Below is the summary from this month’s Global Manufacturing Economic Update:
The global economy remains fragile, but there have been some positive signs during the past month. China’s economy began to expand (albeit marginally) for the first time in 13 months, with overall activity accelerating. Other countries also improved last month, even if some of them continue to have a Purchasing Managers’ Index (PMI) value below 50—the threshold for contraction. The JPMorgan Global Manufacturing PMI rose from 48.8 to 49.7, or near neutral in terms of manufacturing behavior. Sales and employment appear to have stabilized even in Europe, which remains mired in fiscal and economic challenges. The Eurozone is in a recession, with real GDP lower in two consecutive quarters (down by 0.1 percent in the third quarter), but several countries saw improvements.
At the same time, the North American market appears to be decelerating. Other nations are concerned about our nation’s ability to avert the fiscal cliff. This is especially true with our closest trading partners in North America. Canada and Mexico continue to expand, but at a slower pace. Real GDP in Canada eased to 0.6 percent growth during the third quarter, and its PMI dropped from 51.4 to 50.4. In Mexico, real GDP also weakened, decelerating to 4.4 percent, with the slower pace largely the result of weakening demand for manufacturing exports. Of course, the dominant player in North America is the United States, and worries about the fiscal cliff and softer new orders have negatively impacted industrial production and business confidence. Hurricane Sandy also has been a factor. The latest NAM/IndustryWeek Survey of Manufacturers illustrates how diminished optimism has reduced hiring and capital spending plans.
Despite major headwinds, U.S. exports continue to be a strength for the macroeconomy and for manufacturers. Net exports provided a positive contribution to real GDP growth during the third quarter, and year-to-date manufactured goods exports through September were 6.1 percent higher relative to the same time period in 2011 on a non-seasonally-adjusted basis. While this represents a significant slowdown, it is nonetheless impressive given global weaknesses. Moreover, more than 40 percent of manufacturers in the NAM/IndustryWeek survey said that increasing international sales was a primary driver of growth for their businesses, and those firms that expected growing exports were more optimistic in their outlook than those that were not.
Next week, the Commerce Department will release new international trade data. The October trade balance is not expected to change dramatically, but we will be looking for indications of continued modest growth in U.S.-manufactured goods exports. Other highlights will be updates on industrial production in a number of European countries and the United States. On the policy front, Congress has now ensured manufacturers can get the full benefits of Russia’s accession to the World Trade Organization (WTO), Trans-Pacific Partnership (TPP) talks are moving forward, trade talks with the European Union (EU) are still under discussion, Ukraine is seeking to raise tariffs and U.S. investment treaty talks are heating up.
Chad Moutray is chief economist, National Association of Manufacturers.
Latest posts by Chad Moutray (see all)
- Real GDP Revised Up to 1.4 Percent in the Second Quarter - September 29, 2016
- New Durable Goods Orders Remained Weak in August - September 28, 2016
- Conference Board: Consumer Confidence Jumped Strongly in September to a 9-Year High - September 27, 2016