The Covid-19 Import Boom Conundrum

Despite still-high unemployment, no federal government support package in place, lack of investment by U.S. companies and over 210,000 COVID-related deaths, the U.S. economy is beating forecasts with consumer consumption up and imports setting new records.

Retail sales are a big part of consumer spending, so one would expect to see an increase when the economy improves and consumers are confident. But less than six months after the biggest decreases on record this spring, retail sales have bounced back to pre-crisis levels with year-over-year gains every month since June, including a 2.6 percent increase in August.

The inventory-to-sales ratio reached its highest level when most stores were forced to close in April, well above levels seen during the Great Recession. By July, however, the ratio had dropped to a level not seen since November 2014 as stores reopened and consumers responded with pent-up demand. The inventory buildup and the dramatic drop have been reflected in import container volumes at the ports, particularly on the West Coast, and we’ve seen a new buildup of inventory in the August-September period as importers re-stock.

Online sales with next-day delivery are certainly one of the drivers of the import boom and the high levels of inventory. Large online traders such as Amazon, WalMart and Target are being forced to hold a larger inventory in order to support consumers’ demand for short-term delivery. This gives a new meaning to the concept of just-in-time delivery.

The uncertainty in the timing of a government stimulus package – brought to a screeching halt this week by President Trump only to have him say he might sign something after all – is causing concern about the economic recovery, as voiced by Federal Reserve Chairman Jerome Powell. With less than four weeks to the election, there is doubt whether agreement can be reached.

The strong import numbers seen during the second half of this year have changed the outlook for 2020’s totals. We now expect to see a drop of 4.4 percent compared with 2019 – less than half the decline we expected recently. Imports are expected to bounce back in the first half of 2021 with year-over-year growth of 5.8 percent, most of it in the second quarter.