Here is the summary for this month’s Global Manufacturing Economic Update:
The World Bank released a report yesterday that said the global economy appears to be transitioning toward a period of more stable, but slower growth. Some of the worldwide financial risks that existed a year or so ago—namely stemming from Europe—have lessened. Yet, more stability does not necessarily mean rapid growth. The World Bank forecasts global GDP growth of 2.2 percent in 2013, with faster growth of 3.0 percent and 3.3 percent in 2014 and 2015, respectively. These figures represent a modest pullback from earlier predictions, reacting to recent weaknesses in the marketplace. The United States is predicted to grow 2.0 percent this year, with 7.7 percent real GDP growth in China and the Euro area shrinking by 0.6 percent.
The latest data support this analysis. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) was somewhat higher, up from 50.4 in April to 50.6 in May. This suggests that the global economy is growing very slowly. The Eurozone showed some improvements, even as the continent remains mired in a recession and its PMI values have stayed below 50 for 22 consecutive months. The Canadian economy also rebounded, with its PMI data shifting from a slight contraction in March to modest growth in May. With Canada as our largest trading partner, increased activity north of the U.S. border will be important for reviving exports. Meanwhile, the Chinese economy, which had seen some progress since October in its production figures, began to slow down, with its PMI declining from 50.4 to 49.2. Several other industrial indicators also reflected some deceleration in activity in China.
Beyond economic indicators, there have been a number of headlines recently about volatility in the global equity markets. Traders appear to be reacting to the expected “tapering” of quantitative easing in the United States, and foreign exchange markets have also moved on interest rate and policy changes worldwide. Illustrating this point, the Dow Jones Industrial Average has shifted by over 122 points on average each day (both up and down) since Memorial Day, with wide swings in other markets, as well.
Manufacturing activity in the United States has been quite sluggish recently, both in terms of production and employment. Industrial production has increased just 1.6 percent between May 2012 and May 2013. Slowing export sales no doubt have played a part in the recent deterioration of manufacturers’ sentiment. U.S.-manufactured goods exports have risen only 0.9 percent during the first four months of 2013 relative to the same time period in 2012. Goods exports to Europe were down significantly due to the recession, but even where trade is higher, growth rates have been up only slightly. Meanwhile, rising imports to the United States have widened the trade deficit.
On the policy front, U.S. trade talks in the Asia-Pacific and with Europe are moving forward in significant ways, while efforts are intensifying to achieve progress in multilateral customs discussions. Key U.S. trade officials are nearing their final confirmation in the Senate. With the expected confirmation of Michael Froman as the new U.S. Trade Representative, talks on renewing U.S. trade-negotiating authority are expected to get serious this summer. U.S. manufacturing concerns with India’s discriminatory industrial policies have reached a new level, with the U.S. industry urging the Administration to resolve these issues quickly. Canada prepares to retaliate against the United States over meat-labeling rules. Export control reform moves forward for spacecraft systems and related items.
Chad Moutray is the chief economist, National Association of Manufacturers.