A busy third quarter
Importers need to place orders to meet growing consumer demand sooner rather than later.
| Walter Kemmsies chief economist, Moffatt & Nichol |
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From a macroeconomic perspective, recent sales, inventory and import data indicate importers may face logistics issues in the third quarter of 2011 as they rebuild inventories and stock up for the fourth quarter holiday sales
season.
Retail sales continue to grow, inventories are increasing but lagging retail sales trends, and containerized imports at the largest U.S. ports have declined more steeply from the third quarter 2010 peak than in the past. With the economic recovery still unfolding, these trends indicate the
third quarter 2011 could be very hectic for the freight movement industry.
While there are reasons to remain cautious about the economic outlook, retail sales have continued to rise steadily. Improving labor market conditions indicates retail sales trends should be sustained even though some commodity prices that directly affect household spending, such as oil, have risen significantly. This is because the rise in commodity prices are not due to reductions in supply, but instead due to demand growth. Rising oil prices is not as much a negative omen for consumer spending, but rather a symptom of an improving economy.
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As of last December, U.S. retail sales' season fourth quarter peak exceeded their previous peak level of 2007. Due to relatively strong fourth quarter sales, full year retail sales came in just 2.2 percent below the level of 2007. From January through March in 2011, retail sales are 8.2 percent higher than their level one year ago.
Inventories based on data reported thus far through March are only up 6 percent compared to the first three months of 2010. Inventory growth has lagged retail sales growth since June 2009. There are several possible reasons for this. Companies needing to finance inventories and consumers attempting to purchase durable goods may have had difficulty obtaining credit in the economic environment. Poor residential real estate sales trends are also a likely factor. Furniture, home furnishings, electronic and appliance sales in 2010 were nearly 10 percent below their levels in 2008 and only 2 percent above their 2009 level. Until residential real estate sales begin to recover in earnest, it seems inventories for home furnishings will take some time to recover. However, much of the correction in inventories seems to have been completed in 2009 and therefore inventory growth should be tracking retail sales more closely
than it has in the last three quarters.
U.S. containerized import trends have deviated from that of retail sales. U.S. containerized imports tend to peak a few months before retail sales and decline through the first quarter of the year, as shown in the chart. January-March data indicates import volumes are about 7.5 percent higher than one year ago, below the 8.2 percent pace in retail sales. However, given the supply chain issues in the first part of 2010, the year-on-year comparison is not straightforward.
It is also worth considering the third quarter peak to first quarter trough seasonal pattern. The seasonal 19 percent decline from third quarter 2010 to second quarter 2011 is not as bad as the 37 percent decline in the 2008 to 2009, but still seems extreme, considering that inventories remain well below their previous peak level of 2007 and that economic activity is still on the upswing. Some of the decline may be due to severe weather, but not due to the earthquake and tsunami in Japan in early March, which should show up in the April data. Overall it appears importers are behind the curve.
To sum up, it is very likely economic activity, and therefore consumer spending, will continue to grow. Between the possibility of having to contend with various supply chain capacity issues and higher fuel costs, importers may be better off if they can place their orders to meet growing consumer demand sooner rather than later.
Walter Kemmsies is chief economist of Moffatt & Nichol, a marine infrastructure engineering firm. He can be reached at (212) 768-7454, or e-mail, [email protected].