Tag: Europe

Global Manufacturing Economic Update – March 21, 2014

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

Headlines around the world have focused on the Russian annexation of the Crimean peninsula from the Ukraine and the mysterious disappearance of a Malaysian Airlines jetliner. Each of these events injects an element of uncertainty in the global dynamic picture. Indeed, so far in 2014, the global economy has not built on the strong momentum that we saw in the second half of 2013. A number of winter storms in the United States, financial struggles in the emerging markets and decelerating growth in China have combined to soften growth in recent months. Yet, we should not lose track of the longer-term trend, as markets in many of our largest trading partners have made significant progress over the course of the past year, with modest growth rates overall.

The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 53.0 in January to 53.3 in February, its highest point since April 2011. New orders, exports and hiring rose. That said, this global measure might also be skewed higher by stronger performance in the United States, with the Markit U.S. Manufacturing PMI jumping from 53.7 to 57.1, its fastest pace in nearly three years. Sales and production both rebounded in February after weather dampened demand and hampered output and shipments in January. Elsewhere, there were signs that manufacturing activity eased somewhat in February in a number of areas, with a definite split between the developed nations and emerging markets. The HSBC Emerging Markets Index dropped from 51.4 to 51.1, influenced by contracting levels of activity in China, Russia and South Korea.

Speaking of China, its manufacturing PMI has now contracted for two straight months, and a number of economic indicators suggest that its economy has continued to decelerate. Industrial production has slowed from 10.4 percent in August to 8.6 percent in February, and fixed asset investment and retail sales have also eased significantly. These data points suggest that real GDP might fall below the 7.7 percent rate seen in the fourth quarter. Still, growth remains strong overall, even if these figures are well below the rates of growth that many businesses have become accustomed to. In other news, the Bank of China has worked to weaken its currency over the past month, with the Chinese yuan depreciating more than 2 percent since mid-February. The Chinese government has engineered this devaluation, it says, to help fend off speculators; yet, it is also important to note that the yuan has generally appreciated against the U.S. dollar since 2005. (See the attached graphic.)

Looking at our largest trading partners, 8 of the top 10 markets for U.S.-manufactured goods had expanding levels of manufacturing activity, with five countries experiencing slightly faster growth in February than in January. For example, the Canadian economy grew marginally faster in the fourth quarter, with real GDP up 2.9 percent in the fourth quarter. Manufacturing capacity utilization and shipments have also picked up recently, and the RBC Canadian Manufacturing PMI increased from 51.7 to 52.9, suggesting modest growth.

Meanwhile, in Europe, sentiment dipped somewhat in February, but the trend since last summer remains positive. New orders, exports and production eased a little for the month, but growth still remained healthy overall. Real GDP increased 0.3 percent in the fourth quarter, but growth is expected to rise to 1.1 percent for 2014 as a whole. While that indicates very slow growth, it is enough to provide a psychological boost to many businesses and consumers. The one issue that we do continue to worry about is possible disinflation, with still-weak demand keeping price growth at a minimum. Consumer prices have risen just 0.7 percent over the past year, for instance.

On the policy front, the Senate Finance Committee boasts a new chairman, as trade legislation from Trade Promotion Authority (TPA) to the Miscellaneous Tariff Bill (MTB) awaits action. Globally, Russia’s activities in Crimea and the Ukraine are prompting action by the Obama Administration and Congress, while trade talks in the Asia-Pacific and with Europe continue. Work has started on a bill to reauthorize the Export-Import (Ex-Im) Bank before the end of September. Manufacturers are also seeking input on which products should be covered by new international negotiations to eliminate tariffs on environmental goods.

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

chinese yuan - mar2014

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Monday Economic Report – February 24, 2014

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

Mark Twain once said, “If you don’t like the weather in New England, just wait a few minutes.” Indeed, the poor weather conditions that temporarily closed many facilities and hampered shipments in the manufacturing sector over much of the past few weeks appear to have improved. Yet, the damage can be seen in many of the latest economic indicators released last week. Regional surveys from the New York and Philadelphia Federal Reserve Banks showed softness in new orders and production in February. This followed reports from earlier in the month that manufacturing production and the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) both dropped sharply in January. Housing data were also weak, with new starts down 16 percent in January and homebuilder confidence plummeting 10 points in one month.

