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March 14, 2022

Keeping it Real - Flexport Weekly Economic Report

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Phil Levy

Chief Economist, Flexport

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Flexport’s Weekly Economic Report provides insights into key issues affecting global supply chains, international trade and the economy more broadly. This week we delve into the importance of tracking real and not just nominal trade growth, observe continued trade price inflation, track consumer sentiment and spot a policy shift.

In Focus - Real versus Nominal Trade Growth

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In trade figures released this past week, nominal U.S. exports of goods and services fell by 1.7% from December to January while imports rose by 1.2%. On a year-over-year basis, nominal exports rose by 15.4% while imports rose by 21.0%.

In times of high inflation, it is important to look at what is happening in real terms (adjusting for inflation) and compare it to nominal results. The real figures in the report refer to goods trade only (not services), so for a proper comparison: a 15.8% nominal increase in YOY goods exports corresponded to a 1.3% real increase; a 20.0% nominal increase in YOY goods imports corresponded to a 9.2% real increase.

Sticking with the real comparison of January 2022 and January 2021, the biggest category movers for exports were consumer goods, up 15.4%, and Foods, Feeds & Beverages, down 15.7%.

For imports, the biggest YOY real category movers were consumer goods, up 12.3%, and capital goods, up 12.0%. Following close behind were industrial supplies, up 9.3%, which includes petroleum and petroleum products.

Petroleum and petroleum products make up a significant portion of U.S. trade – 8.7% of total exports and imports in 2021. The sector is drawing particular attention as oil prices swing dramatically amidst the conflict in Ukraine and sanctions on Russia.

The graph above shows, in real terms, how U.S. petroleum trade has evolved in recent decades. While the U.S. remains a net importer, the gap between imports and exports has narrowed dramatically, almost closing at the onset of the pandemic. For petroleum alone (excluding products), the U.S. was a net exporter in 2020.

One might ask why the U.S. both imports and exports petroleum. Why not just net it out? The answer lies in the differentiation within the category – there are differences between crude oil, for example, and refined gasoline or propane. Shipping costs and regulations can also play a significant role.

As a general rule, a country benefits when the price of goods for which it is a net exporter rises. This says nothing, though, about the distribution of those benefits. For those who are not oil producers, the high prices of oil for heating or of gasoline are an unmitigated pain.

For our best, updated estimates of what will happen next for U.S. imports, see the updated Trade Activity Forecast to be released later this week.

Economics Data

The Flexport Ocean Timeliness Indicator for Transpacific Eastbound routes increased by three days to 108 days. Flexport’s new Air Timeliness Indicator for TPEB dipped to 12.7 days in the four weeks to March 13 versus the four weeks to March 7.

Consumer Price Index Keeps Rising in February. The CPI was up 0.8% over January and 7.9% over the last 12 months. The biggest increases were for gasoline (up 6.6% in February), shelter, and food. The “core CPI” which excludes food and energy was up 6.4% over the last 12 months. Both annual inflation rates were the highest since 1982.

  • A University of Michigan consumer survey showed that inflation expectations for the next year rose to 5.4%, the highest since 1981. Expectations for inflation over the next 5 years stayed at 3.0%.

March Consumer Sentiment Falls in the U of M measure. The figure for current conditions was the lowest since 2009, while the one for future expectations was the lowest since 2011. 54% of respondents saw their incomes lagging inflation.

U.S. Household Wealth Up in 2021 to $150.3 trillion, according to a report by the Federal Reserve. The increase was driven heavily by an increase in real estate holdings, up 15.5% from 2020:Q4 to 2021:Q4, equities, up 21.3%, and deposits, up 14.1%. Such expanded wealth can drive consumer spending, though a contraction can have the opposite effect.

Slow GDP Growth in Europe. In the Euro Area, GDP was up 0.3% in Q4 and was up 4.6% over the same quarter in 2020. The quarterly GDP slowed from a 2.3% rate in Q3. U.K. GDP rebounded in January, up 0.8% after a 0.2% fall in December.

Chinese Producer Prices Rise by 8.8% in the year to February. That was below the January rate of 9.1%.

Politics & Regulations

European Central Bank Policy Shift. The ECB announced that it would phase out its bond purchases sooner than anticipated and could raise interest rates later this year. The conflict in Ukraine means that the ECB may simultaneously have to deal with an economic slowdown and rising inflation. The announcement seemed more focused on the latter.

MFN Withdrawal from Russia. The Biden administration and G7 allies moved to end Most Favored Nation status for Russia as a response to the conflict in Ukraine. The move would allow significantly higher tariffs on Russian products.

Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.

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