Tag: China

Global Manufacturing Economic Update – September 12, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

Net exports have been a drag on the U.S. economy so far through the first half of this year, with manufacturers continuing to experience sluggish sales growth in international markets. With that said, the U.S. trade deficit narrowed a bit in July to its lowest level in six months, with growth in goods exports outpacing growth in goods imports. Petroleum trade accounted for a significant portion of the change in each, and in general, energy has helped to narrow the deficit from that of a couple years ago. Another positive note was the fact that each of the top-five trading partners for U.S.-manufactured goods experienced increases in manufactured goods exports year-to-date relative to the same time frame last year using non-seasonally adjusted data.

Along those lines, manufacturers worldwide saw modest growth, with a slight improvement from the month before. The J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI) rose marginally, up from 52.4 in July to 52.6 in August. The good news is that this marks the 21st straight month of expanding activity globally; yet, it is also clear that the pace of growth has not changed much this year. Still, manufacturing activity in August expanded in 9 of the top 10 markets for U.S.-manufactured goods, an improvement from just five markets in May.

Nonetheless, the data also show signs of softness, most notably in Europe and in China. Real GDP in the Eurozone fell 0.2 percent in the second quarter, with recent industrial production and retail sales data trending lower, as well. The Markit Eurozone Manufacturing PMI declined from 51.8 to 50.7, its lowest level since July 2013, when Europe was just emerging from its deep recession. Still, the economic health of various European nations varies widely, ranging from deteriorating activity in France to relatively robust growth in Ireland. For its part, the European Central Bank has once again lowered interest rates in the hope of spurring more economic activity and additional lending. With these actions and slow growth in Europe, the euro has depreciated against the dollar, down from a recent high of $1.3924 for one euro on May 6 to yesterday’s close of $1.2921 on September 11.

Meanwhile, Chinese manufacturers have reported expanding levels of activity for three straight months (June to August), which by itself is progress after starting the year with five months of contraction. However, the HSBC China Manufacturing PMI declined from 51.7 to 50.2, or just barely above neutral, with decelerating levels of new orders, output and exports. Moreover, while real GDP in China picked up slightly from a year-over-year pace of 7.4 percent in the first quarter to 7.5 percent in the second quarter, we expect to continue to see an easing in growth rates moving forward. We have also seen decelerating rates of growth—albeit still healthy ones by our standards—for industrial production, fixed asset investments and retail sales. Slower growth in China has also helped to pull down overall manufacturing activity in the emerging markets.

U.S. trade talks continue this month with both Asia-Pacific nations and Europe, while the World Trade Organization seeks to move forward both trade facilitation and environmental goods discussions. Domestically, a range of trade and international financing legislation awaits action, including the reauthorization of the Export-Import Bank of the United States, whose charter expires on September 30.

Chad Moutray is the chief economist, National Association of Manufacturers. us trade deficit - sept2014

 

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Growth in Chinese and European Manufacturing Activity Slowed in August, While U.S. Was Up Sharply

Given the contraction seen in the Eurozone economy in the second quarter, analysts were eagerly anticipating the preliminary Markit Purchasing Managers’ Index (PMI) data released this morning. Indeed, the HSBC Flash Eurozone Manufacturing PMI decelerated from 51.8 in July to 50.8 in August, suggesting that growth in manufacturing activity on the continent has slowed to a crawl. Germany (down from 52.4 to 52.0) eased slightly, but with output falling to its slowest pace since June 2013. French manufacturers (down from 47.8 to 46.5) continue to struggle, with its Flash Manufacturing PMI contracting for the fourth straight month and new orders declining at their quickest pace since in 16 months.

For the Eurozone as a whole, manufacturing activity was slower across-the-board. New orders (down from 52.1 to 51.0), output (down from 52.7 to 50.9), exports (down from 52.6 to 52.1) and employment (down from 49.9 to 49.1) were all lower in August, with the latter contracting for the second consecutive month. Production growth was at its weakest point since Europe emerged from its deep recession 13 months ago. In essence, the good news was that European manufacturing activity did not contract in August, but it is clear that demand and output are moving in the wrong direction. These data will continue to be fodder for those looking for economic stimulus in the months ahead.

