September and October are part of the shipping season for US ports, a time when retailers, reveling in peak optimism, are loading up on merchandise for the holiday shopping season. But not this year.
At the three busiest ports in the US – the container terminals in Los Angeles, Long Beach, and around New York harbor which handle over 50% of the goods entering the US by sea – import volume in September and October fell by over 10%.
It was the “first time in at least a decade” that imports dropped during these key months, according to The Wall Street Journal, which had analyzed data from trade researcher Zepol Corp. A sudden shift in direction: volume in the prior months this year had been higher than last year.
So maybe November is the month when merchandise washes ashore. That’s the hope at the National Retail Federation.
But not yet. The Wall Street Journal cites Fernando Rios, owner of a small trucking company which picks up containers at the port terminals in Elizabeth, N.J.:
“At this time it’s supposed to be very busy, but it’s not,” he said. Only five of his eight trucks are currently running, and he has had to turn away drivers looking for work. Last year in September, he was moving 25 to 30 containers a week; this year it has been between 8 and 12.
Two possibilities explain this debacle, one worse than the other:
Economists are divided as to whether the peak season slump signals a short-term hiccup for the US economy, or marks the start of a sustained period of weakness.
There’s no shortage of reasons for these un-rosy scenarios. The economy has been flying at below “stall speed” and somehow can’t seem to pick up speed. Consumer spending growth has been sluggish, and retail spending has been flat for three months in a row. Strong auto sales this year have propped up overall retail sales. But ex autos, retails sales fell year over year.
These dreary sales realities are now colliding with optimistic projections by Wall Street’s soothsayers that led businesses to order merchandise they then couldn’t sell fast enough. So inventories have been piling up since late 2014, pushing up the inventory-to-sales ratio. It spiked to Financial Crisis levels during the first half, when business inventories soared by a record $223 billion. And it rose again in September, the Census Bureau reported on Friday.
This is the increasingly ugly chart of an inventory glut:
Eventually, businesses are trying to get their inventories in line by slashing orders and/or heavy discounting in order to move the merchandise. Both hit the overall economy just when it’s already weak.
But optimism still reigns. The National Retail Federation predicts that consumers will do their jobs and push up holiday sales by 3.7%. FedEx expects to ship a record of 317 million packages from Black Friday through Christmas, up 12.4% from a year ago. UPS expects to ship over 630 million packages during the period, up 10% from a year ago. They’re benefiting from the shift to online shopping.
Amazon too is gung-ho. But online sales are taking a bite out of brick-and-mortar retailers though they’re still hoping things will turn out OK. Meanwhile, the ports aren’t busy, trucking companies and railroads are warning, containerized shipping indexes are collapsing, and industry insiders are speaking up [see our reporting on these issues].
The inventory glut, particularly at the wholesale level, is starting to weigh on the economy. And retailers are feeling the weight too. A few days ago, The Wall Street Journal cited Nomura and Citi analysts concerning Macy’s and Kohl’s, whose disappointing sales had left them “awash in excess merchandise at the end of the period.” Further:
Specialty stores and apparel manufacturers also are experiencing “a build-up in inventories beyond the natural increase ahead of the holidays,” according to a recent report from analysts at Macquarie Research. The report named 10 companies where inventory is growing faster than sales, including Lululemon Athletica, Nike Inc., Under Armour Inc., and VF Corp.
The Journal also cited a report by Cowen and Co., which warned that “inventory is above sales growth across retail,” with bloated merchandise levels at DSW, Dicks Sporting Goods, and Skechers U.S.A., among other chains.
And the infamous driver shortage that trucking companies complained about last year? Turns out, according to the Labor Department, the industry has responded to the inventory glut, the weak economy, and the transportation malaise by cutting 2,800 jobs between August and October.
What’s next? “A drawdown much like the one we saw in 2009 and 2010.” Read… US Freight – Trucking, Rail, all of it – Goes to Heck
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Could be shift from quantity to quality?
I personally avoid buying Chinese junk as much as possible.
