“Over the previous five years, the U.S. demand for foreign goods has charted a curious course. A Covid-led boom was followed by an inflation-led drop. Over the past 9 months, we’ve seen a spirited rally in imported volumes; now this rally seems to be cooling.
The USA demands a huge volume of goods each year and is by far the biggest importer of goods in the world. The country is the third most populous in the world (345m people), the largest economy in the world (28.7 Trillion USD), the 6th highest GDP per capita at $85k, and 1st when only considering countries with populations over 10 million people.
As a result of the above, the country is unsurprisingly a huge driver for goods production and transportation across the world. The American economy faltering means reduced opportunities for exporters across the globe.
This brief aims to quickly peer into the real-world data and identify the current trends in demand for consumer goods into the US.
The Story in Port Volumes:
Increased money supply in the US as a result of Covid-battling fiscal and monetary policies in 2021 caused sea freight volumes on the US’s west coast to swell, with H1 2021 throughput at the ports of LA, Long Beach, Oakland, and Seattle totaling 13.36m TEUs, which was 17.3% higher than during the same period in 2019. Volumes remained high in 2022 (13.46m TEUs). The effect of high inflation and interest rates pulled volumes down 23.6% in 2023 to 10.28m TEUs in H1, a level 9.8% below 2019 volumes.
H1 2024 volumes show that the US economy has been extremely resilient in the face of pressure. Volumes rebounded 14.0% y-o-Y in H1 2024 and are now 2.8% higher than in H1 2019.
What Story Can Be Taken from Recent Port Data?
When looking at H1, it would suggest volumes have rebounded well, and the US’s demand for goods is in a very good position. However, when we focus on the latest data, it is clear that the rate of volume growth is slowing. In Q1 2024, volumes were up 19.1% y-o-y, but in Q2, this y-o-y growth dropped to 13.7%. While there is a base effect here, it also suggests the rate of volume recovery is slowing.
Furthermore, the quarter-on-quarter volume growth from Q1 2024 to Q2 2024 was +7.4%, which is well below the 15-year average of +10.9%, suggesting volumes are now failing to grow in line with expected seasonal fluctuations. This is in contrast to Q4 2023 to Q1 2024, where volumes growth exceeded its 15-year average.
Some may see warning signs in the fact that volumes are slowing at a level still well below their 2021 and 2022 levels. However, this isn’t hugely surprising, nor is it a sign of a spluttering American economy. Economic activity is no longer being inflated by markets awash with Covid stimulus money. Instead, we’re in a post-inflation world where American consumers remain poorer in real terms, and America’s major trading partners are still only starting to slowly grind into their recovery phases (or failing to even do that, as we see in Germany).
The Health of US Consumers
Evidence suggests that US consumers are struggling right now, especially lower-income households, whose ability to cover the extra costs following inflation is depleted.
According to the Financial Times, U.S. consumers, especially lower-income households, are facing financial strain. Dollar General, a key discount retailer, reported that many of its customers, earning less than $35,000 a year, struggle to make ends meet, often running out of money by month’s end. This is reflected in the company’s weak financial performance, with only 0.5% same-store sales growth and a 32% drop in its share price. Persistent inflation, depleted savings, and higher borrowing costs are driving reduced consumer spending on non-essential items.
US Consumer sentiment has been steadily improving since mid-2022. Consumer sentiment dropped to 50 in June 2022, the same month when inflation peaked at 9.1%. Since then, consumer sentiment has steadily increased as inflation fell. In Q2 2024, US consumer sentiment averaged 72, up 10 points y-o-y but down 6 points q-o-q. This suggests that confident US consumers have fueled a strong rebound in volume, adding demand pressure to rates. However, this confidence is waning, and the size of the consumer-led demand side pressure may ease in H2.
Conclusion
In conclusion, initially, the US’s demand for consumer goods rebounded strongly from its big drop in 2023. Markets have absorbed recent numbers as a sign of another potential slowdown and incoming contraction. However, when looking at the data, we see the economy lost a lot of its rebound momentum in Q2 2024 and into 2024. This is unsurprising, as this momentum was largely unsustainable. In addition, volumes remain down vs. 2021 and 2022, which may also worry the market. However, the reality is that there isn’t enough money in the system to support that same level of activity, though this isn’t a sign of a weak economy.
Author: Nathaniel Donaldson
Source: Ti Insight
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