US Economy and Trump

• US GDP growth for the fourth quarter of 2016 fell to 1.9% following growth of 3.5% in the third quarter and 1.4% and 0.8 % in the first and second quarters respectively for an aggregate grow of about 2.0% for all of 2016. The Obama ‘slump’ lingers.

• President Trump says US growth can accelerate to 4% per year supported by his tax, regulatory and fiscal reforms.

o Implementing his visions is a formidable task that involves, in many cases, acquiescence by a deeply divided Congress, notwithstanding control of both houses by his Republican party (GOP), especially the narrow GOP majority in the Senate.

 Trump has yet to prove effective in persuading legislators to follow his prescriptions.

o Given the natural limitations of the US economy – aging population, large federal deficits, etc., many economists believe such robust growth is difficult, notwithstanding Trump’s stated investment improvements, and/or would be inflationary to the point of counter productivity.

• Thus, even if the US only grows at 2-3% in 2017, the outlook for 2017 is quite positive overall, as a pickup in growth is expected in the EU, China and even in some parts of Latin America.

• Trump’s first month in office has been filled with so much controversy – judicial rebuff of his immigration ban on seven Middle Eastern countries, drop outs at the National Security Council and Labor Department, attacks on the mainstream media, etc.

o It is hard to know whether his administration can succeed with its laudable pro-business agenda or whether it will be paralyzed.

• The border adjustment tax seems to be losing steam.

o This proposal would subject imports to corporate income tax, while exempting exports, has been proffered by the normally free trade leadership in the House of Representatives

o Trump has called it ‘complicated’, retailers and brands who vigorously oppose it, seemed to get a favorable hearing from Trump at the White House, and nearly all the media, business publications, and economists are against it.

 Many worry that it would drive up the value of the dollar to unsustainable levels, hurt exports, and damage emerging market currencies, thus, stoking retaliatory protectionism around the world.

o Still, the Congress may hold on to some of it, as it needs to find some new tax approach to offset the nearly $1.0 trillion in lost revenue likely to follow enactment of the business tax reductions both they and Trump favor. Stay tuned.

US Shoe Sourcing Update

• US Shoe Imports. They declined by 5.2% in pairs during 2016. Total imports of shoes fell by 127.0 million pair in 2016 with those from China falling over 188.0 million pair.

o Imports from countries other than China increased in the period by only 61 million pair, leaving some the 127.0 million pair lost by China and not picked up by other supply countries.

o Large percentage increases were recorded by Vietnam, Cambodia, India, Brazil and Spain.

 The increases from Vietnam and Cambodia are surely in the athleisure space likely replacing imports from China in both that space and in the women’s fashion area.

o Despite China’s big losses, many countries did not pick up much of any market share including Indonesia, Mexico, Italy, Dominican Republic (DR), Thailand, Bangladesh, and Nicaragua.

• US Leather Shoe Imports. On a percentage basis, imports of leather shoes fell more sharply than overall shoe imports and there was no pick up at all of China’s losses by other countries. The US leather shoe market was in deep decline in 2016.

o The importation of leather upper shoes was down over 10.4 % in pairs for 2016, 59.9 million pair less than the amount imported in 2015.

o The sharp decline reflects the continuing weakness in women’s fashion items, which are usually made of leather.

o All but a tiny portion of the decline was due to reduced imports of leather shoes from China.

 Its imports of leather shoes in pairs fell by 16.6%, dropping some 58.8 million during the year.

o There was no pickup by other countries of any of the decline from China in US imports of leather shoes during the period.

 Indeed, imports of leather shoes from other countries decreased by 1.0 million pair during 2016.

 Most of the decline in imports of leather shoes from other than China was due to declines from Vietnam and Indonesia, and likely in the sports categories.

• Other countries that recorded declines in the importation of leather shoes were DR, Mexico, and Bangladesh, all of which specialize in outdoor product, another weak sector fighting the athleisure trend.

 By contrast, several leather shoe-producing countries increased their sales including India, Brazil, Italy, Spain, Portugal and Ethiopia, likely replacing some of the women’s leather fashion items that have moved out of China.

[US Footwear Imports 2016]

[US Leather Footwear Imports 2016]

US Imports of Leather Goods Continue to Decline – China Dominates Shoes, Apparel, Gloves and Bags But Less So than in the Past

• US leather imports in dollar terms fell sharply in 2016 by 10.3%, representing a decline of $1,692.0 million.

o Footwear. Overall, leather shoe imports fell in dollar terms by 11.8% for 2016 amounting to a decline of $1,417.0 million in imports of leather footwear. Those from China fell even more by 18.4% or some $1,262.0 million.

o Garments. Apparel declined, dropping 17.9% overall and China falling 24.7%.

o Gloves. Same with gloves: down 26.2% overall and China down 34.2%

o Bags and the like. Accessories did better falling only 1.4% but China declined by 11.9%.

Overall, China’s leather imports into the US during 2016 fell by 18.8%, although its market share remained dominant at 43.2%. The decline represented a loss of some $1.5 billion in China leather sector sales to the US in 2016.

• Finished leather imports, mostly from Mexico for the auto sector, also fell by 2.4% although China’s tiny share (2.5%) was down by only 1.9%.

[US Imports of Leather Goods 2016]

EU Footwear Imports Flat through October of 2016

• Overall, shoe imports into the 28 countries of the EU fell by only 0.8 % in pairs to 2,180.3 million pair in the January to October period 2016.

o Most of the decline was accounted for by China, down 2.2 %, while small declines were also recorded from Indonesia, India and Morocco.

o Increases came from Vietnam (albeit small), Brazil (mostly in famous injection brands, as well as some leather items), Turkey (also injection items mostly), Cambodia, and Bangladesh, among others.

Like the US, the EU is importing far fewer leather shoes than in the past, likely reflecting a fascination with athleisure product as in the US.

• Imports of leather upper shoes fell by 6.5% in units in the year through October, some 28.0 million pair, while those items from China declined by 8.1% or about 10.0 million pair during the period.

• Imported prices were down but not by that much as the dollar has come off its highs against the euro.

• Average prices on shoes from China fell by 4.0%. Vietnam prices were up 3.1%.

[EU Footwear Imports Jan- Oct 2016]

China Footwear Exports Fall Again in 2016, Pare Losses of 2015

China’s total exports of shoes globally fell in 2016, for the second consecutive year, by 5.9% in pairs or about 582 million pair.

• This is a smaller decline than in 2015 when shoe exports fell by 8.1% or 864 million pair.

• Since 2014, China’s shoe exports have fallen by nearly 1.5 billion pair.

The decline in exports of leather shoes accelerated in 2016.

• Exports of leather shoes in 2016 in pairs fell by 17.8% or some 150.0 million; in 2015, they fell by 13% or about 126 million pair.

• Since 2014, China’s exports of leather shoes in pairs have fallen by 172 million pair.

• While other suppliers have picked some of this decline up, most of it has been lost to a marketplace that is more and more dominated by non-leather shoes especially those in the sports and athleisure space.

[China Footwear Industry Export 2016]

Peter T. Mangione, Global Footwear Partnerships LLC, Washington, DC, February 20, 2017, ptmangione@gmail.com, Copyright@Global Footwear Partnerships LLC. All rights reserved. No reproduction without written permission