Meanwhile, the HSBC Flash China Manufacturing PMI was also much softer for the month, down from 51.7 in July to 50.3 in August. As such, manufacturing expanded for the third straight month, but only barely so. New orders (down from 53.3 to 51.3), output (down from 52.8 to 51.3) and export sales (down from 52.6 to 51.4) downshifted from a modest pace to slower growth, and employment (down from 49.4 to 48.2) deteriorated further. In fact, hiring has been negative in 16 of the past 17 months. While China has begun to stabilize its economy after weaknesses earlier in the year, these data show that there remains room for improvement.

Japan’s economy contracted in the second quarter, falling 1.7 percent in the second quarter or 6.8 percent year-over-year. Yet, the Markit/JMMA Flash Japan Manufacturing PMI (up from 50.5 to 52.4) seem to indicate that manufacturers are in a better mood, with a pickup seen in demand and output. This was the fastest pace since March, or before the imposition of a new tax in April that sent the economy lower. The underlying data were mostly higher, including sales (up from 51.2 to 54.4), production (up from 49.8 to 53.2), exports (up from 50.8 to 53.0) and hiring (up from 50.2 to 51.1).

Closer to home, the Markit Flash U.S. Manufacturing PMI was up sharply, up from 55.8 to 58.0. This was the highest level for manufacturing activity in the U.S. since April 2010. Both new orders (up from 59.5 to 60.8) and output (up from 59.7 to 60.2) were above 60, suggesting strong growth and closely mirroring similar data from the Institute for Supply Management (ISM). New export orders (up from 50.3 to 54.4) and employment (up from 51.2 to 54.6) were both higher, as well, with each recording modest expansions. Overall, these data were quite positive, indicating that the recent rebound in manufacturing activity in the U.S. (after softness in the early months of 2014) has begun to take hold.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early September.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Global Manufacturing Economic Update – August 8, 2014

Here is the summary for this month’s Global Manufacturing Economic Update:

The International Monetary Fund (IMF) predicts that world output will grow 3.4 percent in 2014, down from 3.7 percent in its April forecast. Much of the downward movement stems from weaker-than-expected data from the first quarter. In the United States, for instance, real GDP declined by a disappointing 2.1 percent, and even with a rebound in the second quarter, the economy expanded by just 0.9 percent in the first half. Fortunately, manufacturers are mostly upbeat about the second half, and the IMF predicts 1.7 percent and 3.0 percent growth in the United States for 2014 and 2015, respectively. Europe is anticipated to grow 1.1 percent this year, and the Chinese economy should increase by 7.4 percent. While the emerging markets as a whole have started to see signs of improvement, notable weaknesses still exist in Brazil, Russia and South Africa, to name just a few. Geopolitical risks abound, of course, with crises around the world also negatively impacting activity.

The good news is that global manufacturing activity continues to expand modestly, with the pace little changed in July from June. New orders, production and employment growth slipped a little for the month, but exports picked up. In July, 8 of the top 10 markets for U.S.-manufactured goods had expanding economies, with Brazil and South Korea contracting once again. Among the expanding nations, Canada and China saw accelerating levels of manufacturing demand and production in July, with relatively decent growth seen in both the Netherlands and the United Kingdom. At the same time, manufacturers in the United States have continued to rebound from softness earlier in the year. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) increased to its highest level since November on strong output and sales growth.

The Chinese economy has begun to stabilize, with manufacturers in China expanding for the second straight month. New orders, exports and production growth all strengthened in July, and we anticipate a pickup in industrial production and fixed-asset investment rates when they are released next week. China’s real GDP has increased slightly, from 7.4 percent at the annual rate in the first quarter to 7.5 percent in the second quarter. Meanwhile, Eurozone manufacturers have now expanded for 13 straight months, but activity has decelerated since January. Confidence measures have weakened, year-over-year inflation remains very low and the unemployment rate stayed elevated (even as it fell to 11.5 percent). Still, the latest industrial production and retail sales have reflected a rebound.

