Trend watch
The deluge of imports into U.S. has accelerated, especially at Westcoast ports. The reasons are two-fold: to avoid a second strike at East and Gulf coast ports and potential tariffs, particularly on China. In early October, the master contract covering 45,000 port workers at 36 locations on the East and Gulf Coasts was extend until January 15, 2025.
The Port of Los Angeles, which is largest U.S. port, handled 25% more twenty-foot equivalent units (TEUs) in October from a year ago. It’s the first time a U.S. port has exceeded 900,000 TEUs for four consecutive months. At Long Beach, its sister port across San Pedro Bay and the second largest in U.S., hit an all-time high in October. Together, throughput is up 19.7% year to date. Zooming out to 6 top U.S. ports (LA, LB, SAV, SEATAC, CHS, NRFK), volumes are up 14.7% year to date.
Of course, Thanksgiving means travelling to see family for many Americans, an estimated 79.8 million according to AAA for the seven-day period from Tuesday, November 26th to Monday, December 2nd. The bulk, 71.7 million or roughly 90%, will drive. Thankfully, U.S. gasoline prices are down nearly 6% from a year ago (slide 7).
Another 5.8 million people will fly, which is roughly 11% above 2019. Interestingly, in the 23 years since the creation of the TSA, all of the top 10 days have occurred in the past six months in 2024.
Unfortunately, food prices have jumped 27.6% from pre-pandemic levels, while airfares have climbed 26.3% compared to overall inflation up 22%.
Otherwise, there’s still some skewed year-over-year comparisons due to the timing of Thanksgiving for the activity-based data (slides 5 and 6).
What’s new this week
- Lower gasoline prices a positive for inflation and consumers (slide 7).
- 3Q24 growth stayed at 2.8% after revisions, reflecting solid economy (slide 8).
- New home sales plunged in October due to hurricanes, while prices rose (slide 9).
- Cooling trend of the Fed’s favorite inflation gauge has stalled (slide 10).
- New durable goods orders up in October, but core orders slipped (slide 11).
- Big 4 indicators point toward continued growth for U.S. economy (slide 12).
Our take
Among many things, American companies are quite adept at anticipating and preparing for challenges. Those skills were repeatedly tested and honed during the past decade and a half, which has included a massive financial crisis (2007 – 2008) and a once-in-lifetime pandemic (2020). Thus, the aforementioned deluge of U.S. imports is no surprise as companies try to mitigate the potential double whammy of port strikes and higher tariffs.
Alas, President-elect Trump announced that he’ll try to impose 25% tariffs on Canada and Mexico, along with a new 10% tariff on goods from China. The three countries are our three largest trading partners, combining for roughly 42% of U.S. imports. His stated goal is to reduce the flow of illegal drugs and people into the United States.
Legality is an important caveat for our North American neighbors and partners in the U.S.-Mexico-Canada Agreement (USMCA), which he signed in this first term. Legality aside, Mexico and China have quickly responded that each could retaliate with tariffs, while the Canadian Prime Minister called Mr. Trump.
We view the threat of tariffs as negotiating leverage to garner concessions and changes rather than a bona fide desire to increase tariffs, especially since Mr. Trump made inflation a key centerpiece of his reelection. That said, if we learned anything during his first term, we don’t believe it’s a hollow bluff either.
Similarly, the nomination of Scott Bessent, a hedge fund executive, as Treasury Secretary follows the same vein. He has openly talked about the need for a muscular approach towards trade, including using tariffs, and a desire to reshape tax policy. Yet, he’s also said that its important to maintain the U.S. dollar’s status as the world’s reserve currency, as well as reducing federal spending and the bloated federal debt load. If confirmed, Mr. Bessent will have his work cut out for him.
Voters wanted change. While the new administration doesn’t officially start until the third week of January, changes are now beginning to take shape. Nevertheless, companies and investors will continue to be tested by uncertain economic policy moving forward.
Bottom line
We expect continued volatility as markets adjust to the incoming administration. The U.S. economy remains resilient, albeit with uneven growth. It’s certainly not weak, especially when compared to pre-pandemic figures. We expect the Federal Reserve to continue steadily lowering interest rates, which supports economic growth, although the process of normalizing rates will take time to unfold and will likely be bumpy.
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