August 22, 2023
U.S. Consumer Goods Imports - Wherein Lies the Rub
Viewed from the pandemic-era heights of Spring 2022, our latest Forecast for U.S. consumer goods imports may look discouraging. There’s an argument, however, that imports are settling now to where they would have been absent the frenzied Covid years. In the disconnect there might be an explanation for the problems confronting firms up and down the supply chain.
We are now forecasting U.S. real consumer goods imports for the second half of the year to be 3.8% lower than in the first half by the end of December and 6.8% lower than the second half of 2022. That would be the largest year-on-year drop for comparable periods since at least 2013. And it is going to have lasting effects.
First the chart. It’s not as complicated as it looks.
The dark blue line is real U.S. imports of consumer goods, i.e. adjusted for prices and seasonality. Up to June this year, it’s the actual figures. After that, it’s our monthly import forecast, also real and seasonally adjusted. The dotted blue line that extends from the start of the time series to the end of our forecast is the linear trendline for imports from 2013 - 2019. It’s a reasonable – if simplistic – illustration of what might have been reasonably expected had there not been a pandemic or some lesser turmoil, like a mild recession. The red dotted line is also a linear trendline, but it extrapolates from a shorter period – May 2020 to March 2022, encompassing the heights of U.S. consumer demand and depths of supply chain disruptions.
In the gap between the dotted lines? As The Bard once wrote for a dithering Danish prince, “Ay, there’s the rub.”
In this case, the “rub” equates to roughly $30 billion less in monthly imports In December, or the difference between what a sober-minded forecaster at the end of 2019 might have predicted this year versus what a more excitable future counterpart, using the pandemic spike as a narrower reference period, might have forecast.
And probably did forecast, judging by at least two indicators. The first is the current glut in shipping capacity. We called attention to this late last year, as did others: More than 5 million twenty-foot equivalent units (TEUs) worth of new capacity is scheduled for delivery this year and next. It is unprecedented. And it made sense to book these orders if you were watching the volumes going into the U.S. increasing during that relatively narrow period. A more tempered, longer view, however, might have led to less exuberance, but of course, those were extraordinary times and we now have the benefit of hindsight.
This covers ocean market supply.
The other indicator is U.S. inventories, which heavily influences ocean market demand. If you were a buyer for a retailer or wholesaler looking at the same short-term consumption and import trends as the shipping executive who decided it was time to expand the fleet, and were also worried about the reliability of supply chains, it made sense to order as much as you could when you could. Further, you had to order based on expectations of what came next, in a situation that wasn’t following any readily-predictable pattern. We’ve covered this scramble for supply before using a different lens.
But when supply chains started normalizing and consumption growth slowed – but did not decline – inventories accumulated, although appropriate levels are difficult to judge even in the calmest of economic times. What we’re seeing now in U.S. consumer goods imports is a correction of that overshoot, not some portent of the end of globalization.
The points are that, one, current and forecast U.S. imports may not be cause for immediate concern about the future of trade and the U.S. consumer. Those causes can be found – this just doesn’t seem to be one of them. The second is that, understandable as it was given the circumstances, betting heavily on short-term trends invites a lot of risk. The reversion to the long-term trend we’re seeing now is causing pain. We’ll have to wait to see what happens if and when monetary kicks in and whether the landing is a hard or soft one – or if the economy somehow stays aloft.
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