Tuesday, July 7, 2015

FEDERAL RESERVE BANK, WEST COAST PORTS ON ECONOMY / GDP

Report: West Coast port congestion not entirely to blame for Q1 GDP decline

Port disruptions caused by contentious dockworker contract negotiations likely reduced real export growth 1.5 percent in the first quarter, according to a recent study by the Federal Reserve Bank of New York.

Federal Reserve claims west coast port congestion not entirely to blame for Q1 GDP decline.    Although it was certainly a contributing factor, West Coast port congestion was not entirely to blame for the reported 0.2 percent decline in first quarter 2015 U.S. gross domestic product (GDP), according to a recent study by the Federal Reserve Bank of New York.
   The report said port disruptions caused by contentious labor contract negotiations between the International Longshore and Warehouse Union and its employers, represented by the Pacific Maritime Association “likely reduced real export growth in the first quarter by 1.5 percentage points.”
   “In terms of the contribution to net exports to real GDP growth, this would be equivalent to a drag of 0.2 percentage point in the first quarter,” said the bank in its report.
   The U.S. Department of Commerce estimated GDP contracted at an annualized rate of 0.2 percent in the first quarter of 2015, which was a much larger decrease than analysts had previously predicted. Real exports of goods and services decreased 5.9 percent in the first quarter, while real imports of goods and services increased 7.1 percent, according to Commerce.
   For West Coast ports, the New York Fed said exports decreased 20.5 percent in the first quarter and imports fell 9 percent, “substantially larger declines relative to previous quarters and bigger declines than in shipments through any other mode of transportation.”
   Further, export and import growth through the West Coast ports in the first quarter were 14 percentage points to 20 percentage points lower than growth through ports on the Gulf and East Coast.
   The report noted, however, calculating the effect of those declines on overall GDP is not so simple. If, for example, all of the shipments destined to move in or out of West Coast ports were rerouted to other modes of transportation and U.S. ports, there would be no net effect on GDP.
   The strength of the U.S. dollar has had an equal, if not greater, effect on trade and economic growth during the first quarter of 2015, reducing demand for exports while increasing demand for imports in the country. Ocean freight imports at non-West Coast ports, for example, grew 8.4 percent in Q1, but “from a growth accounting point of view, lower import growth actually boosts GDP,” according to the bank.
   Data from the study indicated that the West Coast import declines during the dockworker labor contract dispute were “largely compensated by reallocation to other ports and a March import surge when the dispute was officially over” in March. For West Coast exports, on the other hand, the bank said the majority of the decline “does not appear to have been compensated with gains through other transportation modes.”
   Other factors contributing to the contraction in first quarter GDP included unusually harsh winter weather, which slowed supply chains considerably, and spending cuts in the energy sector caused by plummeting oil prices.