The good news – if you can call it that: US containerized ocean export activity in April inched up 2.8% from March. It was the first uptick all year, according to the Cass/INTTRA Ocean Freight Index. But in the prior months, the index had plunged to its worst level in the data series going back to the end of the Financial Crisis.
The index doesn’t include commodities such as petroleum products or wheat that are shipped by specialized carriers. It doesn’t include goods or commodities shipped by rail, truck, or pipeline to Mexico and Canada. And it doesn’t include air freight, which is only a tiny percentage of total freight tonnage. The index is a measure of export activity of manufactured products sent by containership. But in the overall US trade statistics, the rise of commodity exports papers over the collapse in exports of manufactured goods.
And a collapse it is. The index, at 0.665 in April, is 28.4% below a year ago and 33.5% below the level of January 2010, when it was set at 1.00. It’s less than half of what it was in much of 2010, 2011, and 2012. This is what that multi-year processes looks like:
Export activity just about plunged off the chart during Q1. Note how sharp the movement was compared to the relatively slight up-and-down during Q1 last year. The minuscule uptick in April is barely visible at the tail end of the chart. Yet it’s all we have as a first feeble sign of export growth this year, from abysmally low levels. And even that may turn out to be an illusion, given the long-term trend.
The strong upturn in export activity in the period immediately following the Financial Crisis, part of the V-shaped “recovery,” peaked in March 2011 of 1.61. Then in 2012, what looked at first like a return to the mean was actually a sign that container export activity was coming unglued. And the current global downturn aggravated the situation.
Exports are vital to every economy. Currency wars are fought to increase exports. Trade wars are fought over it. Every country wants to export more and import less. Exports add to GDP, imports subtract from it.
Yet, even as the Fed’s QE caused the dollar to swoon against most major currencies after the Financial Crisis, US exports of manufactured goods, which should have gotten more competitive in the international markets, didn’t rise past the initial dead-cat bounce. They crashed instead.
The dollar’s sharp rise since the second half last year had a barely visible impact: exports of manufactured goods simply continued to crash along the same trend line as before.
This is in part the result of a corporate strategy that has been pushed to new heights in the US since the onset of QE and interest rate repression. Corporations borrow money cheaply to buy back their own shares and to acquire each other – the twin booms of share-buybacks and M&A – instead of investing this money in productive activities in the US. They offshore production to locations where labor is cheaper and child labor possible, where they can pollute the environment without limits, where building codes are not enforced, where wages might be a few of bucks a day. Even China is getting borderline expensive.
Import activity is a different story! A more glorious one. American companies know how to import. Economists publicly drool over rising imports as a sign of an improving economy. But they too are running into trouble.
In April, container import activity rose 6.5%, after having surged 17.3% in March, bringing the index to 1.308. But that’s is still down 5% year-over-year, thanks to the ugly first quarter and the lousy beginning of the second quarter in consumer and business demand in the US. Year-to-date, the index is still down 15.1% from the same period last year. Yet with all its sharp ups and downs, import activity continues to stay within the range of 2013 and 2014 and is robustly higher than in prior years.
Concerning imports, Cass added this comment in its report:
April’s increase is due almost entirely to imports from China. In fact, without China the number of container imports would actually have declined. Shipments from almost half of the 25 countries included this index declined in April…. Imports from Pakistan, Taiwan, and Bangladesh fell substantially in April.
As long as corporations shift manufacturing to locations in other countries, the US will import more but has fewer manufactured goods to export. And that fabled “manufacturing renaissance” in the US? We love the few anecdotes here and there, but on a national basis, it’s not in the cards, given the current monetary policies that reward corporate executive for only one thing: financial engineering.
But it’s not just in the US. Something is happening on a global basis that isn’t supposed to happen. Read… Global Trade Dives Most since the Financial Crisis
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Actually, that perfectly corroborates with the trade deficit the country is running for almost four decades. Nothing surprising.
But the funny thing about trade deficit is it has to be balanced by a net export of financial assets, which in our case, happens to be all sorts of bonds, derivatives, certainly our treasury bill and the king Dollar. So much for being the manufacturer of the global reserve currency. But how long will the rest of the globe value our financial exports as highly as they do? How long will they accept papers from us and send us toys, merchandises, cars, machine parts, services and processed foods? That is the fifteen trillion dollar question. As long as they do value our papers, no need to worry about container traffic or the debt. These are just numbers.
