Here is the summary for this month’s Global Manufacturing Economic Update:
Worldwide equity markets have grappled with struggles in emerging markets in recent weeks, with some countries forced to defend their currencies by raising interest rates. Turkey, for instance, raised its key interest rate to as much as 12 percent to stem significant declines in its lira. Argentina, India, South Africa and other countries have taken similar moves. While many of these nations have suggested that the Federal Reserve’s polices have contributed to their current plight, recent events have exposed larger structural weaknesses in these countries that the Federal Reserve’s quantitative easing program might have camouflaged. Realizing that these challenges might be more isolated, global stock markets have recovered mostly of late.
For manufacturers, the latest data continue to show improvements in most major economies, including emerging markets. Some measures indicated a pullback to begin the new year, with the JPMorgan Global Manufacturing PMI down slightly from 53.0 in December to 52.9 in January. Yet, the larger story is that manufacturer sentiment has increased globally for 15 straight months, and several of our largest trading partners are experiencing multiyear highs. The Markit Eurozone Manufacturing PMI, for example, reflected the fastest pace of growth since May 2011, buoyed by strong gains in new orders and output in countries such as Germany, Italy and Spain. Even Greece had positive manufacturing activity for the first time since August 2009. France remains one of the few European countries that continues to struggle.
In all, nine of the top 10 markets for U.S.-manufactured goods had manufacturing PMI values greater than 50—the threshold for expansion. The one country where the manufacturing sector contracted in January was China. The HSBC China Manufacturing PMI dropped from 50.5 to 49.5, its lowest level in six months. However, we should not make too much of this decline, particularly if February’s data rebound. The measure for output continued to show modest growth, albeit at a slower pace. Moreover, real GDP in China grew 7.7 percent in the fourth quarter and for all of 2013, higher than the 7.5 percent rate in the third quarter. While Chinese economic growth has decelerated from past years, the country has shown improvements from mid-2013 and still continues to grow strongly.
Meanwhile, the U.S. trade deficit narrowed in 2013 overall, but it rose somewhat in December. Spurred energy production in the United States has helped the overall trade balance, with petroleum exports up and imports down for the year. Still, one of the more frustrating storylines of 2013 was the sluggish growth of manufactured goods exports, up just 2.4 percent for the year. This was below the 5.7 percent pace of 2013, and the disappointing increase remained true even with overall improvements in the global economy. Exports of manufactured products to South America and Europe were down 2.0 percent and 0.1 percent, respectively, with an easing in the growth rate of exports to our two largest trading partners—Canada (0.7 percent) and Mexico (5.1 percent). One of the brighter spots was China—defying conventional wisdom—with U.S.-manufactured goods exports up 18.4 percent in 2013. To be fair, however, the manufactured goods trade deficit with China remains large.
From the President’s remarks on Trade Promotion Authority (TPA) in his State of the Union address to hearings on the reauthorization of the Export-Import (Ex-Im) Bank, trade legislation is a prominent part of the discussion in our nation’s capital. Globally, U.S. negotiators will be seeking to make progress in the next rounds of the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (T-TIP) this month and next. India garners substantial attention from the Office of the United States Trade Representative (USTR) and business groups, while the sanctions agreement with Iran takes effect.
Chad Moutray is the chief economist, National Association of Manufacturers.
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