Here is the summary for this month’s Global Manufacturing Economic Update:
Net exports provided a significant drag on second-quarter real GDP in the United States, subtracting 0.81 percentage points from the total figure. While goods exports grew faster in the second quarter than in the first quarter, this was counterbalanced by even stronger growth in goods imports. As such, the data highlight how softer economic growth overseas has slowed U.S. manufacturing activity and exports. Year-to-date manufactured goods exports have grown a stubbornly slow 1.7 percent in the first six months of 2013 relative to the same time period in 2012. This compares to 5.7 percent growth in manufactured goods exports for all of 2012 and the 15 percent growth rate required for the United States to meet its goal of doubling exports by 2015. This sluggish pace has made it difficult for manufacturers to increase the demand for their goods.
The Census Bureau and the Bureau of Economic Analysis reported that the U.S. trade deficit fell sharply from $44.1 billion in May to $34.2 billion in June. This was the lowest monthly deficit since October 2009, and there were increases in goods exports mostly across-the-board. The largest year-to-date gains were in consumer goods, non-automotive capital goods and automotive vehicles and parts segments. More importantly, the new data give a sense that the export picture might be improving, providing further hope that manufacturing activity will be better in the second half of the year.
The global economy will need to stabilize and pick up if the U.S. export market is to continue to improve in the coming months. Of the top 10 markets for U.S.-manufactured goods, five have Purchasing Managers’ Index (PMI) values in July suggesting growth, and the other five are experiencing contractions. As a whole, the JPMorgan Global Manufacturing PMI increased from 50.6 in June to 50.8 in July. The latest data show mixed progress in terms of manufacturing activity. In fact, the Markit Eurozone Manufacturing PMI ended 23 consecutive months of declining activity with slight growth in July, sparking conversations about whether its economic challenges have stabilized or not. In contrast, output and new orders in many emerging markets have decelerated in recent months. Yet, data released this morning on Chinese industrial production suggest that activity might be stabilizing, which could be a positive sign moving forward.
Over the next few weeks, several indicators will give us a better sense of how the world economy is faring. This includes GDP reports for Europe, Japan and Mexico; industrial production data for the United States, Europe, India and Mexico; and retail sales information for the United States, Brazil, Canada and Mexico. In addition, regional Federal Reserve Bank surveys of manufacturers for August will hopefully show continued progress in terms of manufacturing activity in the United States, including progress with new export orders.
Meanwhile, this fall will be busy on the trade policy front. Congress recessed for August without moving major trade legislation, including bills to reauthorize customs and extend the Generalized System of Preferences program that expired on July 31. The coming months may see movement on these bills and a measure to grant the President the Trade Promotion Authority (TPA) necessary to pass trade agreements now under negotiation, including the Trans-Pacific Partnership (TPP). The NAM launched a trade toolkit to coincide with renewed congressional attention to these issues. Over the next few months, we also will continue working to overturn unfair trade practices in India, combat trade secrets theft, advance national export control reform and support a global trade facilitation agreement.
Chad Moutray is the chief economist, National Association of Manufacturers.