Written by Steven Hansen
During the last 30 days, I have passed through the Panama Canal twice. My observation was that the container ships going through both the old and new locks were lightly loaded.
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I have gone through the Panama Canal every few years beginning in 1973. These lightly loaded container ships seemed unusual.
Part of the problem is that the Gatun Lake level is down from lack of rain. This lake not only is part of the canal but provides the water for the operation of the locks. The maximum draft has been reduced a good seven feet from the design draft of 50 feet for the new locks. This translates to an approximate 10% reduction in cargo-carrying capacity for the vessels using the new locks.
Another issue that the rates for the new locks were initially set too high, and have been significantly reduced within the last year to be competitive with the Suez Canal. It seems too many Neopanamax and Panamax vessels from South Asia to east coast U.S. ports were using the Suez Canal and avoiding the Panama Canal.
As coincidence would happen, the container counts for the Ports of Los Angeles and Long Beach were released during the crossing and showed a significant decline again pushing the year-over-year data deeper into contraction.
Now compare the above graph with U.S. import and export data (graph below). Container counts from the Ports of LA and Long Beach continue to correlate with import data. And the port data is released a month earlier than the trade data from the US Census.
Some pundits think that the new Panama Canal locks have affected the West Coasts container counts – our analysis is that there is little impact. Too many market thumpers are trying to talk down the falling LA port data – they are wrong on a variety of levels but the fact remains that the data correlates with other traffic data.
Econintersect has been alerting its readers that transport has been behaving poorly – and that correlates with a weak economy. The CASS Freight Index (which covers truck, ship, and air freight) has been in contraction now for 11 months – and it too is warning of a very weak economy. Its October 2019 index has contracted 5.9 % year-over-year.
A quote from their October report:
With the -5.9% decline in October, following the string of declines in May through September (ranging from -3.0% to -6.0%), we repeat our message from the previous five months: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
Economic Forecast
The Econintersect Economic Index (November 2019) forecast fell marginally again this month and continues to show the lowest level of growth since the economic slowdown in 2016. The continuing weakness of manufacturing, transport, and exports/imports continues to weigh on our economic forecast.
The fundamentals which lead job growth are now showing a significant slowing growth trend in the employment growth dynamics. We are currently predicting the jobs growth to be below the growth needed to maintain participation rates and the employment-population ratios at the current levels.
Economic Releases This Past Week
The following table summarizes the more significant economic releases this past week. For more detailed analysis – please visit our landing page which provides links to our complete analyses.
Overall this week:
manufacturing falls deeper in contraction
inflation fell in October
transport weak and in contraction
retail sales continue relatively strong
| Release | Potential Economic Impact | Comment |
|---|---|---|
| October Consumer Price Index | n/a | According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.8 % year-over-year (up from the reported 1.7 % last month). The year-over-year core inflation (excludes energy and food) rate declined from 2.4 % to 2.3 % and remains above the target set by the Federal Reserve. Energy was the main reason for the increase in this index. Medical care services cost inflation rose from 4.4 % to 5.1 % year-over-year.
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| October Producer Price Index | n/a | The Producer Price Index (PPI) year-over-year inflation declined from 1.4 % to 1.1 %, Here is what the BLS said in part:
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October Import and Export Price Index | n/a | Year-over-year import and export price indicies remain in contraction year-over-year. Import Oil prices were down 2.9 % month-over-month, and export agricultural prices were up 1.9 %
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| October Container Counts | predicts more economic slowing | The October year-to-date import/export container count growth rate significantly declined. Simply looking at this month versus last month – this month was terrible – especially for imports. The year-over-year rate of growth worsened for imports and worsened for exports. Year-to-date growth for both imports and exports remain deep in contraction. Some pundits think that the new Panama Canal locks have affected the West Coasts container counts – our analysis is that there is little impact. Many do not understand that the new locks are more expensive per ton. The three-month rolling averages for exports and imports are also in contraction.
|
| October Retail Sales | retail sales are showing normal post-Great Recession growth | Retail sales improved according to US Census headline data. The three-month rolling average declined. There was a downward adjustment to last month’s data. The real test of strength is the rolling averages which declined. Overall, this report is considered similar to last month. Please consider that this data is not adjusted for inflation. There is no growth in employment in this sector.
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| October Industrial Production | in contraction | The headlines say seasonally adjusted Industrial Production (IP) declined month-over-month. Our analysis shows the three-month rolling average declined. The best way to view this is the 3-month rolling averages which declined. Industrial production remains in a downtrend Note that manufacturing is in contraction year-over-year – and capacity utilization returned to expansion year-over-year. Consider this report worse than last month.
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| September Business Inventories | inventories at a recessionary level | Headlines say final business sales data (retail plus wholesale plus manufacturing) declined month-over-month. However, the rolling averages improved. Inventories remain very elevated. Our primary monitoring tool – the 3-month rolling averages for sales – improved. As the monthly data has significant variation, the 3-month averages are the way to view this series. Overall business sales are better than the low point in 2015 – but are well below average for the values seen in the last 2 years. Note that inflation-adjusted sales are marginally in expansion.
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| Surveys | manufacturing surveys soft but business optimism high | NFIB Small Business Optimism – The small business half of the economy continued its remarkable economic streak, posting a 0.6 point gain in October’s Optimism Index. The 102.4 reading was buoyed by eight of the 10 Index components advancing, as talk of a recession waned in October. The Uncertainty Index declined 4 points but remains historically high heading into an election year.
Empire State Manufacturing – The Empire State Manufacturing Survey index marginally declined but barely remains expansion. Overall this survey remains below values seen in the last 2+ years. The report is similar to last month and key elements remain mixed. I would consider this report about the same as last month.
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| Rail Movements | Definitely not positive news | Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.
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Links To All Of Our Analysis This Past Week
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