In general, we have seen the U.S. trade deficit narrow over the past couple years as we have become less dependent on foreign sources of energy. In June, the trade deficit was at its smallest level since January, as goods imports declined at a faster pace than goods exports increased. Still, we continue to see relatively slow growth for U.S.-manufactured goods exports, which have increased 1.7 percent year-to-date. Ideally, we will see improvements moving into the second half, as the current pace represents a deceleration from last year’s 2.6 percent rate of growth.

The last month saw important progress in ongoing trade negotiations with Europe and 11 Pacific Rim nations, as well as environmental goods talks in the World Trade Organization (WTO). However, India and others successfully blocked agreement on a global trade facilitation package that would add an estimated $1 trillion to the world economy, potentially setting up a last-ditch effort to revive the deal in September. Responding to rising tensions in the Ukraine, the United States and the European Union (EU) imposed fresh sanctions on Russia in the financial, energy and defense sectors.

With Congress now in recess for the month of August, manufacturers are engaging Senators and Representatives in their states and districts and gearing up for action in the fall on a range of stalled trade measures—including reauthorization of the Export-Import Bank, Trade Promotion Authority, a miscellaneous tariff bill and the Generalized System of Preferences. A House bill that would provide access to federal civil enforcement for trade secrets theft is fast gaining cosponsors, laying the groundwork for a Judiciary Committee markup and possible passage in September. The planned official visit of India’s new Prime Minister, Narendra Modi, to Washington at the end of next month will provide another opportunity to address outstanding trade and investment barriers in that important market.

Chad Moutray is the chief economist, National Association of Manufacturers. 

manufactured exports growth - aug2014

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Monday Economic Report – July 28, 2014

Here is the summary for this week’s Monday Economic Report:

The International Monetary Fund (IMF) released its latest World Economic Outlook last week. The report reflected slower growth rates in the United States and elsewhere for 2014 mostly because of disappointing figures during the first half of the year. The IMF now predicts that U.S. real GDP will grow 1.7 percent in 2014, down from the 2.8 percent forecast in April. Much of this downgrade stemmed from the dismal 2.9 percent decline in real GDP in the first quarter, with output contracting for the first time in three years. At the same time, the manufacturing sector provided a positive contribution to growth in the first quarter, according to new data, despite bleakness in other areas. Fortunately, manufacturers are more upbeat about activity during the second half of this year and for next year. The IMF’s outlook for 2015 is for real GDP growth of 3.0 percent in the United States, which is in line with other predictions.

News regarding manufacturing activity was mostly positive last week, with surveys from the Kansas City and Richmond Federal Reserve Banks both reflecting a pickup in shipments and employment in July. New orders continued to grow at a moderate pace in each region, and respondents were mostly upbeat about sales and production over the next six months. Nonetheless, raw material costs have accelerated a bit in the Richmond district, and new export orders have contracted in eight of the past 12 months in the Kansas City district. Meanwhile, new durable goods orders rebounded in June, with year-to-date growth at a reasonably healthy rate of 4.4 percent. This indicates that the sector has recovered for the most part from winter-related softness, even if some components, such as motor vehicle sales, were lower for the month. Similarly, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) reflected relatively strong growth in sales and output for the sector despite some easing in the headline number in July.

Overseas, the data indicate that the Chinese economy has continued to stabilize from weakness in the first five months of the year. The HSBC Flash China Manufacturing PMI expanded for the second straight month in July, with the pace of activity up for new orders, exports and output. The sales pace was the fastest since January 2011, suggesting that recent measures taken by the Chinese government to stimulate growth have had a positive impact. Likewise, Japanese manufacturers also reported expanding levels of sentiment for two consecutive months, but activity decelerated overall and output stagnated. Export sales from Japan, on the other hand, grew. In other news, the European manufacturing sector made marginal progress in July, particularly for production and exports, and the Eurozone has now expanded for 13 straight months. Yet, growth varied from country to country. For instance, German manufacturing activity picked up in July, while the French economy continued to contract.