This is also the fruit of sending our manufacturing overseas. If we are not making the products, somebody else is. How could we have a reasonable balance of trade under such circumstances? I wonder who in our country makes big bucks off of our negative trade balance?
Why did we send “our” manufacturing overseas? Most of us would buy American made items if we could afford them, but that’s just it; we can’t. The value of the dollar has been steadily eroded by our banking system, accelerating around the middle to late 60s as the imperfect Bretton Woods agreement was falling apart, and as a result, American consumers have gone looking for cheaper and cheaper goods since. American business only satisfied this need by taking advantage of cheaper labor elsewhere, and by doing this they brought down domestic prices a bit as well.
Imagine for a moment, what life would be like if all foreign products were banned from the U.S. We would truly see what the costs of our policies of inflation are then, as domestic prices would rise even further due to the lack of competition from abroad.
The Clinton Admin started all the off-shoring, although the Reagan years didn’t help. Clinton got his budget surplus from closing the income averaging tax break for self-employed people…Slick Willy at his best. Our US made choices were off-shored. I think we should boycott voting, since its all rigged anyway. And recognize that shopping at Walmart impoverishes everyone, even the manufacturers. Do you know that Walmart only pays for the items in their inventory when it’s actually sold? It’s free until then! Did you know that Walmart made a point to push down wages for working factory mothers? It’s equal opportunity time for Americans now…we might get a minimum wage of $15 but here comes hyperinflation.
Nonsense,
It was the Regan Era that started all the M&As allowing mega corporations to swarm into existence. At that time they were pushing for tax breaks to go off shore (which they got).
And I was in Hi-Tech manufacturing in the 80s (and 90s) I saw my company massively moving off shore in 1983. And it continued to happen all around me.
The Gilded Age only lasted 40 years, but it was a sea change that shifted the paradigm of the world. It was under attack the whole time, some fair but most not. The trust busting that began in 1905 was the first of many; the first time government turned its guns on its own citizens, all in the name of ‘the public good’. History remembers the ‘Roaring Twenties’ with its juxtaposition of the rise of gangsterism and financial boom. People felt at the time that something was awry, read any of Sinclair Lewis’ novels to experience this unease. Babbitt in particular in its discussion of the rise of the Chamber of Commerce and the soul stealing rise of Pragmatism. Also Elmer Gantry would be a great boon to you homeschoolers as required reading, just in case you think that the assaults on your faith are something new. And this brings us to a commenter on Wolf Street who thinks that The Affordable Care Act (which is neither ) is a net positive to Society, instead of a method of terror that interposes the State’s guns between you and your medical care.
Interesting commentary. What about the previous terror of middle age people not being able to get any insurance due to a preexisting condition and the various medical bankruptcies. I think the state has been implicated in health care for decades already and do not think it started with the ACA.
On a whim I googled Elmer Gantry to see what comment had been posted on line. I never care about critics, and form my own opinions. The Left has co-opted Lewis. Do not pay them any mind, any more than you should avoid Nietzsche because he was co-opted by the Nazis. They do this to demonize Lewis in your eyes…hoping you’ll believe them and avoid the book. Don’t be gulled.
Concerning imports: I noticed in the past year my son buying products directly from overseas companies, books, music and tee shirts, for example. These are not products already imported for resale. I only became aware of it because he asked me about exchange rates. Like most of his peers he buys most things on the internet.
Wolf,
I love your site, but please, just occasionally, something other than unremitting gloom.
Go to mainstream media for that. Plenty of “bread and circus” there.
The liberal media who for some reason do not report the bankster crimes (hey not 1 bankster is in jail for 2008 debacles) and the paid touts over at CNBC are like pied piper brainwashing the lemming muppets that it’s all hunky dory and BTW buy more equity/bond from the “smart” money.
PS – The touts are also all for gold sucks mantra and get rid of paper currencies too
CNBC is a bigger propaganda machine than Pravda. That Joe guy is the worst.
Unfortunately there is more bad news than good news. Wolf is reporting things you will not hear in the mainstream media.
I think this was expected given mighty USD strength of late. Other countries except US are busy devaluing their currencies to boost economy via exports while US is doing the opposite – not by choice mind you.
