How the USA transmits its colds to the world

 The saying goes: if the US sneezes, the rest of the world catches a cold.  

There are good reasons for this:  the USA is the world's largest economy; it sets its monetary policy independently, whereas most other economies have to at least consider US policy; it has the world's largest capital markets; it owns the world's reserve currency.  So what happens in the US affects sentiment in other stock and bond markets and sentiment and policy in other economies.

But there is also a strong direct link.  As in most economies, the volume of imports is strongly correlated with domestic economic activity.  As its economy slows, the US reduces its imports.  And that leads to exports falling in other economies, which in time leads to their economies slowing too, even without them following the US in raising rates.

Both series extreme-adjusted.
See how import volumes slightly lag at the bottom of the cycle.

Another straw in the wind

In most countries—and the USA is no exception—import volumes correlate well with the economic cycle, though they tend to lag a little behind it.  Although US import volumes rose a little year-on-year in March, the trend is clearly down.  Have the Trump tariffs something to do with it?  Prolly something.  But the slowdown in imports isn't anomalously large over the last year.  So maybe not that much.  Yet.  Remember that given the size of the US economy, its declining import volumes are significant negatives for other economies too.  And the other big player, China, has also had slowing import volumes over the last year (the recent "recovery" is seasonal).

Import volumes are shown as a yoy % change

Whither away the US economy?

Normally, most of the time, and for most economies I've looked at, import volumes are strongly correlated with indicators of the real economy.  I've plotted the year-on-year change in my coinciding index for the US, (left hand axis) against the volume of imports into the US (right hand axis, extreme adjusted)

Note how imports have turned at the same time as, or even slightly ahead of, the overall economy.

And note how weak they are now.  Now of course, a weaker US$ has helped ....   But.  Combine this with the soggy PMI and I'm started to get a little concerned that the sharp fiscal tightening this year is starting to have unfortunate effects.  Wouldn't be the first time.

[Double-click to see bigger chart]