The other highlights last week centered on housing and pricing. The housing market remains weaker than we would like, as illustrated by the sharp drop in new home sales in June. Still, the June figure was consistent with the annual paces in March and April, with May’s sales numbers appearing to be an outlier. With the slower pace of sales, inventories of homes have increased. In contrast, existing home sales improved for the third straight month, with some progress in the second quarter relative to the softer first quarter. Even in the existing home sales release, however, there were some discouraging findings, including the fact that sales remain below where they were last year and that first-time homebuyers are still having difficulties making purchases. Meanwhile, on the inflation front, the consumer price index increased in June, led by higher gasoline costs. Yet, pricing pressures remain mostly in check, with core inflation up 1.9 percent over the past 12 months.

This week, the focus will be on second-quarter GDP and jobs. The expectation is that output will rebound from the drop in the first quarter, with consensus forecasts ranging from 2.5 percent to 3.5 percent growth. My view is that real GDP in the second quarter should exceed 3.0 percent. Regarding hiring, manufacturers have added, on average, more than 12,500 each month since August, and I would anticipate seeing a comparable figure for July. Nonfarm payrolls should increase by at least the roughly 230,000 average so far in 2014. Other items to look for this week include manufacturing survey results from the Dallas Federal Reserve Bank and the latest numbers for construction spending, consumer sentiment, employment costs and personal income and spending.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Continued Progress in China and the U.S., with Europe and Japan Growing More Modestly

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the second straight month in July, rebounding from softness from January through May. The headline index rose from 50.7 in June to 52.0 in July, its highest level since March 2011. The underlying data were mostly higher, including new orders (up from 51.8 to 53.7), output (up from 51.8 to 52.8) and exports (up from 50.6 to 52.7). The sales pace was the fastest since January 2011, and each of these measures are a sign that recent stimulative actions taken by the Chinese government have had a positive impact. Some downsides in the PMI survey contracting hiring rates for the 16th consecutive month (up from 48.7 to 49.5) and slightly accelerated raw material prices (up from 50.8 to 52.9).

Meanwhile, Japanese manufacturing activity also expanded for the second straight month, but it eased slightly in July. The Markit/JMMA Flash Japan Manufacturing PMI declined from 51.5 to 50.8. The recent uptick in activity has materialized as the Japanese economy has recovered from an increased in taxes that went into effect on April 1st. Still, manufacturers in the country cannot cheer yet, as output growth came to a halt in July (down from 51.8 to 50.0, or neutral). Other indicators were mixed. Export sales (up from 49.0 to 51.6) and employment (up from 49.8 to 50.8) both shifted to positive growth, but the pace of new orders decelerated somewhat (down from 52.0 to 51.1).

In other news, the Markit Flash Eurozone Manufacturing PMI edged marginally higher, up from 51.8 to 51.9. The Flash Eurozone PMI Composite PMI was up more strongly, increasing from 52.8 to 54.0, suggesting healthier growth in the service sector. For manufacturers, the data suggest slightly faster growth in production (up from 52.8 to 53.0) and exports (up from 52.4 to 52.7), but the pace of growth for new orders (51.9) and employment (50.3) were unchanged.

Overall, these figures provide a limited degree of encouragement for the manufacturing sector in Europe, which has worried of late about slow economic and income growth. It is also still clear that the data vary on country-by-country basis, with German manufacturing activity (up from 52.0 to 52.9) accelerating in July but with French manufacturers noting yet another deterioration in sales and output. Indeed, the French economy remains in a rut, with manufacturing activity positive in just three months since January 2013.

Closer to home, the Markit Flash U.S. Manufacturing PMI decreased from 57.3 to 56.3. Despite the slight easing in July, manufacturing activity continues to grow at relatively decent rates. Through the first seven months of 2014, the top-line index has averaged 55.9, stronger than the 53.5 average noted for 2013 as a whole. The July data show both new orders (down from 61.7 to 59.8) and output (down from 61.0 to 60.4) growing at a healthy paces, albeit with some deceleration for the month. Yet, hiring growth remains more modest (down from 53.8 to 52.1) and export sales (down from 50.9 to 50.6) were just barely growing, suggesting that there remains room for improvement.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on August 1.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Global Manufacturing Economic Update – July 11, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

The global economy improved slightly in June, showing some signs of stabilization from weaknesses in prior months. The J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 52.1 in May to 52.7 in June, its fastest pace since February. Various measures of activity were mostly higher, including new orders, production and employment. Behind this figure, the data also reflected economic progress in countries such as China, Hong Kong and Japan, each of which shifted from a contraction in May to slight growth in June. As a result, just 2 of the top 10 markets for U.S.-manufactured goods had PMI values below 50 in June, an improvement from the five that registered contracting levels in May. Our largest trading partner’s values, the RBC Canadian Manufacturing PMI, increased from 52.2 to 53.5, reaching its highest point since December.

