Here is the summary from this month’s Global Manufacturing Economic Update:
The global economy has seen some progress since last fall, but growth remains modest at best. There is also a “two steps forward, one step back” feel to some of the latest data. Six of the top 10 markets for U.S.-manufactured goods expanded in March, according to Markit. This is down from seven last month, but up from four last October. Canada, our largest trading partner, saw its manufacturing activity decline, with weaknesses in new orders, exports and hiring. Softness in the United States and Europe were cited as factors.
The other three markets with contracting sales, output and employment levels were in Europe, with its economic downturn widening. The Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell from 47.9 in February to 46.8 in March. This index has now contracted for 20 straight months, with little hope of improving anytime soon. While many of the recent headlines have surrounded the failure of the banks in Cyprus or the inconclusive Italian elections, the challenges are ones that confront the entire continent. The unemployment rate has risen to 12 percent, with more than one-quarter of the working population in Greece and Spain out of work, and real GDP is expected to contract throughout the year. This morning, we should learn even more about the manufacturing sector in Europe when new data on industrial production will be released. The data are expected to show a slight decline.
In Asia, the biggest news of late has been the Bank of Japan’s aggressive approach to reverse two decades of deflation and slow growth. Taking a page from the Federal Reserve Board, Japan’s central bank will pursue a quantitative easing strategy of purchasing 7.5 trillion yen (or roughly $73 billion) in long-term securities each month. Beginning with the election of Shinzō Abe, the yen has depreciated from roughly 87 yen to the U.S. dollar at the beginning of 2013 to almost 100 yen today. Outside of Japan, most of the other Asian economies were growing slowly, showing signs of progress. For instance, the Chinese economy has expanded for five straight months with growth accelerating so far this year. Its neighbors appear to be following suit.
Meanwhile, the U.S. economy has grown perhaps faster than many forecasters might have expected in the early months of 2013. Despite that progress, drags on growth continue, particularly in manufacturing. Persistent uncertainties also remain, especially related to governmental policies and regulations. The Institute for Supply Management’s (ISM) closely watched PMI for manufacturing declined unexpectedly from 54.2 in February to 51.3 in March, and manufacturers shed 3,000 workers on net for the month. Hiring remains skittish overall, with just 4 percent of all net new jobs created in the past 12 months coming from
manufacturing. On the positive side, the U.S. trade deficit narrowed in February with growth in manufactured goods exports during the first two months of the year. However, we would like to see exports pick up dramatically, and shifts in the petroleum market could explain much of the narrowing of the deficit in February.
Movement continues on trade-liberalizing agreements. The 11 Trans-Pacific Partnership (TPP) negotiating countries completed their 16th round of negotiations in Singapore last month. Japan also formally requested to join the TPP talks. Just this morning, the United States and Japan announced that their bilateral consultations were completed. The United States and European Union (EU) formally announced that they would begin comprehensive trade talks under the name of the Transatlantic Trade and Investment Partnership (TTIP). At the same time, U.S. government reports and manufacturers’ own experiences show worrisome growth in barriers to U.S.-manufactured goods overseas.
Chad Moutray is the chief economist, National Association of Manufacturers.