The global manufacturing economy is growing, but just barely, with Europe’s recession and China’s slower growth weighing heavily on demand. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) was unchanged at 50.6 between May and June, only slightly above the threshold of 50, which signifies expansion in the sector. Of the top 10 markets for U.S.-manufactured goods, five have economies that are growing, and five are contracting. As such, we are seeing worldwide an environment that is not unlike what is occurring in the United States right now, with weakness in new orders, particularly overseas, dragging other measures of manufacturing activity lower.
The U.S. trade deficit widened in May, as imports increased and exports declined. Weaknesses abroad have lessened the demand for U.S. products. So far in 2013, manufactured exports have been growing at an extremely disappointing rate of just 1 percent. This compares to 2012’s 5.5 percent growth, and it is well below the 15 percent increase needed to double exports by 2015. The challenging foreign sales climate is one of the main reasons that we have not seen any substantive momentum among manufacturers in the United States recently on new orders, output and other activity measures. For instance, industrial production for manufacturing has risen only 1.7 percent over the past 12 months, the Institute for Supply Management’s PMI stood at just 50.9 in June, and manufacturers have shed workers in each of the past four months.
Behind these export figures, we see weaknesses in both Europe and Asia. Greece received another bailout earlier in the week, and Portugal’s political turmoil has heightened the risks that it will need more assistance in the near future. Both are yet another reminder that Europe’s problems are far from over. Indeed, the Markit Eurozone Manufacturing PMI has now contracted for 23 straight months. Even with some recent upticks in retail sales and confidence surveys, many key measures remain in negative territory. Meanwhile, the Chinese economy also appears to be decelerating, with real GDP expected to decline from 7.7 percent in the first quarter to 7.5 percent in the second when new data are released Monday. The HSBC China Manufacturing PMI has contracted for two consecutive months. Moreover, this softness has spread to many other Asian nations as well, with the exception of Japan.
Closer to home, our two largest trading partners, Canada and Mexico, have seen their growth rates slow, even as both continue to expand overall. Measures of economic activity have improved in Canada, including employment, retail sales and output. Nonetheless, U.S. exports to Canada have eased during the first six months of 2013 relative to the same time frame in 2012. A similar finding could be made about Mexico, which has seen its real GDP growth rates decelerate more recently and industrial production slow. Fewer exports have helped to drag its HSBC Manufacturing PMI lower in June, with weaker sales and production data.
Much of the focus next week will be on China’s economic releases for real GDP, industrial production and retail sales. With numerous press reports highlighting China’s decelerating growth, the data will be closely watched. We will learn more about Europe’s trade environment, with recent surveys indicating that export levels have declined. Meanwhile, in the United States, there will be key data releases on industrial production, retail sales and housing starts next week.
In the trade policy front, new reports were released from the Office of the U.S. Intellectual Property Enforcement Coordinator on intellectual property (IP) protection and the World Trade Organization (WTO) on rising protectionism. U.S.-India relations took center stage with several high-level government meetings and concerns raised by the NAM, the broader business community and Congress over the need to level the playing field with India. The NAM’s challenge to the Securities and Exchange Commission’s (SEC) conflict minerals disclosure rule moved to oral argument. July brings significant movement on key trade negotiations, including the formal start of U.S.-EU talks and the 18th round of the Trans-Pacific Partnership (TPP) talks. The fifth Strategic and Economic Dialogue (S&ED) with China also took place this week.
Chad Moutray is the chief economist, National Association of Manufacturers.
Latest posts by Chad Moutray (see all)
- NY Fed: Manufacturing Activity Contracted for the Third Consecutive Month in October - October 17, 2016
- Manufacturing Production Rebounded Slightly in September, but Flat Year-Over-Year - October 17, 2016
- University of Michigan: Political Uncertainty Pushed Confidence Lower in October - October 14, 2016