Europe dominated economic headlines on July 10, with worries about a large Portuguese bank and falling industrial production figures for France (down 1.7 percent), Germany (down 1.8 percent) and Italy (down 1.2 percent). Indeed, European growth has continued to ease, with the Markit European Manufacturing PMI down from 52.2 to 51.8. On the positive side, manufacturing activity has now expanded for 12 straight months, but the economy in the Eurozone remains subpar overall. Real GDP was up just 0.2 percent in the first quarter and is expected to increase around 1 percent in 2014 as a whole. Still, growth varied widely from country to country. France sits on one end of the spectrum, with manufacturing sentiment worsening and falling to a six-month low. Meanwhile, Ireland and Spain experienced multiyear highs for sales growth, and new orders in the United Kingdom expanded rather robustly (up from 59.5 to 61.0).

In the emerging markets, manufacturers in Brazil, Russia, South Korea and Turkey reported contracting levels of activity in June, although Russian production grew for the first time in six months and South Korean exports began to stabilize. Overall, however, manufacturing activity in the emerging markets expanded for the second straight month, spurred higher by better news in some Asian economies. Stronger sales and output resulted in increased manufacturing PMI data for China, India, Indonesia and Taiwan. India also benefited from greater export growth. Next week, we will get new data on Chinese GDP, industrial production, fixed-asset investment and retail sales. Real GDP is expected to pick up slightly, from the 7.4 percent annualized growth rate experienced in the first quarter, with a consensus estimate of around 7.5 percent. While this is a marginal improvement, it also continues to reflect decelerating rates of growth from what was experienced in the past.

Looking at U.S. trade flows, petroleum helped to narrow the U.S. trade deficit in May, with more exports and fewer imports improving the headline figure. This continues a trend seen over the past few years whereby improved energy production in the United States has slightly helped balance the trade picture. Outside of petroleum, the numbers were less favorable. The average monthly deficit so far in 2014 reached $43.65 billion, higher than the $39.70 billion average for all of 2013. In addition, U.S.-manufactured goods exports continue to grow at a disappointing rate, up just 0.5 percent year-to-date versus this time last year using non-seasonally adjusted data. Nonetheless, exports of manufactured goods increased to all five of our largest trading partners through the first five months of this year: Canada, Mexico, China, Japan and Germany. That is an encouraging sign, even if we would like to see faster growth in our international sales overall.

On the policy front, the congressional debate on reauthorization of the Export-Import (Ex-Im) Bank continues to move forward, while action on other trade legislation is currently stalled. The World Trade Organization (WTO) officially began environmental goods negotiations, while both the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (T-TIP) continue. The U.S. trading relationship with key partners, including India, China and Russia, continues to be a focus.

Chad Moutray is the chief economist, National Association of Manufacturers. 

china pmi - jul2014

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Monday Economic Report – June 30, 2014

Here are the files for this week’s Monday Economic Report: 

The U.S. economy contracted in the first quarter more than we previously thought, with real GDP down 2.9 percent at the annual rate. The sharply lower revision was much worse than the previous estimate of a 1.0 percent drop. Decreased inventory spending and weaker goods exports accounted for much of the decline in output, but consumer spending on services also increased at a slower pace than earlier reports suggested, contributing to the latest revision. Fixed investment and government spending were also drags on growth. Overall, the data confirm that economic activity started 2014 on a disappointing note, but they also suggest that this softness went beyond weather-related slowdowns.

However, the real GDP data also point to a possible strong rebound in the current quarter. For instance, inventory spending is likely to pick up as more firms restock their shelves. In addition, other data point to recoveries in manufacturing activity and retail sales in the second quarter, which should help boost consumer and business spending figures. Real GDP should exceed 3 percent in the second quarter, bouncing back from the weak data in the first quarter. Moreover, manufacturers remain mostly positive about the second half of this year. Perhaps that is why financial markets seemed to mostly shrug off the bad news on real GDP last week.

