Here is the summary for this month’s Global Manufacturing Economic Update:
The International Monetary Fund (IMF) slightly downgraded its estimates of worldwide output for this year and next year. The IMF now forecasts global GDP to increase by 2.9 percent this year, down from the 3.2 percent estimate predicted three months ago. The lower figure was mostly attributable to some deceleration in emerging economies in Asia, Russia, Latin America and the Middle East. It also reflects a marginal downgrade in the forecast for the United States—consistent with other recent data—to 1.6 percent and 2.6 percent growth in 2013 and 2014, respectively. This is somewhat below the forecasted ranges stated by the Federal Reserve Board a few weeks ago. Yet, the IMF also acknowledges the current budgetary impasse in Washington, which could reduce growth in the fourth quarter and perhaps beyond. However, the IMF projections assume that “the ongoing shutdown in the federal government will be short-lived and the debt ceiling will be raised on time.”
With the federal government shutdown, U.S. statistical agencies have been unable to release updates to many key economic indicators that we rely on. This includes the release of August’s international trade data that were postponed on Tuesday. Without this information, it is difficult to ascertain whether or not we have begun to gain some traction in increasing manufactured goods exports, which have risen a paltry 1.6 percent through the first seven months of 2013 relative to the same time period in 2012. When the August data are released, we will look for some improvement to that figure.
Many of our largest trading partners have seen progress in their economies of late, which should bode well for increased demand moving forward. While the IMF downgraded its overall forecasts, there were also signs of stabilization in the data for both Europe and China. The IMF now predicts real GDP growth of 1.0 percent in 2014, which would be its first positive annual growth rate since 2011. Europe has suffered from a severe recession for the past few years, but the good news was that the Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) has shown a gradual expansion every month during the third quarter. Even with some easing in September, new orders, output, utilization and exports continued to grow. However, manufacturers remain hesitant to hire.
In Asia, the Chinese economy has stabilized, but manufacturing activity remains only slightly above neutral. The HSBC China Manufacturing PMI edged marginally higher, up from 50.1 in August to 50.2 in September. This was still an improvement from softness seen from May to July, and in general, the Chinese economy has decelerated relative to past years. The IMF forecasts real GDP growth of 7.6 percent and 7.3 percent in 2013 and 2014, respectively, which is below the 9.3 percent rate in 2011. Yet, recent data suggest an uptick in industrial production, capital spending and retail sales, with exports rising for the first time since March, according to the PMI data. Japan’s economy also continues to make progress, with the Markit/JMMA Japan Manufacturing PMI expanding for the seventh consecutive month. Overall, economies throughout Asia saw some improvements in September, even as a few still have some pressing issues.
Meanwhile, in North America, our two largest trading partners saw their economies moving in opposite directions. After some recent sluggishness, the RBC Canadian Manufacturing PMI increased from 52.1 to 54.2, its fastest pace since June 2012. U.S. exports to Canada have stagnated so far this year, so to the extent that our largest trading partner’s economy has begun to accelerate, that is positive news. At the same time, the Mexican market has begun to stagnate. The HSBC Mexico Manufacturing PMI declined from 50.8 to 50.0, and manufacturing sales and production have slowed considerably since earlier in the year.
On the trade front, last week’s NAM Board resolution calling for swift renewal of Trade Promotion Authority (TPA) positions manufacturers well to lead and advance their trade priorities. While the ongoing government shutdown has affected some talks, the stage is set for an ambitious fall agenda. Negotiations to open Asia-Pacific markets and cut global information technology tariffs may reach critical milestones in the next few months. The NAM is advocating manufacturing priorities in these negotiations and others, while addressing overseas trade barriers and keeping members up to speed on the latest export opportunities.
Chad Moutray is the chief economist, National Association of Manufacturers.
Latest posts by Chad Moutray (see all)
- Kansas City Fed: Manufacturing Activity Rebounded a Little in August - September 22, 2016
- Federal Reserve Left Interest Rates Unchanged at its September Meeting - September 21, 2016
- New Housing Starts Were Weaker in August - September 20, 2016