Hard economic data has been holding up (for now)

Trend watch

Despite all the talk about consumers pulling back, air passenger have counts remain fairly stable as of late. It dipped modestly this past week, slipping 0.3% from the prior week to 17.5 million. Still, that is the highest 7-day average ever for May 1^st.

That said, based on multiple reports out of China, we anticipate an air pocket in the shipping volumes from China to west coast U.S. ports, which primary go to Los Angeles and Long Beach, but also Seattle/Tacoma (SEATAC). It will likely appear in the data in the next few weeks. However, it remains to be seen if this was a one-time stoppage due to the tariff uncertainty in early-to-mid April, or if it foreshadows something more sinister.  

Our take

The latest rage is to speculate about whether retailers in the United States will have bare shelves or not. According to Google Trends, it’s not one of the top searches this past week. By the way, the top three searches were “Lakers,” “Kentucky Derby 2025 horses,” and “Bill Belichick.”

Nonetheless, we’ve heard and seen quite a few stories discussing bare shelves in the financial news media and have gotten some questions ourselves.

As mentioned in the Trend watch section, we have seen reports about a collapse in shipping container volumes from China bound for the U.S. At this point, most of the freight data reflects the surge in volumes due to tariff front running.

Furthermore, business inventories for the first quarter – on slide 8 reported within gross domestic product (GDP) and on slide 9 within the monthly import/export data – increased dramatically. That, too, is the result of tariff front running.

Moreover, aside from price increases, there aren’t reasons why there would be inadequate production. In other words, not enough supply. If anything, there might be less demand for some goods because of the resultant higher prices due to tariffs.

But, having lived through the “Great Toilet Paper Scare of 2020,” we know collectively know that consumers don’t always act rationally. There’s certainly a scarcity component when it comes to buying goods – just ask your closest child of the 1980s (aka Gen Xer) about Cabbage Patch Kids, Beanie Babies, or Tickle Me Elmo dolls.

Indeed, consumers are rushing to buy goods that they believe will be negatively impacted by tariffs – everything from cars to iPhones. However, it does appear that the recent buying frenzy has been largely bigger ticket items like cars and smartphones.

Considering these pieces together, businesses – including retailers – likely should have amble inventories of goods for the foreseeable future. As such, we aren’t overly concerned about the possibility of bare shelves at U.S. retailers in the coming months.

Bottom line

The U.S. economy has been resilient, but it’s in a holding pattern awaiting resolution on the tariffs. The longer this uncertainty lingers, the more intense the headwind for the economy becomes in the near term. That has contributed to the recent bouts of volatility in financial markets, which we expect will continue for the foreseeable future.