Indeed, many of the measures of health for the manufacturing sector remain encouraging. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased from 56.4 in May to 57.5 in June. This was its fastest pace in more than four years, led by strong gains in both new orders and output. Manufacturer sentiment in both China and Japan also stabilized after contractions in previous months. At the same time, manufacturing activity in the Kansas City and Richmond Federal Reserve Bank districts continued to expand, albeit with both at slower paces than the month before. These two releases were largely consistent with other regional surveys, including those from New York and Philadelphia, showing rebounds since the winter months.

Still, not all of the manufacturing news out last week was positive. Durable goods orders fell 1.0 percent in May, reflecting weaker-than-anticipated growth for the sector. Much of that decline stemmed from reduced nondefense aircraft and parts sales, although the broader data were also mixed. Meanwhile, European manufacturing activity continued to decelerate. The Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened many of the key activity measures, including new orders, output, exports and employment. Of course, it is also worth noting that Europe’s expansion remains uneven, with Germany seeing a marginal gain in activity in June while France fell back into a contraction.

In other news, personal spending improved in May after remaining flat in April, assisted by a decent rebound in durable goods purchases. Personal income also showed a slight uptick, with manufacturing wages and salaries continuing to move higher. Such reports have helped to lift consumer confidence, with data from the Conference Board’s index increasing to its highest level in more than six years. The consumer sentiment measure from the University of Michigan and Thomson Reuters also edged higher, but with persistent anxieties about future economic and income growth. Finally, there were encouraging headlines on the housing market last week, with strong gains in both existing and new home sales in May.

This week, we will get new jobs numbers on Thursday—one day earlier due to the Independence Day holiday on Friday. I would expect employment growth similar to what we saw in May, with a consensus estimate of 210,000 additional nonfarm payroll workers and around 10,000 or so net new manufacturing employees. There will also be new PMI data from the Institute for Supply Management and international trade figures. Each will be closely watched, with manufacturing activity expected to pick up and we hope better news for exports. Other highlights include news releases for construction spending, factory orders and manufacturing activity in the Dallas Federal Reserve district.

Chad Moutray is the chief economist, National Association of Manufacturers. 

contributions to change in real GDP - jun2014

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Chinese Manufacturers Report Positive Growth in Activity for the First Time in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the first time in 2014, with the index increasing from 49.4 in May to 50.8 in June. The May report had shown some signs of stabilization; therefore, the June data extended upon those improvements. For instance, new orders (up from 50.2 to 51.8) and output (up from 50.3 to 51.8) grew stronger for the month, with both measures at their fastest paces since December. Still, the Chinese economy continues to have its challenges with decelerated activity. Export sales (down from 52.7 to 50.6) were slower, and hiring (up from 47.3 to 48.7) remained negative despite some progress in June. Overall, though, these findings support the view that China’s stimulus measures have helped to support a rebound.

Several of the other reports out today were also encouraging for manufacturers. For example, the Markit/JMMA Flash Japan Manufacturing PMI also returned to expansion in June, up from 49.9 to 51.1. This was the first positive reading for manufacturing activity in three months, and it was a sign that sentiment has begun to recover from an increase in taxes that went into effect on April 1st. The survey results reflected positive growth for new orders (up from 49.4 to 52.0) and production (up from 49.2 to 51.8). Yet, much like China, exports (up from 48.2 to 49.0) and employment (down from 51.0 to 49.8) were weak spots, with both contracting for the month. In addition, activity levels remain well below where they were just a few months ago, suggesting that there remains more room for improvement.

Meanwhile, closer to home, the Markit Flash U.S. Manufacturing PMI increased from 56.4 to 57.5, its fastest pace in over four years. Healthy gains in new orders (up from 58.2 to 61.7) and output (up from 59.6 to 61.0) helped to fuel this strength, with each figure at their highest level since the PMI report began in October 2009. Employment (up from 53.5 to 53.8) also picked up for the month, indicating modest hiring growth. On the other hand, exports (down from 51.5 to 50.9) slowed slightly. These data suggest that U.S. manufacturing activity has rebounded in the second quarter from winter-related softness in the first quarter, much as we have seen in other indicators, as well.

