Tag: China

Somewhat Better Manufacturing Data in China and Europe for October, But Weaknesses Persist

The HSBC Flash China PMI rose to its highest level in three months, up from 50.2 in September to 50.4 in October. It was the fifth consecutive monthly expansion in manufacturing activity in China, an improvement from the contracting activity levels experienced in the first five months of 2014. Yet, despite the better headline figure, many of the underlying data points reflect some easing in growth rates for the month, including new orders (down from 51.5 to 51.4), exports (down from 54.5 to 52.8) and output (down from 51.3 to 50.7). Hiring continued to decline but at a slower rate (up from 47.5 to 48.6).

As such, Chinese manufacturers are expanding but not by as much as we might prefer. This finding is consistent with the deceleration in other Chinese data, including real GDP, which slowed from 7.5 percent year-over-year growth in the second quarter to 7.3 percent in the third quarter. Fixed real investment (down from 16.5 percent year-over-year in August to 16.1 percent in September) and retail sales (down from 11.9 percent year-over-year to 11.6 percent) also declined. On the positive side, industrial production picked up, increasing from the year-over-year rate of 6.9 percent in August to 8.0 percent in September; yet, that remained lower than July’s 9.0 percent pace.

Meanwhile, the Markit Flash Eurozone Manufacturing PMI increased from 50.3 to 50.7. That is good news, as the September figure had been the lowest level since July 2013, when Europe first emerged from its recession. October’s reading was higher largely due to a pickup in output (up from 51.0 to 51.9) and employment (up from 50.1 to 50.6). Still, new orders (unchanged at 49.3) contracted for the second straight month, with exports (down from 51.6 to 50.5) easing. The Eurozone continues to face challenges in manufacturing, especially in terms of falling sales. The results also vary by country, with Germany (up from 49.9 to 51.8) improving somewhat, while French manufacturers  (down 48.4 to 47.6) continue to report weakness.

Closer to home, the Markit Flash U.S. Manufacturing PMI dropped slightly, down from 57.5 to 56.2. The pace of activity was down across-the-board, including new orders (down from 59.8 to 57.1), output (down from 59.6 to 58.0), hiring (down from 56.4 to 56.2) and exports (down from 54.1 to 51.9). While the index for new orders was at its lowest level since January’s 53.9 reading, it is hard to get too worked up over October’s decline for these indicators. After all, demand, production and employment continue to grow at decent rates, and manufacturers are reporting higher activity levels than earlier in the year.

Still, we would like to see better results to begin the fourth quarter, particularly for exports. Given the softness in worldwide markets, however, this weakness should not be a surprise.

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

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Monday Economic Report – September 29, 2014

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

The U.S. economy grew an annualized 4.6 percent in the second quarter of this year, its fastest pace since the fourth quarter of 2011. Consumer and business spending were the big bright spots in the real GDP report, with strong rebounds after softness in the first quarter. This latest revision reflected improved nonresidential fixed investment and goods exports data relative to prior estimates. At the same time, it is hard to forget that real GDP fell by 2.1 percent in the first quarter, with growth in the first half of 2014 expanding by a frustratingly slow 1.2 percent. Moving forward, manufacturers remain mostly upbeat. For instance, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) held firm at 57.9, its fastest pace since May 2010.

I estimate real GDP growth of 3.3 percent for the third quarter, which ends this week. Nonetheless, there are a number of downside risks, and business leaders and the public remain tentative in their optimism.

Along those lines, regional surveys from the Kansas City and Richmond Federal Reserve Banks continued to show expanding activity levels in their districts. The Richmond release found that activity has now grown for six straight months since winter-related contractions earlier in the year. It also reflected an uptick in production and demand, with the pace of hiring accelerating to its highest level since December 2010. All of this was encouraging. In the Kansas City district, manufacturers remained mostly positive, with more than half of respondents expecting increased production and shipments in the next six months. Among the issues cited in the Kansas City survey, manufacturers noted persistent challenges in attracting and retaining skilled workers. Other sample comments mentioned rising pricing pressures, both for wages and raw materials.

Turning to the global economy, the HSBC Flash China Manufacturing PMI edged slightly higher, up from 50.2 in August to 50.5 in September. This marked the fourth consecutive month with expanding manufacturing activity, improving from contractions in the first five months of the year. Yet, even with some signs of stabilization in China in recent data, the country is expected to continue to decelerate in its growth rates moving forward, something that it continues to grapple with. Similarly, the European Central Bank has struggled to cope with slow economic and income growth in the Eurozone, with persistent worries about deflation. Indeed, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level of growth since July 2013, the first month that the Eurozone emerged from its deep two-year recession.

