Reduced Imports At Largest U.S. Ports Could Indicate Less Spending
The nation’s two busiest ports, Port of Los Angeles and Port of Long Beach have been overwhelmed since the early days of the COVID-19 Pandemic, but the number of imported containers arriving at the ports this month was the smallest handled so far this year and container vessels are no longer waiting in anchorage or waiting to unload as they arrive at the west coast ports. This could be an early indication that consumer demand is slowing and that inflation could be taking a toll on the economy and consumer spending.
Inbound loaded containers to the Port of LA fell 17% in August from July. The number of imported containers was the smallest amount handled so far this year. Meanwhile, the Port of Long Beach handled 5.6% fewer inbound containers in August, compared to last year. This is the second month in a row that the number of imported containers arriving at the port has dropped, however, last month was still the port’s second-busiest August on record. The twin ports of Los Angeles (LA) and Long Beach (LB), represent approximately 40% of all ocean cargo importations within the U.S.
“We still see this dichotomy between inflationary pressures, two consecutive quarters of economic decline, and all of us as American consumers buying more,” Executive Director Gene Seroka said in a virtual briefing Thursday. “We’ll continue to watch these and other indicators, but also level-set expectations around what the American consumer will do in the face of this generational inflation,” he said.
Labor contract negotiations continue between the International Longshore and Warehouse Union (ILWU), which represents more than 22,000 dockworkers and their employees at the 29 West Coast ports, and about 70 employers represented by the Pacific Maritime Association (PMA). The union employees continue to work despite their contract having expired on July 1, 2022, avoiding a repeat of delays and stoppages that plagued the supply chains in the 2014 talks.
Fed Orders Another Interest Rate Hike
On September 21, 2022, Jerome Powell, Chairman of the Federal Reserve announced they will raise the benchmark interest rate by three-quarters of a point in the latest attempt to bring down high inflation. The central bank raised its benchmark interest rate by 0.75 percentage points Wednesday for the third month in a row, signaling that rates may continue to rise. This new increase brings the Fed’s main policy rate up to a range of 3%-3.25%, the highest since early 2008.
This approach, while it brings some pain to households and businesses, is to bring inflation back down to a target closer to 2% by making it more expensive to buy a car, get a mortgage, or use a credit card. With this strategy, the hope is to lower consumer demand which has been reducing supply and pushing prices higher.
China’s Economy Weakens
China’s economic growth is suffering as a result of the government’s tightly controlled and restrictive COVID lockdowns. Their Gross Domestic Product (GDP) growth in 2021 was recorded at 8.1%, however, their 2022 GDP is being projected to slow down to 5% in 2022. Many large U.S. importers continue to transition their purchase orders away from China and larger manufacturing businesses have relocated to other countries.
Economists Predict a Recession
Many economists are convinced that widespread layoffs will be necessary to slow rising prices. The Fed’s policymakers project an increase in unemployment, causing economic growth to remain weak for the next few years. It expects the jobless rate to reach 4.4% by the end of 2023, an increase from the current 3.7%. Economists say that historically when the unemployment rate has risen by half-point over several months, a recession has always followed.
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