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U.S. employment environment promotes import uncertainty By Chief Economist Walter Kemmsies of Moffatt & Nichol The economy has reached a turning point and we expect GDP to expand this fall. Most of the reasons for growth are (1) retailers have successfully burned down excess inventories, (2) increased spending by the federal government and (3) a tepid rebound in consumer spending. We expect a protracted, measured rebound, as battered household balance sheets will take time to recover. While the improving economy will help drive trade volumes from recent lows, a consumer-led recovery appears unlikely, given the weak outlook for employment growth. Unlike the 2001 recovery, there will be little credit available to allow households to spend above their incomes. Longer-term, we expect the same fundamentals, such as outsourcing, to support strong trade. If history is any indication (and considering the severity of current job losses), it is reasonable to assume that it could take until June 2014, or 80 months, to reach the prior peak level of Nonfarm Payrolls (NFP) set in November 2007. Following the last four recessions, the amount of time it has taken for NFP to reach their prior peak has been increasing in each instance by approximately 50 percent. In the 1970s, it took 19 months for NFP to reach the previous high point; 25 months in the early 1980s, 35 months in the 1990s; and 54 months following the 2001 recession, also known as the ”jobless recovery.” As of August, nonfarm payrolls were down 4.4 percent below levels seen in August 2008, making for the worst year-on-year comparison since 1967. Recovery in Nonfarm Payrolls Following Recession According to MarAd loaded container statistics, following the 2001 recession, imported TEU volumes increased an average 8.7 percent between January 2002 and December 2007 (these were all imported TEUs and not just consumer-related products.) As a nation, the dollar amount spent on imported consumer goods increased an average of 9.0 percent over these same seven years, according to the Bureau of Economic Analysis. This was an extraordinary period of growth, which saw double-digit expansion in volumes at most of the large U.S. West coast ports, fueled by China’s entrance into the WTO and a consumer appetite for low-cost products. Despite the surge in imported TEUs, the demand cannot be attributed to growth in employment or disposable income, which grew an average 0.7 percent and 2.7 percent respectively. It was the low interest rate environment and an eager public, which borrowed money from commercial banks and finance companies to the tune of an average 7.1 percent annual increase in outstanding consumer credit. As of July 2009, outstanding consumer credit at commercial banks and finance companies was 3.3 percent below July 2008’s level, making it the worst annual comparison since August 1991. This followed the recession which ended in March of that year, but which saw consumer credit fall on average by 3.4 percent through March 1993. By comparison, following the 2001 recession, consumer credit expanded by an average 8.8 percent over the next two years. So what does all this suggest about the outlook for the U.S. trade sector? This does not necessarily suggest that import volumes, which at some ports are down 20+ percent for the year, are gone for good. Quite the contrary. In recent months there have been developing signals that the rate of decline in import volumes at the larger ports is beginning to stabilize, and volumes have been increasing in a normal seasonal pattern off of a typical February trough. There is the likelihood for a bounce off of 2009’s low which could provide strong year-on-year comparisons for some of the larger ports in 2010. Nevertheless, the employment situation in the U.S. continues to suggest that in the absence of another credit-backed buying binge, the U.S. consumer should not be relied upon to drive demand for imported volumes over the next few years. My colleague David Bennett points to a similar conclusion in his article in this month’s Cargo Business News. In it he writes “I have suggested to many industry leaders and customers that pricing structures in the trans-Pacific trade are going through a radical change that will essentially eliminate rates being fixed for a twelve-month period during the life of the service contract.” He goes on to suggest that these contracts will likely be negotiated on a quarterly basis in the future. This seems to be a very reasonable assumption, given the uncertain and adversarial conditions which challenge the U.S. consumer.	In This Issue Up Front News, Trends & Analysis New Items U.S. employment environment promotes import uncertainty Supply Chain How are you planning for the rebound? Trade compliance often has a broader scope Features Optimism characterizes inaugural Southeast Freight Conference Gateway at a glance: Northern California Ports & infrastructure Prince Rupert looks towards Memphis Canada tries to standardize port performance metrics Global players jockey over Arctic shipping routes Port Products Terminal management systems Commentary Roll up your sleeves for the next phase On the Horizon The Internet of 2020 Casualties
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U.S. employment environment promotes import uncertainty