Where in the World is America Shopping?

If there’s a global crisis in the works, somebody didn’t tell U.S. consumers. Oh, the media has tried, but it seems even that persuasive voice can’t buck fundamentals. Low gasoline prices have suppressed overall sales, but peel away that effect and control for other volatile categories, and January sales put first-quarter consumer spending on track for a 4 per cent gain. At the same time, December was revised up. Put that together with a housing sector that’s on the up and up and an industrial sector that’s running thin on capacity, and the world’s top economy isn’t looking so bad. Throw in a strong U.S. dollar, and it’s clear that this situation is boosting U.S. imports from the rest of the world. So, where in the world is America shopping these days?

U.S. imports were on a roll a year ago. Annualized growth was 10 per cent to close off 2014, and 7 per cent more was added in the first three months of 2015. From there, things decelerated, but the good news was that those surges in activity were sustained. Things tailed off at the end of last year, along with disappointing GDP growth. But the recent resumption of spending growth strongly suggests an upside that is being discounted by many market mavens on account of the financial market turbulence that has gripped the world in the opening weeks of 2016.

Most economy-watchers acknowledge U.S. strength, albeit to different degrees. The most pessimistic forecaster sees 1.8 per cent growth this year, but the consensus is calling for 2.2 per cent growth. Consumption is out ahead of this, and business investment, at 4 per cent by 2017, is the growth leader. If there’s a lament in this positive story it’s that the rest of the world isn’t catching on. Can we expect it to? That’s where U.S. imports come in: if American growth is having any effect on the rest of the world, then it should be evident in the trade statistics.

Overall numbers are being suppressed by poor showings on the energy front. Normally this would be a key signal of weakness: a faltering industrial production machine that needs less energy imports from the rest of the world. This time around, it’s reflecting crashing world energy prices and much higher U.S. domestic production. Look at the rest of imports, and the story is much brighter. In December, food and beverage imports were up 5.7 per cent year-on year in inflation-adjusted terms. Auto sector imports posted an 8.8 per cent gain. Imports of consumer and other goods are volatile, but ended the year up 2.5 per cent.

These numbers are impressive, flying in the face of general impressions. So, who is benefiting? Last week’s commentary put Canada way up on the list. It doesn’t look that way in the U.S. numbers, until the energy numbers are stripped out. A key gainer is the auto sector, and consumer goods are on a great roll, too. We’re not the only ones in this predicament: Mexico is seeing its numbers do the same. Pan across the pond, and Western Europe has its own positive story to tell. Things are on the up-and-up in Germany after a choppy start to last year. France is on the same general trajectory. Italy’s growth run seems even more entrenched, and Ireland is on a tear. Not all are on the same path, but it’s just possible that imports by the U.S. are part of the reason the EU has been collectively growing its GDP ahead of long-term average growth for five successive quarters.

U.S. imports from Asia are not as impressive. The appetite for Chinese goods has waned lately – but that could be a function of the relatively strong Renminbi. In contrast, imports from Japan are up smartly. The intake from Singapore – a bellwether of regional trade – is showing a decent increase lately, and Malaysia is registering a similar pattern.

Overall performance of U.S. imports is far from convincing, and is muddied by the influence of the energy sector. But there is enough in there to suggest that U.S. strength is spreading, and will continue to do so if overall growth heads up this year.

The bottom line?

America is still displaying strong domestic demand growth. This is stoking import demand from the rest of the world, and is being further encouraged by a strong greenback. Spreading is happening, and long may it continue.

Categories Weekly Commentary

Related Posts