to be unloaded. It did not help that a terminal fire late last month shut the ports down for a portion of a day - with one terminal damaged and out of action.
The Ports of LA and Long Beach account for much (approximately 40%) of the container movement into and out of the United States – and these two ports report their data significantly earlier than other USA ports. Most of the manufactured goods move between countries in sea containers (except larger rolling items such as automobiles). This pulse point is an early indicator of the health of the economy.
The headlines blame a surge of imports, shortage of truck trailers, and bigger ships hauling more cargo - and there are some posts which claim the situation has created a seven to ten day delay - some even claiming unsettling times for retailers anxious to stock shelves for the holiday season. Heaven forbid that Johnny will not get his requested video device from Santa - but I doubt these port problems will have much impact to a USA supply chain which is relatively elastic.
Forget the doom projections of the headlines, and consider this is a transient issue caused by an unexpected jump in imports during the peak import period which occurs during the months of September and October.
Our summary of the situation at the ports:
Export container counts continue to weaken, which is a warning that the global economy is slowing. Imports on the other hand are improving - saying the USA economy may be gaining some strength. The three month rolling averages for both imports and exports continue to decelerate - with exports in negative territory year-over-year. Note that import containers are now at pre-recession highs. Container counts are a good metric to gauge the economy.
The graph below illustrates imports broken down by month. It is obvious that once the ports get through October, they have a year to prepare for the next peak. There is no reason for shippers to change ports of import into the USA or take other actions based on this current delay at the ports - provided shippers are sure the problem is being remedied.
Unadjusted Import Container Counts – Ports of Los Angeles and Long Beach Combined
The real story here is economic - not specifically the delays at the ports. From the graph above one can see that imports were soft in July and August - and exploding in September and October (October not shown, just guessing based on the port delays).
Consider that imports final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos (which, of course, are bulk and not shipped in containers). For this month:
- the economically intuitive imports growth accelerated 0.9% month-over-month (last month accelerated 0.9%), is up 10.6% compared to September 2013, and up 6.0% year-to-date. There is a direct linkage between imports and USA economic activity – and the change in growth in imports foretells real change in economic growth.
- Export growth (which is an indicator of competitiveness and global economic growth) decelerated 0.2% month-over-month, is down 5.6% compared to September 2013, and is up 1.1% year-to-date.
Unadjusted 3 Month Rolling Average for Container Counts Year-over-Year Change (comparing the 3 month average one year ago to the current 3 month average) – Ports of Los Angeles and Long Beach Combined – Imports (red line) and Exports (blue line)
One reason imports "could" be growing is that a strengthening dollar cycle began in mid-2011. This would mean that an imported item would be purchased instead of one that could have been exported - all other things being equal. I am seeing no empirical evidence in industrial production to support this.
Forget GDP - a rise in imports generally signals improvement at main street level. A few months of data do not make a trend - but we can hope.
Other Economic News this Week:
The Econintersect Economic Index for November 2014 is showing our index on the low side of a tight growth range for almost a year. Although there are no warning flags in the data which is used to compile our forecast, there also is no signs that the rate of economic growth will improve. Additionally there are no warning signs in other leading indices that the economy is stalling - EXCEPT ECRI's Weekly Leading Index at the zero growth line.
The ECRI WLI growth index value crossed slightly into negative territory which implies the economy will not have grown six months from today.
Current ECRI WLI Growth Index
The market was expecting the weekly initial unemployment claims at 275,000 to 295,000 (consensus 285,000) vs the 287,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 281,250 (reported last week as 281,000) to 281,000.
Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line)
Bankruptcies this Week: LDK Solar Systems, Privately-held Mississippi Phosphates,