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China’s Softer Import and Export Prices: Time to Turn Defensive?

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Import and export price indexes

Today, the Bureau of Labor Statistics released its import and export price indexes for May. Both import and export prices fell in May. The import price index pointed to a fall for the first time in 2019, with import prices softening 0.3% last month. Export prices softened by 0.2% after rising for three consecutive months. On a year-on-year basis, import prices fell 1.5% in May while exports saw a 0.7% decline.

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Imports

Both fuel and non-fuel imports saw softening in prices in May. Fuel import prices dropped by a percent as oil and gas prices fell. Industrial supplies and materials prices fell 1% as metal prices declined. Prices of imported finished goods also declined. Lastly, food and beverage prices also softened.

Exports

On the export side, both agricultural and non-agricultural exports saw prices softening in May. Agricultural export prices fell 1% while non-agricultural exports fell 0.2%. Industrial materials and supplies fell 0.4% as fuel and metal prices fell. Capital goods and chemical prices increased during the month—but not enough to turn the overall export price growth positive.

Time to turn defensive?

For the biggest economy in the world, softening prices for US exports and imports may mean weakness in global trade. With new tariffs coinciding with lower prices, it may be time to turn defensive. For these scenarios, consumer staples, utilities, and government bonds can make a good addition to a portfolio.

The Consumer Select Sector SPDR Fund (XLP) invests in consumer staples companies including Proctor and Gamble (PG), Walmart (WMT), and Costco (COST). The ETF has an expense ratio of 0.13% and has returned 16.65% so far this year.

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