December 4, 2002
How much distortion did the port lockout and
subsequent work slowdown on the West coast cause in this economy? This is not just the title of an academic research paper that
no one but a tenure committee will ever read.
Its answer might reveal what forecasters can expect in the next few
Although the evidence remains anecdotal, we know that
port congestion caused serious delays at the West coast ports and diversion of
traffic to gulf and east coast landings.
With so many containers waiting to be off-loaded, shipping units were
not returned to Asia, and became scare there.
Costs increased and recovery was delayed.
Toys, clothing, and other textiles appear to be the largest
distortions, though autos and parts clearly suffered some blows of their own.
Most of the sharp October dip in industrial production
reflected slowing in areas that saw sharp gains in retail inventories during
September. In other words,
consumer hesitancy led to inventory buildup that was almost immediately
repaired by production declines. Fortunately,
the problem did not intensify in October, partially because Asian inventories
were not yet delivered.
Some goods were not delivered in time to be included
in Christmas sales catalogs. The
clothing delays kept fall prices higher than they otherwise would have been.
While shippers and distributors probably suffered, the better margins
by retailers probably offset the reduced volume of sales.
Frankly, it is too early to know whether reduced
choice because of shipment delays will mean reduced spending by consumers.
They might merely move to other goods to complete their shopping list.
However, past experience suggests that some lost Christmas sales
probably will occur from these constrained choices.
Despite presidential intervention, the congestion
persisted into November. Then, an
agreement on pensions (and the union's resistance to new technologies) led to
a settlement and the beginning of improved shipment.
Congestion probably will slowly diminish during the holidays and then
disappear early in the winter months.
There is little doubt in my mind that the port
problems caused the dip in the coincident indicators that the Conference Board
almost certainly will discover upon re-estimating its October information. GDP
almost certainly fell that month.
Did that port problem cause the summer stock market
rally to reverse and fall into new lows by early October? Probably. Did
that aborted stock market recovery sap confidence from consumers and corporate
Will we suffer slower fourth quarter GDP because of the port problem?
Now that we have settled those issues, will the
results of Autumn's weakness in the economy lead to weakness next year.
While the answer could be yes (that 118 day steel strike in 1959
certainly did not help the following year's economy), I think the answer this
time is no.
As soon as the congestion became acute, second orders
from retailers dried up. While
this will hurt production in China, fall shipping in the U.S., and some
Christmas sales, it actually means that inventories remain well managed.
Some discounting will be aggressive after Christmas as some goods
finally arrive. But the ongoing
problems will not be great.
Those corporate planners probably have ended their
planning sessions with another year of low capital spending in their
anticipations. However, new
technologies are rapidly lowering costs for those venturesome enough to seek
new methods. Unfortunately, some
of the new processes will be in Asia, where growth makes it easier to adapt
the best technologies. But capital is not limitless in Asia.
By realizing that the conservative plans that were
chosen were the result of temporary sluggishness, corporations can begin
augmenting their spending plans. American
industry still can compete using technology, if they have the will to do so.
The good news is that the investor appears to now
understand that temporary conditions caused that summer stock market swoon,
not the development of new long term economic problems. The stock indices have restored the levels that prevailed
before the ports slowdown undermined economic activity.
Now if we can only get corporate planners to reopen their plans and reject that conservative spending choice that most of them made. Then we could see a strong gain in stock values, improved confidence, and a strengthening economy as delivery and port activity return to normal early in the new year.