Here is the summary for this month’s Global Manufacturing Economic Update:
The world economy appears to be stabilizing somewhat from weaknesses in the past few months, with the latest data indicating improvements in manufacturing activity in several countries. Europe, which had been in a recession for nearly two years, has now had two straight months of slow—but positive—growth. The Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) increased from 50.3 in July to 51.4 in August, with growth in new orders, exports and output. Other macroeconomic variables reflecting gains include real GDP and retail sales. Nonetheless, hiring growth continues to lag behind, and from the U.S. perspective, manufactured goods exports to Europe have been lower year-to-date. Industrial production declined 1.5 percent in July, suggesting that significant weaknesses remain even with a more upbeat outlook.
Likewise, China’s economy has also rebounded from recent softness. The HSBC China Manufacturing PMI shifted from contraction (47.7) in July to very slight growth (50.1) in August. This marked the first expansionary figure since April. The Chinese economy has decelerated from past years, with year-over-year real GDP growth of 7.5 percent in the second quarter, down from double-digit rates of growth just a couple years ago. Production, fixed asset investments, and retail sales have also all picked up the pace in July from weaknesses in prior months.
The higher levels of activity in China have helped to boost much of the rest of Asia, as well. While several Asian countries continue to contract, they are also beginning to stabilize. There are some exceptions to this, of course. For instance, India’s economy is suffering from a sharp devaluation in the rupee (see the graphic above) and its own economic policies. The HSBC India Manufacturing PMI declined from 50.1 to 48.5, its first contraction since March 2009. The other outlier, Japan, increased from 50.7 to 52.2 and has been expanding each month since March, according to the Markit/JMMA Japan Manufacturing PMI. In general, these gains mirror improvements in the Japanese macroeconomy since the end of last year.
Despite some better data abroad, the U.S. trade deficit widened in July on higher goods imports and a slight decrease in goods exports. As we have been saying all year, growth in manufactured goods exports have been frustratingly slow in 2013, up just 1.6 percent through the first seven months of the year relative to the same time period last year. This compares to 15.9 percent and 5.7 percent growth in 2011 and 2012, respectively. Exports to China have been one of the bright spots, but other regions have seen some significant easing compared to last year’s pace. Hopefully, as the global economy continues to improve, manufacturers will see demand for their goods increase.
Along those lines, we will be closely watching the economic data coming out over the next couple weeks to see if more progress materializes for global manufacturers. A number of countries will be releasing their industrial production data next week, including the United States, which is expected to report a slight uptick in activity in August after being flat in July. Much of the other new data will focus on pricing pressures, both at the consumer and producer level. Overall, inflation has been modest, but with rising petroleum costs, crude costs have edged marginally higher in the most recent reports. The other key date to focus on will be September 23, when Markit releases its Flash estimates of PMI for China, the Eurozone and the United States.
On the policy front, following robust discussions on the Trans-Pacific Partnership (TPP) in August, negotiators are seeking to close gaps and push aggressively for progress in the lead-up to the Bali meeting of Asia–Pacific Economic Cooperation (APEC) forum. The World Trade Organization (WTO) has a new director general, who will be seeking to make progress on customs and trade facilitation talks and an expansion of the Information Technology Agreement (ITA) by the end of the year. U.S. bilateral economic relations with India will move to the leader level as President Barack Obama and Prime Minister Manmohan Singh meet in September. U.S.–E.U. negotiations head for the second round next month, while the National Association of Manufacturers (NAM) works to promote legislative action on Trade Promotion Authority (TPA) that is critical to expedite and implement major new trade agreements.
Chad Moutray is the chief economist, National Association of Manufacturers.
Latest posts by Chad Moutray (see all)
- Housing Starts Declined in August but Single-Family and Permits Remained Encouraging - September 19, 2017
- Retail Sales Were Soft in August, up Modestly over the Past Year - September 15, 2017
- New York Fed: Manufacturing Activity Growth Remained Strong in September - September 15, 2017