Here is the summary for this month’s Global Manufacturing Economic Update:
The Organisation for Economic Co-operation and Development (OECD) says that world trade should rebound next year, with growth increasing from its annual pace of 3.7 percent in 2013 to 5.5 percent in 2014. The OECD also forecasts improvements in real GDP for the United States (up from 1.7 percent to 2.9 percent), Europe (up from -0.4 percent to 1.0 percent) and China (up from 7.7 percent to 8.2 percent). Despite such gains, weaknesses persist in emerging markets, and continued political risks could dampen the prospects for better growth.
The prospects for faster global growth should help drive more manufacturing exports in the coming months. The U.S. trade deficit narrowed in October, averaging $40.2 billion through the first 10 months of 2013. That is lower than the $46.4 billion and $44.6 billion deficits in 2011 and 2012, respectively. Yet, growth in U.S.-manufactured goods continues to be frustratingly slow so far this year, up just 1.9 percent year-to-date relative to the same time period last year. Such a sluggish rate will make it hard to meet the President’s goal of doubling exports by 2015, as outlined in the National Export Initiative. Yet, we hope export sales will improve in 2014, especially with stabilizing economies in our largest international markets.
The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) rose to its highest level in more than two years, up from 52.1 in October to 53.2 in November. The key drivers of the increased activity were higher levels for new orders (up from 53.3 to 54.8), exports (up from 51.9 to 52.8) and output (up from 52.9 to 55.3). With the exception of Brazil, all of the other top 10 markets for U.S.-manufactured goods expanded in November. This is an improvement from September, when only six of these economies were growing. The recent progress worldwide has produced notable strides in manufacturing activity for a number of countries, with many reaching PMI levels not seen in several months or even several years. For instance, Japan’s manufacturing PMI reported new orders up at their fastest pace since February 2006. Such data are indicative of the recent gains in the global market, which, while not growing robustly, have made progress of late.
Meanwhile, we are often reminded that we live in an ever-increasing global marketplace, with China’s influence continuing to grow. Last week, we got another example of this. The Society for Worldwide Interbank Financial Telecommunication reported that the Chinese yuan has overtaken the euro as the second-most used currency for foreign trade transactions. In October, the yuan was used 8.66 percent of the time in such transactions, up from just 1.89 percent in January 2012. This suggests a substantial increase in the use of the yuan in trade in a very short period of time. The U.S. dollar continues to be the dominant currency used in trade finance, with parties using the dollar 81.08 percent of the time. However, it does illustrate the changing nature of international commerce and the rising stature of China on the trade front.
Much of the policy news recently has focused on trade negotiations and global competitiveness. While the World Trade Organization (WTO) reached a Trade Facilitation Agreement in Bali, other negotiations with the Asia-Pacific, with Europe and separately on information technology will continue into 2014. Preparations are also underway for major legislative activity in 2014, including on Trade Promotion Authority (TPA), reauthorization of the Export-Import (Ex-Im) Bank and international tax reform.
Chad Moutray is the chief economist, National Association of Manufacturers.