So while other countries are busy overtly and covertly manipulating their currencies (i.e. Euro from 1.3:1 to 1.1:1) Janet is choosing not to “defend” USD via currency swaps/buys but rather told the whole world that she intends to tick up interest rate which means USD will soar higher. Poor Janet – talk about be careful what you wish for as Helicopter Benny’s rather timely departure after creating mother of all liquidity bubble…
Nothing to worry about. In a knowledge-based economy, with everybody being above-average, people will easily adjust to the new opportunities. It’s what made Merica great.
We actually export and while the dollar doesn’t help, the main reason for the dramatic decline of exports in Q1 was the West Coast Port Strike. No one could ship anything.
Bird, you wrote: “….decline of exports in Q1 was the West Coast Port Strike. No one could ship anything.”
What about the crash in exports over the prior quarters, as the chart indicates?
And…
I sit across the Port of Oakland and have an unobstructed view of the shipping lanes. The port strike was a true mess, for exporters and importers both! But there were lots of ships coming and going. It was slowdown, not a stoppage. Ships and containers backed up, but continued to move. The slowdown ended in late February. Since then, carriers have been catching up. So there should have been a burst of activity starting in late February.
And guess what? There was a burst of import activity, which soared in March and April. But not exports. Containerized export activity has plunged over the years … just look at the data/chart in the article. The port strike aggravated it in January and February, but then export activity should have soared in March and April. But it did NOT!
I grew up in a maritime family and during the Vietname War the merchant ships carried most of the supplies and arms shipped there. Could the slow down now be a slow down in arms and war materials shipped overseas. Just a thought.
I cross the Bay Bridge on my morning commute passing the Port of Oakland container ports and the backlog from earlier this year is no longer there (with container ships parked along the SF bay).
What’s notable is that Shaghai container traffic data is down not to mention Baltic Dry Index. Slowdown of global shipping is also reflected in Dow Transport charts (heading down and not certainly hitting highs) which usually proceeds the direction of the halcyon induced Dow/S&P/Nas/Russell indices heralding the slowing of global economy.
The stalwart China is slowing down with ports filled to brim with various commodities (sayonara to yrs of voracious commodities of all kind appetite) and anemic manufactured goods export the once mighty growth engine. Heck the world might just tip toe back into the Great Recession papered over the easy money the Keynesian wet dream but alas the CBs are out of looser as hell monetary ammos. Next up IMHO is dreaded STAFLATION as CBs again resort to easier money aggresive money printing resulting in inflation monster rearing its ugly head and CBs of the world react via ticking interest rate higher. Add to this volatile ME as stagflation of late 1970’s was due in part to OPEC embargo.
The US imports more and pays with fewer exports. This is what makes the US so wealthy. I don’t see the problem, seems like a sweet deal to me.
For Dan R. You are correct in observing that government intervention in the medical field is not new, and what we had prior to Obamacare was not a panacea. I was responding to a commentator who believes that Obamacare is wonderful. Dr. G could probably give you a better picture of the history and minutia of what’s wrong in the medical field. Statists always use V.i. Lenin’s dictum of two steps forward and one step back until the time is right to step in and take control in one fell swoop.
For Richard Hill, believe it or not, most of the people who frequent this Wolf St. venue are optimists who no longer have anything to be optimistic about. We are like Dr. Franklin’s church bell that summons others to meeting but hears not the sermon.
Ray, your comment strikes me as a non-sequitur. We don’t “pay” for imports with exports. Exports are goods we produce and sell to other countries. Exports are down because as time goes on we make fewer and fewer goods. The manufacturing jobs that used to produce those goods are gone, the plants that produced them are abandoned, and the profits we used to make producing them are also gone. The things we import are no where near the quality of what we used to produce, with a few exceptions. If our supply lines are disrupted during war or natural disaster those products will simply disappear from stores. The vestigial manufacturing base will either be unable any longer to produce them or be overwhelmed having to produce them all. Imports are fine, variety is the spice of life, and those making money on them have a job to do. As a trucker I haul some of those products. In a truly free market these things would balance out. The fact that they are not is a warning signal.
We don’t “pay” for imports with exports. – Well that’s even a better deal. Getting something for nothing.
“…worst level in the data series going back to the end of the Financial Crisis”.
When was that?