Extreme weather events and supply chain congestion restrain strong demand
By Jo Constantz
Both exports and imports fell in February for the first time since May, reflecting the impact of severe snowstorms on shipping throughout much of the country and a global semiconductor shortage stalling automakers and other manufacturers.
However, the deficit still rose nearly 5% according to numbers released by the Department of Commerce on Wednesday, reaching a record-high $71.1 billion, up $3.3 billion from January. Though imports dropped 0.7% to $258.3 billion, they continued to outstrip exports, which dropped 2.6% to $187.3 billion.
Economists don’t believe the decline in trade reflects softening domestic demand. Imports are expected to soar when supply chain disruptions normalize. Exports are expected to remain relatively depressed as Europe and other trading partners continue to lag behind the U.S. in their vaccine rollout and economic recovery.
These trends are clearly reflected in the nation’s busiest ports. “We expect the unprecedented import surge to continue for at least the next few months, into the summer,” said Phillip Sanfield, the director of media relations for the Port of Los Angeles. “On the export side, we have been down 26 of the 28 last months.”
Outpacing its trading partners, the U.S.’s economic recovery is picking up steam. An exceptionally strong jobs report showed over 900,000 jobs added in March. The economy is expected to continue strengthening as more of the population becomes eligible for vaccines and businesses reopen and rehire workers.
Economists expect a robust retail sales report next week and consumer spending to remain strong as substantial household savings and pent-up demand continue to seek an outlet.
“Consumer goods imports specifically have been a really strong bright spot given the surge in demand that we saw last year domestically. They did fall in February, but we don’t think that’s indicative of a weakness in demand,” said Shannon Seery, an economist at Wells Fargo. “Our estimates have about 80% of the latest round of direct checks having hit consumers’ bank accounts in March, so that should provide a lot of support for the March spending figure.”
Much of the drop in exports and imports can be attributed to the severe snowstorms which devastated parts of the country in February, the impacts of which should be reversed in March. Some of the decline, however, can be attributed to the global semiconductor shortage and other supply chain constraints. These disruptions are likely to be longer-lasting and take more time to resolve.
Navitas, a semiconductor company with suppliers in Taiwan and the Philippines, said that while they have been able to ride out the shortage fairly well –– experiencing only minor delays thanks to strong relationships with suppliers and lots of planning –– many others have not been so fortunate.
Automakers have been hit particularly hard by the semiconductor shortage. Ford and General Motors announced on Thursday that they will be temporarily halting more North American factories as the supply chain disruptions continue to hamper production.
“The automotive industry is buying a relatively small amount of electronics compared to other industries, like the cell phone industry, or the computer data center industry,” said Stephen Oliver, vice president of investor relations for Navitas. “So as a result, when things go badly, they don’t quite have as much sway as they used to. I think that’s a surprise to some of the older companies.”
While the shortage is crippling automakers now, economists expect supply chains to eventually regain equilibrium.
“In the near term we’re going to see these supply chain constraints –– at this point, demand is really outstripping supply in a very substantial way,” said Rubeela Farooqi, the chief U.S. economist at High Frequency Economics. “It will get sorted out, but the timeframe is uncertain. We basically have to wait for these things to normalize so production can get back online and then catch up with the stronger demand.”
Economists expect exports to rebound later in the year, as Europe and other trading partners are able to distribute their vaccines on a larger scale and begin to recover economically. Demand is expected to pick up gradually in the first and second quarters, and then pick up more meaningfully in the third and fourth quarters.
“When you look at our forecast in the fourth quarter of this year compared to the fourth quarter of last year, we have exports up about 12%,” said Seery. “That’s based on our expectation for the global economy to grow about 6% this year, which would be the fastest pace of global growth in about 40 years.”