Cargo Business News - Current Issue


Home The Magazine Current Issue Archives Blog About CBN Subscribe Reprints Conferences Overview Southwest Intermodal Port Productivity Conference Southeast Freight Conference Northwest Intermodal Port Handbooks Overview Pacific Northwest Ports Handbook Golden Gates Ports Handbook Southern California Ports Handbook Buy Handbook Newswire Subscribe Archives Calendar Classifieds Advertise General Information Upload Files

One big reason for a weak global trade outlook By Chief Economist Walter Kemmsies of Moffatt & Nichol The outlook for the near-term recovery of world trade is bleak because it still depends on the U.S. consumer who is poorer and more discouraged than at any time since 2004. Despite expectations that fast-growing, emerging markets were becoming less dependent on the U.S., this has not proven to be the case. In fact, expectations that this will occur in the next decade appear very optimistic. As it stands, world economic growth, and therefore the recovery in trade, depends on the U.S. consumer not cutting expenditures further and for government stimulus spending to accelerate the recovery. It is unlikely that either of these will pick up much more than they already have so far this year, at least for the next several quarters. Therefore, recovery in world trade and take-up of spare freight movement capacity is likely to be slow. Emerging markets such as China, Russia, India and Brazil (hereafter referred to as the CRIB) are forecasted to sustain higher real GDP growth than mature industrialized nations such as the U.S., Canada, Japan and Western European countries. The implication of these forecasts is that eventually, perhaps as soon as the end of the next decade, according to the IMF, the U.S. will no longer be the largest economy in the world. With the exception of Brazil, these countries have larger populations than North America and the European Union. Income per capital in the CRIB and other emerging market economies is low compared to the U.S., but growing quickly, particularly as a result of developed economies’ tendency to outsource manufacturing activity. Not only is this trend continuing, but given that higher-value manufactured goods are being outsourced, it is reasonable to assume that wages will rise, together with demand for the required skilled labor increases. In the near term, the outlook is still based on U.S. consumer spending behavior. The chart below shows the strong correlation between U.S. consumer spending growth and global GDP growth, both adjusted for inflation. More often than not during the past 50 years, U.S. consumer spending growth has led economic growth – both up and down. According to data from the United Nations International Labor Organization, manufacturing wages are 15 times the level of China’s and 30 times that of India, which therefore means it will take 4-5 years of wages doubling every year in these countries to catch up with current U.S. levels. Given the weak growth in the U.S. and other major developed consuming countries, it seems unlikely that export growth in the CRIB or other emerging market economies will grow fast enough for this to happen, even if the torrid pace of outsourcing were sustained. In short, it is highly likely that in the near term the world economy will still depend on U.S. consumer spending in order to recover. Likewise, the scores of factories in China and the rest of Asia producing consumer goods will also retain this dependency. The drivers of consumer spending look pretty ugly, in a technical sense. Consumer sentiment has recovered from its recent trough but remains well below its historic average. The number of jobless people is set to keep increasing while the index of job openings remains low. Banks are in no mood to extend credit. Given the decline in stock market indexes and house prices, it’s no surprise that the Federal Reserve’s recently published survey of household finances (known as the Z1 survey) found that wealth has fallen to 2004 levels. The government is even contemplating subsidies to car buyers who trade in a “gas guzzler.” With an average of 7,800 Americans turning 62 each day, it is likely that spending on non-essential goods and services will be curtailed. This implies that imported goods volumes will not recover very quickly. These trends do not mean that one should throw one’s hands up in despair and give up. Growth in import volumes can come also about from “import substitution” – the term economists often give to outsourcing. Furthermore, there are a lot of opportunities for U.S. exports to rise, which will be discussed in the next column. For now, there is plenty for everyone to do in terms of finding import volumes resulting from incremental outsourcing. If you need a hint for that, see the December 2008 edition of this column.	In This Issue News, Trends & Analysis New Items One big reason for a weak global trade outlook Supply Chain Public-private partnerships: Inviting others to the table Keeping your cargo cool Compliance Corner: What you need to know about export commodity control numbers Supply Chain product review Communication technologies Features Gateway at a glance – Latin America U.S. domestic shipping looks ahead Ports & infrastructure East Coast ports and terminals moving dirt, doing deals Port Product Review Refrigeration technologies Commentary Difficult times create opportunities Who, What, Where, When Final Say
Home/Subscribe/Our Conferences/Ports Handbooks/Advertising Info/E-Cargo/Publishing Services/About Us Contact/Classifieds/Industry Calendar/Past Issues/Upload Files All contents of this site are copyright 2008 by Northwest Publishing Center and Cargo Business News and may not be reproduced in any way without express written consent of the author.

One big reason for a weak global trade outlook