We’ve said it before and we’ll say it again: global growth and trade are grinding to a halt.
Back in September, we flagged comments from WTO chief economist Robert Koopman who warned that after a “burst of globalization”, we are now “at a point of consolidation, maybe retrenchment.”
“It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should,” Koopman concluded.
Trade growth, the WTO observed, has averaged just 3%/year since 2010. That compares rather unfavorably with around 6% a year from 1983 to 2008. “Few see any signs that trade will soon regain its previous pace of growth, which was double the rate of economic expansion before 2008. In 2006, global trade volumes grew 8.5%, compared with a 4% expansion in global GDP,” WSJ pointed out at the time.
Besides being proof that trillions in global QE - not to mention DM central bankers’ descent into NIRP-dom - has been utterly insufficient to provide the global economy with the defibrillator shock it apparently needs, this also suggests that we may have entered a new era, where lackluster global growth and trade are systemic rather than cyclical.
For the latest bit of evidence that global trade is indeed in free fall, look no further than the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor which handle more than 50% of seaborne freight coming into the US. As it turns out, “peak” season turned out to be anything but. Here’s WSJ:
For the first time in at least a decade, imports fell in both September and October at each of the three busiest U.S. seaports, according to data from trade researcher Zepol Corp. analyzed by The Wall Street Journal. Combined, imports at the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor, which handle just over half of the goods entering the country by sea, fell by just over 10% between August and October.
The declines came during a stretch from late summer to early fall known in the transportation world as peak shipping season, when cargo volumes typically surge through U.S. ports. It is a crucial few months for the U.S. economy as well: High import volumes can signal a confident view on the economy among retailers and manufacturers, while fears of a slowdown grow when ports are quiet.
The missing peak season has been a major headache for trucking companies, railroads and steamship lines. One large maritime carrier, Singapore’s Neptune Orient Lines Ltd., told investors there was “no peak season” in North America as an explanation for a $96 million quarterly loss.
Some of the country’s biggest trucking companies and railroads have recently reported weaker-than-expected earnings. Many have cut the rates they charge customers as demand sagged during what is usually their strongest months. For trucking companies in particular the turnabout has been abrupt, with some companies pivoting from expressing concerns about tight capacity to worries about future profits in the space of a few weeks.
Amusingly, we seem to have gotten to a point where economists excuse bad news by pointing to old bad news without mentioning that it was bad. Case in point:
Some say the slump is being driven by businesses that have cut back on imports because of a weak economic outlook, which could point to sluggish global growth ahead. Others say it is a side effect of a massive inventory buildup that took place earlier in the year.
Got that? So obviously a "weak economic outlook" is bad, which must mean that what this weak outlook is being contrasted with in the sentence shown above is good - or at least un-bad. In other words, the implication from that excerpt is that if this is due to "a massive inventory buildup" then that's somehow ok.
Only it isn't - as we've outlined on too many occasions to count. To wit, from last week:
Having risen to its highest level since the middle of the last two recessions, wholesale inventories-to-sales ratio remains at cycle highs at 1.31x. With wholesale sales and inventories both rising 0.5% (both more than expected), however, the absolute difference between sales and inventories has never been higher, leaving either major inventory liquidation ahead (or a miracle in sales). Wholesale inventories have now risen 4.7% YoY, as Sales have fallen 3.9% YoY
The absolute spread between inventories and sales has never been wider...
Back to WSJ:
Despite the weak peak, imports in the first 10 months of the year at the nation’s busiest ports are still up 4% from a year earlier, Zepol data show. Rather than ordering huge shipments of goods in the late summer and early fall, more businesses are stocking up throughout the year and holding on to inventories for longer.
“There was a little bit of overdoing it in the beginning of the year,” said Ethan Harris, co-head of global economic research for Bank of America Merrill Lynch. “Once we adjust to it, I would expect that business picks up again, shipping picks up again, container imports should pick up again.”
Right, once we "adjust to it." In other words, once people start buying stuff, and if October was any indication, that isn't in the cards.
As Rosalyn Wilson, a supply-chain analyst with Parsons Corp. told WSJ, “Instead of taking that extra money that [low fuel prices] are generating and going on a shopping spree, consumers are being more conservative. It’s bad for the global economy because it means we’re not purchasing.”
And so, as we've said in the past, either central banks start learning how to print trade, or here's what comes next...