We expect the trade channel to be a major part of the 2021 growth narrative as the Biden administration mends fences with the major American trade partners, excluding China, early next year.
The animal spirits in the global economy are already stirring.
In fact, one can already observe the stirring in animal spirits in the global economy as the nascent recovery in the United States and abroad gets underway. The U.S. trade deficit increased to $63.1 billion in October and the broader current account deficit widened to $178.5 billion in the third quarter of 2020.
Following a deep recession, a widening in both deficits is exactly what one wants to observe and is a sign that domestic households are begging to feel more confident in their financial positions.
Although there is clearly going to be volatility associated with the resurgence of the global health crisis, especially in the United Kingdom and Europe, we are definitely observing an upswing in overall trade activity since our logistics index reached its nadir earlier this year.
While we are confident that the external sector of the U.S. economy, like its domestic counterpart, has engineered a partial comeback from the depths of the coronavirus recession, it has yet to recover fully from the repercussions of the U.S trade war and the pandemic.
It will take some time to recover lost gains. The U.S. economy should be back to full output by the end of the first quarter of 2021. But we think it will be 2023 before the global economy will return to levels seen before the pandemic and trade war.
In the latest data, imports in October were 3.3% lower than in October 2019, but exports remain 13.5% lower relative to last year’s already depleted levels. Increases in imports can be a harbinger of economic growth, with rising consumer and business demand injecting life into the domestic economy and into the economies of our trading partners. But should the divergence in export and import trends continue, this will by definition create a drag on U.S. real GDP growth.
Recall that our national accounts system measures gross domestic product as the sum of domestic economic activity plus net exports. Should U.S. imports continue to exceed exports—whether because of physical restrictions on trade because of the pandemic or the permanent loss of market share or damage to the global economy because of the trade war—the result would be diminished total U.S. output.
We have devised a “real-time” index of U.S. external sector activity, based on the movement of loaded shipping containers at U.S. seaports. The trend in the three-month average of year-over-year changes in import and export containers at U.S. seaports has exhibited a tendency to mimic the direction of U.S. GDP growth.
This is not surprising given the relationship between consumer demand and GDP, and the growing dependence on the global supply chain by the domestic wholesale and manufacturing sectors.
Our logistics index bottomed out in May along with GDP, and has been on a tear ever since. But the 9.35% increase in overall container activity in November needs a bit more scrutiny.
These are extraordinary times, and changes in the data must be viewed within the parameters of sustainability. For instance, the surge in import containers processed at West Coast seaports is most likely a result of the optimism that we had defeated the virus by the end of the summer, and the restocking of wholesale and retail inventories in anticipation of school reopenings in the fall and Christmas holiday sales.
After the demand for containerized cargo evaporated during the spring and early summer, the ports of Long Beach and Los Angeles—which handle more than 50% of U.S. total import containers—set monthly records in October, according to port data cited in American Shipper, a trade publication.
The data shows a slight pullback in November. That adds to the caution that COVID-19 hospitalizations and deaths are surging, which puts ocean shipping demand at risk of a relapse.
There is evidence that container transport could already be borrowing from future demand, and the risk of a retail inventory bubble. As S&P Global Market Intelligence reported: “Shipments of consumer electronics and household appliances jumped 21.1% and 71.6%, respectively, in October compared to retail sales for electronics stores, which fell 3.3%. Even in apparel and textiles—where imports only expanded by 10.1% after being largely unchanged in September—there was an imbalance with the 11.3% slide in sales.”
At the same time that ports along the West Coast were handling a record number of import containers, exports continued to languish.
The seaports of Los Angeles/Long Beach, Oakland and Seattle/Tacoma—which handle about 42% of all U.S. export containers—are still operating below capacity, with average declines of about 5% in the months of September through November relative to already diminished monthly levels in 2019.
But this is not a recent event. The number of export containers handled by the West Coast ports has been in yearly decline for 30 of the 35 months since January 2018. The drop in exports in a majority of those months is inarguably a result of the U.S. trade war, with the last eight months of decline also attributed to snafus at the ports contending with the coronavirus. For instance, there have been several reports of substantial delays at China’s ports because of newly instituted COVID-19 inspections.
Finally, another article in American Shipper suggests that with the U.K. under siege from a mutated virus, and Europe in the midst of new lockdowns, U.S. exports of energy and bulk agriculture remain at risk.
The following table shows increased activity for import containers during November at all but the Port of Prince Rupert in British Columbia, and increases in export containers at Houston; Charleston, S.C.; and Virginia.
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