The average American consumer is totally incapable of discerning “quality” in any shape, or form. What other outcome is there from an educational system – and I use that term advisedly – that for two generations now has placed more emphasis on “How do you feel about [insert any vapid notion here]?” instead of “What do you know about [insert any important subject here]?” ?
Let us know when Oakland ports start laying off then we will know its close……
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Warren Buffett
This has rolled out globally with the Neo-liberal ideology.
The 1% have gone to war against the 99% (aka the global consumer base)
This is what the 1% winning looks like – global recession.
How is the global consumer base?
1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.
2) Japanese consumers have been living in a stagnant economy for decades.
3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.
4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.
5) South American and African consumers are busy struggling with economies that are disintegrating fast.
The 1% have nearly won.
You got it right. Inequity.
The Baltic Dry Index is down about ⅓ since last year, and commodity prices are falling. Alcoa just shut down 31% of its capacity, and it is losing money on all the metal it produces.
The world is clearly in a recession, and it might be entering a deflationary period.
“That didn’t even happen during the Financial Crisis.”
Other factors are also worse than during the Financial Crisis. Make your own list. This suggests that when the economy crashes again it will crash very, very hard.
Debt is even higher it was in the last crash: not only were there no reforms, but abuses are worse than ever, and the last crash was simply papered over with even more debt, ensuring that when the next crash occurs it will be far worse.
Expect to see banks fail that are too big to fail because they’re too big to bail out. Confiscating the assets of depositors won’t be enough to bail them out either, but it will be enough to crash the consumer economy. This means you can also expect to see reports of people resorting to cannibalism, with food riots and old people dying in the streets. After that things could start to turn ugly.
You probably think I’m exaggerating.
Actually, this is a quite sane analysis. No need to think that you exaggerate.
It gets worse the more you look at it.
Planetary ecology, global economics and finance, global military imperialism, and political and social stability are each trending to epic catastrophes. Yet your overlords (and overladies) don’t seem to notice at all and appear to be focused exclusively on getting richer and on getting even more power so they can get richer even faster.
The possibility that they are forcing the supports of human civilization to collapse does not occur to them. After all, stock markets were all up strongly today, and whether stock markets still exist in a year or five is absolutely irrelevant.
Masters of Mankind: “Ka-ching!”
I call them the Marie Antoinettes.. Oh poor souls, there is no bread? So then they should just eat cake! What’s wrong with them?
I do not know why people are like that, only that this isn’t new. Just pretty insane when looking at it from where I sit. This country has so much.. enough so that all could be joyously pursuing their own version of happiness. Instead we have some greedy aholes who think they deserve it all and have no compassion for anyone.
Very sad when you think about it…
Kudos to your doomer spirit, since I also want this thing to tank until it metamorphoses, but I don’t think things get quite that hairy.
The fundamental kernel of crisis as regards the economy now is: are the higher powers within our economy going to keep pretending that they live by capitalism’s rules, or are they going to have to pull a rabbit out of a hat again? Its like when the house team is losing a soccer match, but because they’re magical, they can literally pick the ball up and throw it into the goal until they are leading again. Its the illusion of markets and capitalism, and the corresponding ethos, that is largely what’s at risk here (and the little people’s livelihoods and survival, to be sure!).
Debt can be written off. Historically, it very often has been, as Michael Hudson documents. If things get hairy enough, they can make phone calls. They can rewrite the legalese in exploded derivatives contracts. They can pump up stock and bond prices using TPP and the FED’s mysterious Belgian buyer mysteries. Money is just digits on a computer, and the economy is just one huge spreadsheet, viewed in the abstract. The mighty powers have probably been ‘saving’ the economy in these different ways since 2008, ongoingly.
You might say that at some point, the sh1t hits the fan. But what, in actual practice, is that point? And that to me is the million dollar question (or 67 trillion dollar question, I guess). When does any of this financial gamesmanship begin to matter? When does it become obvious to everyone that nothing but endless streams of government money can keep our private sector megaliths alive? And then the popular myth of capitalism dies, because debt-free money printing will have saved “the market” one too many times.
They export all the jobs to china, now they complain there is nobody buying anything.
If you gave most of the job exporters half a brain, it would be lonely.