Wolf Richter
www.testosteronepit.com www.amazon.com/author/wolfrichter
The
US economy, and by extension the world economy, is desperately
waiting for the spring escape velocity to finally kick
in. This American phenomenon has been forecast to occur for six years
in a row now, with the prior five forecasts having turned out to be
just a mix of political wishful thinking and unfettered Wall Street
hype, followed by a shrug and an “ah shucks, maybe next year.”
So while we were still waiting for the escape
velocity, world trade, one of the major indicators of what’s going
on in the globalized economy, has descended into a very unpropitious
slump.
World
trade volume dropped 0.5% in March from February, after it had
already dropped 0.7% in February, the CPB Netherlands Bureau for
Economic Policy Analysis, a division of the Ministry of Economic
Affairs, just reported in its March world
trade report.
For the first quarter, volume was down 0.8%, after a 1.5% increase in
the fourth quarter.
To eliminate the inherent volatility of these
kinds of monthly numbers, the CPB offers what it calls trade
“momentum” data – which it defines as “the change in the
three months average up to the report month relative to the average
of the preceding three months.” It eliminates some of the monthly
up-and-down noise.
That trade momentum measure slumped 0.8% in
March, after having edged down 0.3% in February. This is what it
looks like, going back to 2010. Note the steep dive since late last
year that entered negative territory in February:
The CPB’s Trade Index looks at it from a
slightly different perspective. The chart below shows the steady rise
of world trade volume from 2005 up to the global financial crisis,
when things came to an abrupt halt and momentum went over the cliff,
then the rapid recovery, and since late last year, the slump.
But it’s even worse. While shrinking import
volumes were concentrated in the emerging markets, there was “a
remarkable increase” in imports by Japan. And there was a reason, a
very temporary one.
Japanese
households and businesses have been front-loading major expenditures,
including building materials, machinery, cars, jewels, electronics,
etc. in anticipation of the consumption-tax hike that took effect on
April 1. The tax is very broad based, and by front-loading
durable-goods purchases, buyers were able to save 3% (a tax free
gain!) in a country where 10-year government bonds have been yielding
below 1% for years. Front-loading was one heck of a deal. Everyone
did it. And imports soared [here
is my chart of Japan’s increasingly out-of-whack trade deficit from
2011 through Q1 2014].
That temporary jump in imports by the
third-largest economy in the world papered over some of the trade
weaknesses elsewhere. Without that buying binge in Japan, trade
momentum in the first quarter would have been even worse.
That’s the good news.
“On the export side the picture was more
negative,” the CPB report points out. Exports volume fell across
the board in advanced economies, but particularly in Japan and the
Euro area, though it recovered in Central and Eastern Europe. And in
the emerging economies, exports fell for the fourth month in a row.
The elephant in that room was China.
Momentum declined in both, advanced and
emerging economies. In the US, where the by now infamously illusory
escape velocity is once again just about to occur, “import and
export momentum remained negative.”
It
happened in 2000 and 2007. The consequences were spectacular. Now, it
happened a third time in fifteen years. And it’s forming an
increasingly terrifying chart. Read….. This
Happened Twice Before, And Each Time Stocks Crashed
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