Searching For Economic Direction

by: Steven Hansen

Summary

You must be careful when pointing at one month's data or a particular data set and draw a conclusion of the direction of the economy.

There a reasons a particular data set could be acting abnormally, and this is true with sea container imports and exports.

Historically, the transport sector is the bellwether for economic direction.

Earlier this week I analyzed sea container counts at the ports of Los Angeles and Long Beach and wrote:

The rolling averages are now decelerating for exports but accelerating for imports. Under normal situations, this is signaling an improving USA economy with a slowing global economy.

Logic dictates that the current economic data is being compared to very soft data one year ago, and I am expecting (even betting on) improving trend lines.

I am not just talking about expected improvement in container counts, but in most of the economic data. I consider imports to the USA a significant indicator for USA economic direction. When the economy contracts, container counts contract. When the economy expands, container counts grow. However, any single indicator can be wrong for various reasons - so one cannot rely on any indicator to be correct at all times.

And container counts were affected by a strike in early 2015 which distorted this data and made it unreliable for economic trending purposes.

As container data is usually fairly noisy, the three month rolling averages are used to trend. Currently the three month moving averages should have begun to be usable (as it no longer includes the strike affected periods).

Unadjusted 3 Month Rolling Average for Container Counts Year-over-Year Change (comparing the 3 month average one year ago to the current 3 month average) - Ports of Los Angeles and Long Beach Combined - Imports (red line) and Exports (blue line)

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Imports are the red line on the above chart. The dip in imports in early 2015 was the strike, and the spike in early 2016 was due to comparison to the strike period. There was a spike in imports in 2015 following the strike (unloading the backlogs), and a dip in 2016 caused by comparison to the 2015 recovery spike.

The red line is trending up over the past 18 months which suggests USA economic improvement. But in reality, the previous data point included strike affected data. There is only a single hopefully reliable data point for the three month moving averages (the June data point) - and it is saying there is marginal growth in year-over-year imports (and you must guess at the direction of the trend).

Analyzing the data in a different way, the percent change in year-to-date container imports from the previous year adds a little insight.

Click to enlarge

The last blue bar (June 2016) is lower than the previous month which could suggest that imports are trending down. Using year-to-date data, there are two usable data points (May and June 2016) as the May data as a reference point. The May strike affected data is usable as it is cumulative and includes the contraction with the associated spikes.

Adding to the uncertainty of using container counts for economic trending, some say that the recent opening of the bigger locks at the Panama Canal could be affecting the dynamics of the port of entry into the USA. There is no data in the public sector to support any opinion on this subject. My experience in international traffic movements tells me:

  • that the canal moves ships in both directions (it is possible that it could increase or decrease traffic into west coast ports),
  • the Panama Canal charge based on the tonnage of the ship (so it could be more costly than moving containers by rail from west coast to its final destination), and
  • ships move slower than rail (so canal routed containers would take longer to get to their destination than containers offloaded at west coast ports and moved by rail or truck to their final destination).

In short, we do not have the answer to this question of the effects of the new and larger locks at the Panama Canal. For June, there was no obvious affect (but still could be there).

And as far as the USA economy is concerned, there is no answer either whether it is improving.

My usual weekly wrap is in my instablog.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.