Here is the summary for this month’s Global Manufacturing Economic Update:
The global economy continues to see progress this autumn, with manufacturing activity picking up from recent softness. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 51.8 in September to 52.1 in October, its highest point since May 2011. While this still reflects only modest growth, stabilization in Europe and Asia has helped to lift overall sentiment, new orders and production in many key markets. Moreover, all top 10 export destinations for U.S.-manufactured goods grew on net in October, with a PMI value greater than 50. This was the first time since we began preparing this report that no countries contracted, and it represents a nice turnaround from only two months ago when half of these markets contracted.
This progress can also be seen in much of the underlying data, but with slow growth overall. For example, the Markit Eurozone Manufacturing PMI has shown modest expansion for four consecutive months—a sign that Europe has begun to rebound after its deep two-year recession. Despite the more uplifting news, the European Commission this week slightly lowered its forecast for European real GDP to 1.1 percent growth in 2014, down from an earlier estimate of 1.2 percent growth. France and Greece both continue to contract, suggesting pockets of weakness are still present. Moreover, recent data on retail sales and employment continue to suggest challenges. The European Central Bank continues to worry about sluggish economic growth and disinflation, and yesterday, it surprised the market by lowering its key interest rate to 0.25 percent. On a more positive note, the prospect of even minimal growth has lifted spirits across the continent, with the ZEW Indicator of Economic Sentiment reflecting increased relative optimism in October.
The story is similar in Canada, throughout Asia and in the emerging markets. The RBC Canadian Manufacturing PMI rose to 55.6 in October, its fastest pace since April 2011. New orders and production have rebounded from softness during the spring and summer. We hope better economic news in Canada—our largest trading partner—will increase demand for our exports there. Likewise, the HSBC China Manufacturing PMI has expanded for three straight months, albeit slowly, up from 50.2 in September to 50.9 in October. Moreover, while economic growth has decelerated over the past few years, real GDP picked up from 7.5 percent in the second quarter to 7.8 percent in the third quarter. Industrial production and fixed asset investments have also been higher in the third quarter, suggesting improvements in overall activity. Furthermore, stabilization in Europe and Asia has helped to buoy most of the emerging markets, with the HSBC Emerging Markets Index up from 50.7 to 51.7.
Nonetheless, growth in U.S.-manufactured goods exports remains frustratingly low so far this year despite modest gains in the economies of our major trading partners. U.S.-manufactured goods exports have risen just 1.8 percent through the first eight months of 2013 relative to the same time period in 2012, using non-seasonally adjusted data. This represents only marginal improvement from July’s 1.6 percent pace, and it presents a challenge in our nation’s ability to double exports by 2015 as outlined in the President’s National Export Initiative. Reduced year-to-date exports to Europe account for much of the slower pace of U.S.-manufactured goods exports, with eased growth rates to many of our other large trading partners as well. However, the recent deceleration in the U.S.–euro exchange rate should help to boost our exports to the EU.
Next week, we will get industrial production data from a number of countries, including the United States. Output is expected to continue to show signs of improvement in the United States and China, but production is predicted to decline somewhat in the Eurozone. Europe is also anticipated to report its second straight month of positive real GDP growth, with third-quarter data similar to the second-quarter growth rate of 0.3 percent.
On the trade front, negotiations continue around the clock on the Trans-Pacific Partnership (TPP) talks, while the Administration, Congress and the business community accelerate efforts to move forward on Trade Promotion Authority (TPA). Manufacturers worked across the Atlantic to support the inclusion of key trade secret issues in the Transatlantic Trade and Investment Partnership (T-TIP) trade discussions as U.S. and EU negotiators prepare to return to the table this month and next to make progress on these negotiations. All eyes turn again toward Bali as the World Trade Organization (WTO) seeks to address trade facilitation and information technology liberalization to cut red tape and unnecessary costs at the border.
Chad Moutray is the chief economist, National Association of Manufacturers.
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