Activity at North American seaports picked up over the summer, showing gains for the third straight month and indicating that the nascent recovery in the economy is underway.
The global growth channel will be an important engine of activity in the recovery.
Make no mistake: The global growth channel will be an important engine of activity early in the recovery and the United States will need to take a look at paring back the outright trade conflict between its North American, European, British and Asian trade partners.
Should the United States choose to re-enter the Trans-Pacific Partnership in 2021, this could be one of the major global economic narratives over the next few years.
At the outset of the pandemic, we tracked seaport activity to estimate both the supply and demand shocks that cascaded throughout the domestic economy. Now, we are closely tracking port activity as the economy begins to emerge from a deep recession.
The total number of loaded containers processed at the ports reached a 1.67% rate of growth relative to activity in August of last year. The increase in the August trade deficit by nearly $3 billion, to $82.9 billion, is an indication of the stirring of animal spirits inside the U.S. economy.
That’s great news, and as shown in the figure below, the increase in total loaded shipping containers — including both exports and imports — is another welcome signal that the U.S. economy is climbing out of the depths of the pandemic-spawned shutdown of normal life.
Some words of caution are necessary, however. Though imports grew in five of the seven seaports reporting container activity in the latest month, only two of them reported increases in exports.
This lines up with data collected by the U.S. Census Bureau, which shows that both exports and imports have moved off their low points in May, but that neither has fully recovered, and that export demand from our trading partners is lagging the domestic demand for imports.
The increase in imports is likely in anticipation of pent-up consumer demand after months of isolation, job losses and household belt-tightening. The increase in consumer demand also comes after inventories were most likely depleted during the spring when supply lines were shut down or overwhelmed as consumers stockpiled necessities.
As the figure below shows, inventories at the start of the shutdown shot up relative to sales as households responded to the uncertainty by limiting purchases. As the pandemic progressed through the summer, inventories dropped precipitously relative to sales. In the manufacturing sector, the inventory-sales ratio returned to pre-crisis levels by August.
The retail sector
The retail sector is a different story. By summer, retailers were facing increased demand at a time of depleted inventories. This would explain the increase in imports relative to exports. Whether the recent increase in retail demand is sustainable depends on whether the public has finished restocking, whether the surge in pandemic purchases of homes and cars will now taper off, and, of course, whether there will be another wave of infections from the novel coronavirus.
Sustained growth of U.S. consumer demand would offer a positive outlook not only for the domestic economy, but also for our trading partners.
After all, in past global downturns, the growth of the U.S. economy was often the catalyst for European and Asian economic growth. Given the growth of the Asian manufacturing sector — and the blossoming of its consumer sector — increased U.S. demand for Asian-produced goods should result in a virtuous cycle of global trade, with Americans and Chinese consumers buying German, Japanese and Italian cars manufactured with Asian-produced auto parts, and so on. That brings us back to the Los Angeles area seaports.
Ports of Los Angeles and Long Beach
Because of their size and proximity to our Asian trading partners, the ports of Los Angeles and Long Beach play an outsized role in the U.S. consumer sector and, to a lesser degree, the manufacturing and agricultural sectors. In the latest month, the Los Angeles area ports handled 42% of all U.S. import containers — up from 32% in March — and 27% of all U.S. export containers, up from 25% in March.
As the first figure below indicates, the number of loaded import containers at the Port of Los Angeles grew 18% year-over-year in August. The increase in imports broke through the downtrend in growth that had been in place since the end of 2018, when the U.S. trade war took hold of the economy.
The second figure shows that the number of loaded export containers has indeed bounced higher than at the depths of the shutdown, but remains 10% lower than the same month last year.
Port-by-port analysis
The table below details the yearly growth rates of loaded export and import containers and total loaded containers in the latest month where data is available. For reference, we also show the 12-month moving average of the percentage change in container activity for each of the categories.
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