Meanwhile, housing data released last week were mixed. New home sales rose sharply, up from an annualized 427,000 in July to 504,000 in August. This was the highest level in more than six years, and the pace of sales in August starkly contrasts with what we have seen so far in 2014. This makes it likely that September figures will pull back a little, but the trend line remains promising. In contrast, existing home sales decreased 1.8 percent in August, which was disappointing given recent improvements. It is likely that August’s decline was the result of a strong July reading, with some easing probably inevitable. Moving forward, the expectation is that existing home sales should move higher, continuing a longer-run trend in the data since March.

This week, the focus will be on jobs. After a disappointing employment report in August, we anticipate better news in September. I would not be surprised if the zero jobs figure in August for manufacturing was revised higher, and I continue to expect manufacturing jobs gains to revert to an average of 12,500 to 15,000 per month for the rest of the year. Nonfarm payrolls should once again exceed 200,000 in September, an improvement from the 142,000 figure in August (which is also likely to get revised upward). Other highlights this week include the latest data on construction spending, factory orders, international trade, personal income and manufacturing activity in the Dallas Federal Reserve district.

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

real GDP forecast - sept2014

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Markit: Chinese Manufacturing Picks Up Slightly, While Europe’s Eases Yet Again

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) edged slightly higher, up from 50.2 in August to 50.5 in September. The Chinese economy nearly stalled in July, and these latest data suggest that there are some signs of stabilization. For instance, this was the fourth consecutive month with expanding manufacturing activity – an improvement from earlier in the year when demand and output were contracting. In August, growth in new orders (up from 51.3 to 52.3) and exports (up from 51.9 to 53.9) accelerated somewhat, but production growth was unchanged at 51.8. One negative continues to be employment (down from 47.4 to 46.9), with hiring contracting for 11 straight months.

If the Chinese economy has rebounded marginally in September, it would be welcome news. Industrial production plummeted from 9.0 percent year-over-year in July to 6.9 percent in August, the slowest pace since December 2008. Fixed asset investments also slowed, down from an annual rate of 17.0 percent to 16.5 percent. Nonetheless, real GDP growth improved from 7.4 percent year-over-year growth in the first quarter to 7.5 percent in the second quarter. The latest data suggest that the annual pace of growth might decelerate further, however.

At the same time, the Markit Flash Eurozone Manufacturing PMI eased yet again, down from 50.7 to 50.5. This was the lowest level observed since July 2013, the first month that the Eurozone emerged from its deep two-year recession. As such, it indicates the extent to which activity in Europe has come to a halt. New orders (down from 50.7 to 49.7) contracted slightly for the first time in 15 months. Output was unchanged at 51.0, and export sales were flat at 51.7. Hiring advanced to a neutral position (up from 49.3 to 50.0). On the closely-watched inflation measures, both input (down from 51.8 to 49.4) and output (down from 50.3 to 49.2) prices moved into negative territory.

There have been persistent worries about deflation on the continent, with the European Central Bank lowering rates recently in the hope of spurring more economic activity and additional lending. As of August, Eurozone inflation had risen just 0.3 percent over the past 12 months, prompting continued worries about deflationary pressures in the economy. The annual inflation pace is down from 1.3 percent in August 2013. Real GDP remained unchanged in the second quarter, down from 0.2 percent growth in the first quarter. Moreover, it has increased just 0.7 percent year-over-year, illustrating just how sluggish the recovery has been.

Meanwhile, the Markit Flash U.S. Manufacturing PMI was unchanged at 57.9, its fastest pace since May 2010. This report continues to show strong growth in manufacturing activity in the U.S., a sign that the sector has regained the robustness seen at the end of 2013. The pace of new orders were unchanged at 60.5, indicating healthy gains, and hiring (up from 54.6 to 56.6) accelerated to its highest level since March 2012. Production (down from 60.7 to 59.9) growth was healthy, and export orders (down from 54.4 to 53.8) expanded modestly despite a slight deceleration in each figure.

Overall, the U.S. data suggest that manufacturers remain upbeat in September about overall activity, with the sector continuing to recover from softness earlier in the year. This data is largely consistent with other indicators, as well.

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

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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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