In other news, the Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened each of the key measures in this report, including new orders (down from 52.9 to 52.0), output (down from 54.7 to 52.8), exports (down from 52.8 to 52.7), and employment (down from 50.8 to 50.4). The good news is that each of these indicators continues to expand, but just more slowly than we might prefer. This, of course, is why the European Central Bank has taken actions in recent weeks to help stimulate the European economy, and why further actions might be forthcoming down the line.

The Markit Flash Germany PMI increased very slightly from 52.3 to 52.4, reflecting a modest expansion in manufacturing activity in the country. Yet, output (down from 55.3 to 52.9) fell to its lowest level since September. On a positive note, the German economy is still growing, unlike France’s. The Markit Flash France PMI declined from 50.3 to 47.1, with activity down across-the-board.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early June. This month marks the premier of preliminary data for Japan.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Global Manufacturing Economic Update – June 13, 2014

Here is the summary for this month’s Global Manufacturing Economic Update: 

Global growth has been slower than desired in the early months of 2014, and as a result, we have seen many analysts—including me—downgrade their forecasts for this year. Indeed, the latest World Bank’s Global Economic Prospects now predicts global GDP growth of 2.8 percent for the year, down from the 3.2 percent forecast in January. Much of that stems from softer growth in the first half of this year in the United States and decelerated activity in the emerging markets. Brazil, Russia and China experienced contracting manufacturing activity levels in May, with only India experiencing modest growth.

The good news is that the global economy is anticipated to pick up in the second half of this year, continuing into next year. The World Bank estimates real GDP growth of 3.4 percent in 2015, with the U.S. economy expanding by 3.0 percent. This would be consistent with the relatively upbeat outlook seen in the most recent National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers. Still, there continue to be threats to growth that could dampen these predictions, including deflationary risks in Europe, tighter monetary policies in the United States and a number of geopolitical struggles. For example, crude oil prices have risen sharply in the past few days to around $107 a barrel this morning because of confrontations in Iraq and worries about energy supplies.

In general, manufacturing activity worldwide continues to expand modestly, but at varying paces across a number of nations. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased slightly, up from 51.9 in April to 52.2 in May. Yet, 5 of the top 10 markets for U.S.-manufactured goods had declining levels of activity for the month, up from two in March and zero in December. China tops this list, having experienced its fifth consecutive monthly contraction despite some easing in the pace of the monthly decline. Three of the other four countries with contractions were also in Asia, including Hong Kong, Japan and South Korea. Meanwhile, Brazil has now contracted for two straight months, which is perhaps not the way it wanted to kick off the World Cup. At the other end of the spectrum, we continue to see strong growth in the United Kingdom and the United States, both of which saw heavy production gains in May.

Meanwhile, European economies continue to experience slight expansions, but growth eased in May. The Markit Eurozone Manufacturing PMI decreased from 53.4 to 52.2, its slowest pace since November but the 11th straight month for expanding levels of activity. This resulted from a deceleration in new orders, output, exports and hiring. Nonetheless, growth in the Eurozone remains subpar, with real GDP up just 0.2 percent in the first quarter and expected to increase around 1 percent in 2014 as a whole. Still, retail sales have increased in each of the first four months of 2014, and industrial production increased at its fastest pace since November.

Yet, the big worry in Europe continues to be deflation. Producer prices fell 0.1 percent in the Eurozone in April, with declines of 1.2 percent year-over-year. At the same time, annual inflation has fallen to 0.5 percent. Fears about deflation and slow growth have prompted the European Central Bank (ECB) to take actions to further stimulate the Eurozone economy at its June 5 meeting, cutting its main interest rate to 0.15 percent. In essence, the ECB will charge negative interest rates on bank deposits in an effort to spur institutions to lend more, and there is some speculation that it might pursue a more aggressive asset purchasing program in the future, if needed.

