The U.S. Economy Is On An “Artificial, Tariff-Driven, Panic-Buying” Sugar High

Monday, October 8, 2018
By Paul Martin

by Danielle DiMartino Booth
Mon, 10/08/2018

The U.S. Economy Is on a Sugar High – Many companies are rushing to secure products and materials before the trade war worsens

Across the U.S., companies are hitting the panic button. The Trump administration has levied 10 percent tariffs on $200 billion of Chinese goods, a charge that is expected to rise to 25 percent by 2019. This tops the tariffs on $50 billion of Chinese goods that were imposed in August, and is an effective tax on U.S. consumers, who will soon be paying more for everything from cosmetics to clothing to cars if they aren’t already.

Against that backdrop, it’s becoming clear that many companies are rushing to secure products and materials before prices rise regardless of current demand. You could say they are in panic-buying mode. The upside is that this behavior bolsters economic growth in the short term. The downside is that there is likely to be a nasty hangover. The noise in the economic data will be amplified by the rebuilding from Hurricane Florence. The estimates of the storm’s damage span from $20 billion to $50 billion.

Evidence that panic buying has set in was seen in the September Chicago Purchasing Managers Index report, which is a bellwether for the broader national manufacturing sector. While the results “disappointed,” with the index falling from 63.6 to a still high 60.4 and the new orders component sinking to a six-month low, the inventory component surged above the 60 mark. (In these diffusion indexes, readings above 50 denote expansion.) To put the stockpiling in context, inventories have only breached 60 twice this year. Such nosebleed readings are so rare that they rank in the 97th percentile over the last 30 years.

As per the Chicago PMI:

“Firms continued to add to their stock levels, building on August’s marked rise. The scarce availability of inputs continued to encourage stockpiling while forecasts of higher future demand also contributed to the rise in inventories.”

There’s also been a pronounced increase in railcar volume. But the thing to know here is that data from the three biggest California ports, where the vast bulk of Chinese goods land on U.S. shores, arrives with a lag. We won’t have September data in hand until mid-October. Absent this port data, study the activity on BNSF and Union Pacific’s “Overland Route.” This old-school term begins at the West coast ports and ends at the railroads’ easternmost points. Take the number of rail cars in service and multiply it by how long these cars “dwell at terminal” to get a proxy of hours worked. That derivation roughly equates to aggregate hours worked in the employment report, due out Friday.

The Rest…HERE

Comments are closed.

Join the revolution in 2018. Revolution Radio is 100% volunteer ran. Any contributions are greatly appreciated. God bless!

Follow us on Twitter