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Where Did All That Economic Growth Come From?

Real gross domestic product in the United States increased 3.2 percent in the first quarter of 2019, according to the federal Bureau of Economic Analysis, and was driven by consumption and fixed non-residential investments. As imports declined due to the large inventory buildup in the last quarter of 2018, the negative impact of that on GDP was lower than normal.

In contrast, the US Manufacturing Purchasing Managers Index from IHS Markit was at 52.6 in April, up from both March and the preliminary reading of 52.4. The reading pointed to the second-softest expansion in factory activity since June 2017. This latest upturn in production across the goods-producing sector was among the softest seen in the last two years despite the growth over March. Should this low level of the PMI continue, then there is little expectation that GDP will continue to remain strong.

The consumer continues to have confidence in the economy, thereby underpinning growth, but there are a number of factors at play. The national savings ratio is rising after eight months of decline in 2018. The growth in personal income is not translating into a similar growth in expenditures after the December 2018 rise.

To make matters worse, consumption is facing the potential of increased tariffs on Chinese imports if President Trump’s tweets are anything to go by. One can only hope that this is a simple negotiating tactic that will run out of steam.

Our view is that there is very little change in expectations for 2019 growth. We now project 2.6 percent growth overall with 1.9 percent expected on the West Coast and 3.1 percent on the East Coast.

From a shipper’s point of view, the current Shanghai Containerized Freight Index, at a low similar to mid-2018, is good news in terms of the cheaper cost of transportation. Carriers, on the other hand, are less enthusiastic about the direction of their freight income. As shipping capacity growth continues to outpace demand, we do not foresee a resurgence in freight rates in the medium term.

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