On the policy front, there is an increased focus from both a business and policy perspective on India, with its election of a new prime minister, and Europe, which also elected a new parliament and is constituting a new commission. Trade negotiations in the Asia-Pacific and Europe continue, but work needs to be done on both. Domestically, there is a heavy U.S. focus on the reauthorization of the Export-Import Bank before its expiration on September 30 and passage of a new Miscellaneous Tariff Bill, which has lagged more than 17 months, as well as new legislation on trade secrets.

Chad Moutray is the chief economist, National Association of Manufacturers. 

brazilian GDP - jun2014

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Monday Economic Report – May 27, 2014

Here is a summary of this week’s Monday Economic Report:

The Federal Reserve made little news at its April 29–30 Federal Open Market Committee (FOMC) meeting, mostly mirroring the observations and policy actions taken at its March meeting. Yet, the latest minutes do give us a glimpse of how the Federal Reserve sees the economy as well as its thinking about future policy actions. For instance, participants spent much time discussing “monetary policy normalization,” or the exit strategy from recent stimulative actions. With quantitative easing winding down by the fall and with short-term interest rates expected to rise sometime in 2015, the Federal Reserve has begun to contemplate “the combination of policy tools that might be used to accomplish those objectives.” Moreover, it stressed the need to communicate its plans effectively to the markets and the public well before taking any actions. In essence, including a discussion of normalization in the minutes was a first step in such communications.

Regarding economic trends, the Federal Reserve noted recent improvements in activity since winter storms wreaked havoc earlier in the year. It observed that “business contacts in many parts of the country were generally optimistic about economic prospects,” and there were signs of increased capital spending and hiring as well as stronger demand for loans. Indeed, the manufacturing surveys released last week tend to echo these sentiments. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) rose from 55.4 in April to 56.2 in May. The increase stemmed largely from higher production growth, with the output index up from 58.2 to 59.6, the fastest pace since February 2011. Likewise, the Kansas City Federal Reserve Bank reported that manufacturing new orders and production have been much stronger since March, leading to a renewed desire to add more workers.

However, not all of the news out last week was positive. The Chicago Federal Reserve Bank’s National Activity Index (NAI) found that the U.S. economy grew below its historical average in April. The reduction in manufacturing production was a large factor in the NAI’s decrease for the month. Weaker industrial production numbers were also a drag on the Conference Board’s Leading Economic Index (LEI) in April. Despite this, the long-term trend for both of these measures is a relatively optimistic one. For instance, the overall headline figure for the LEI expanded in each of the past three months, with 2.9 percent growth in the past six months. This should bode well for future activity.

Housing was a positive contributor in April in each of the above reports; however, the residential market remains a challenge. Improvements in housing starts and permits boosted sentiment, and there were increases in both existing and new home sales in April. Still, the housing market remains weaker today than it was several months ago. Existing home sales, for example, have dropped 13.6 percent since peaking in November, and new single-family sales have declined 3.9 percent since January. Even with these challenges, we remain cautiously optimistic about the housing market for the coming months, but will watch it closely in light of higher mortgage rates on the horizon.

On the international front, the HSBC Flash China Manufacturing PMI has shown contracting activity levels for five straight months, with economic growth decelerating of late. The good news, however, was that there were signs of this beginning to stabilize in the May data, with new orders, exports and production shifting to slight gains for the month. The overall PMI figure remains just shy of being neutral, and even though downside risks to growth remain, perhaps we will begin to see some expansion again in the June data. Likewise, Japan’s economy appears to be stabilizing after the imposition of higher taxes in April, but manufacturing activity has now contracted for two straight months. Meanwhile, manufacturers in Europe continue to reflect improvements in demand and output relative to this time last year, but the Markit Flash Eurozone Manufacturing PMI declined from 53.4 in March to 52.5 in April, reflecting some easing in the most recent data.

This week, much of the focus will be on revisions to real GDP growth for the first quarter. The original estimate was for just 0.1 percent growth, with weather and weaker activity bringing the economy to a crawl. Forecasts for this revision reflect newer data produced since then and hinge on whether activity rebounded enough in March to warrant an increase. Other highlights include the latest data on consumer confidence, durable goods orders, personal income and spending and manufacturing surveys from the Dallas and Richmond Federal Reserve Banks.

Chad Moutray is the chief economist, National Association of Manufacturers. 

new and existing home sales - may2014

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