Imports fall, improving U.S. trade balance
The shift reflects consumer stress, but it could help boost US manufacturers.
America's long-insatiable demand for imported goods is cooling. It's seen in everything from clothing, furniture, and even imported oil:
•At European Imports in Boston, demand for jewelry has plunged, thanks to a cooling economy, rising metal prices, and shifting exchange rates.
•The US expects oil use to decline this year by about 190,000 barrels a day – a drop that largely affects the volume of imports.
"That's one of the big stories of the past year, [although] somewhat hidden by the jump in oil prices," says David Wyss, chief economist at Standard & Poor's in New York. "We've seen a definite slowing of imports while export growth has remained very strong."
Although this trend on the import side is prompted largely by negative circumstances – a falling dollar, a housing slump, and the squeeze of higher energy costs – it has some positive implications.
For example, the shift means that some longstanding imbalances in the global economy may be starting to ease. The result could be a shrinking US trade deficit and a rebound for US manufacturers, as they sell more to both domestic and overseas buyers.
"We can't continue to rely on foreign capital," Mr. Wyss says, referring to money inflows that have effectively financed large trade deficits and low household savings rates in the US.
One sign of how this trade shift is already having some positive effects came in new numbers on the gross domestic product (GDP), released Thursday. The Commerce Department said the US economy grew at a 0.9 percent pace for the quarter, up from its preliminary estimate of 0.6 percent GDP growth for that quarter.
One reason was that commercial construction did better than initially estimated. But a decline in imports – larger than earlier estimated – also played a central role.
Think of it this way: When exports rise, US output is rising. But imports are counted as a subtraction from GDP, because they mean that less of what consumers buy is made in the US.
For the past two quarters, imports have been falling. In the first three months of this year, imports fell at a 2.6 percent annual pace. Imports downshifted by 1.4 percent in the fourth quarter of 2007.
Several forces are causing the retrenchment in imports. The dollar now buys a lot less against the euro or the Chinese yuan, due to recent trends in exchange rates.
Import prices are also rising more generally as global inflation heats up. Labor costs are rising in China and elsewhere. After about a decade of reducing the US inflation rate, import prices are now adding to it.
Meanwhile, the US economy has been cooling, as slumping home values squeeze both consumers' wealth and their access to bank credit lines.
The rise in energy prices hurts on many fronts. It adds to shipping costs for transport companies, while rising gasoline bills leave the consumer with less discretionary income. And it factors into the cost of many products.
Fluctuations in currencies and other costs are making business tough.
"We're getting price increases almost on a daily basis," Hayes says. "We normally put our catalog out in April every year. We still don't have it to press yet because we're trying to keep up with price increases."
Across America, such price increases to some extent mask how big the decline in imports is. For instance, oil imports have risen when measured in dollar value, but have been falling in barrels.
At the Port of Long Beach, shipments are down 10 percent over the past year when measured in container volume, but down only 3 percent in dollar value, says Art Wong, the port's information officer.
The changes in import demand fall unevenly across the economy.
Imports of some fuel-efficient or luxury cars are up, even as car dealerships in general are struggling.
At Curds & Whey, a specialty cheese shop in Portland, Ore., owner David Schiffelbein says business has stayed strong even though European cheeses have jumped by 80 percent in price. So far his high-income client base hasn't minded.
"They're buying more, since we changed our pricing structure to the half pound" instead of a pound, he says. "It seems to have worked."
But at the Boston jeweler European Imports, "We're not selling at all" at current high prices, says sales representative Lourdes Datal.
But demand hasn't fallen off a cliff. Americans will still spend on recreation activities, he says, but will do it closer to home – a boon for sales to places like Frankenmuth, Mich., near Hayes's headquarters.
Similarly, imports of television sets seem to be doing well.
The flip side of falling imports is the opportunity for US-based manufacturing to rebound. Already, some steel companies are planning new mills in the US as import prices rise.
All this could set the stage for an era when the world no longer looks to the US as the consumer of first resort for all goods, and when US households live within their means.
"The large trade ... deficits of the United States cannot continue indefinitely, because doing so would constitute a permanent gift to the U.S. economy," Harvard University economist Martin Feldstein writes in a new research paper.