To the extent that weather was the primary factor in reducing activity, one should not over-interpret these results to suggest they indicate broad-based weaknesses in the economy. The same data sources provide hints that the momentum manufacturers experienced at the end of 2013 will continue into 2014. For example, housing permits fell less sharply in January, particularly for single-family homes, indicating that the intent to start new residential construction has largely been sustained (even if weather prevented homebuilders from doing so). Similarly, the New York and Philadelphia Federal Reserve surveys continue to report optimism for the next six months, with essentially half of the respondents in both surveys anticipating sales increases. Production, hiring and capital spending are also expected to rise in both regions.

Moreover, the Markit Flash U.S. Manufacturing PMI appeared to shrug off weather concerns altogether, up from 53.7 in January to 56.7 in February. The pace of growth for new orders (up from 53.9 to 58.8) and output (up from 53.5 to 57.2) increased significantly, with sales growth at its highest level since May 2010. Such data reinforce the notion that manufacturing should rebound from recent weaknesses.

Still, there were signs that global growth might also have slowed a bit. While European manufacturing activity continues to expand modestly and has made substantial progress after its deep two-year recession, there was a slight deceleration in the pace of growth in many key indicators in the preliminary February data. Meanwhile, the HSBC Flash China Manufacturing PMI has now contracted for two straight months, down from 49.5 in January to 48.3 in February. This suggests that the easing that we saw in industrial output during the final months of last year might be continuing in 2014. Nonetheless, even with reduced activity, the Chinese economy continues to grow solidly, with real GDP up an annualized 7.7 percent in the fourth quarter and industrial production up 9.7 percent year-over-year in December.

Regarding price stability in the United States, consumer and producer price data showed modest growth in January. Cold weather had an impact, with higher home heating costs pushing up natural gas and electricity prices. At the same time, pricing pressures remained minimal and in line with the Federal Reserve Board’s stated goal of keeping core inflation below 2 percent at the annual rate. This has allowed the Federal Reserve the luxury of pursuing highly accommodative monetary policies to try to stimulate growth. At the same time, the minutes from the January Federal Open Market Committee meeting suggests that better economic data might necessitate higher short-term interest rates by year’s end—sooner than expected. Either way, with the unemployment rate nearing 6.5 percent, the Federal Reserve will need to change its forward guidance. Long-term asset purchases are anticipated to end by mid-2014.

This week, the highlight will come on Friday when fourth-quarter real GDP will be revised. The consensus is for real GDP to decline from its earlier estimate of 3.2 percent to 2.3 percent. We will also get three new perspectives regarding current regional manufacturing activity in surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks. These reports will be closely watched given the declines seen in last week’s releases. In addition, preliminary data on new durable goods orders and shipments are anticipated to reflect significant weaknesses. Other important releases include new data on consumer confidence, new home sales and the national activity index.

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

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Global Manufacturing Economic Update – November 8, 2013

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

The global economy continues to see progress this autumn, with manufacturing activity picking up from recent softness. The JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) increased from 51.8 in September to 52.1 in October, its highest point since May 2011. While this still reflects only modest growth, stabilization in Europe and Asia has helped to lift overall sentiment, new orders and production in many key markets. Moreover, all top 10 export destinations for U.S.-manufactured goods grew on net in October, with a PMI value greater than 50. This was the first time since we began preparing this report that no countries contracted, and it represents a nice turnaround from only two months ago when half of these markets contracted.

This progress can also be seen in much of the underlying data, but with slow growth overall. For example, the Markit Eurozone Manufacturing PMI has shown modest expansion for four consecutive months—a sign that Europe has begun to rebound after its deep two-year recession. Despite the more uplifting news, the European Commission this week slightly lowered its forecast for European real GDP to 1.1 percent growth in 2014, down from an earlier estimate of 1.2 percent growth. France and Greece  both continue to contract, suggesting pockets of weakness are still present. Moreover, recent data on retail sales and employment continue to suggest challenges. The European Central Bank continues to worry about sluggish economic growth and disinflation, and yesterday, it surprised the market by lowering its key interest rate to 0.25 percent. On a more positive note, the prospect of even minimal growth has lifted spirits across the continent, with the ZEW Indicator of Economic Sentiment reflecting increased relative optimism in October.

The story is similar in Canada, throughout Asia and in the emerging markets. The RBC Canadian Manufacturing PMI rose to 55.6 in October, its fastest pace since April 2011. New orders and production have rebounded from softness during the spring and summer. We hope better economic news in Canada—our largest trading partner—will increase demand for our exports there. Likewise, the HSBC China Manufacturing PMI has expanded for three straight months, albeit slowly, up from 50.2 in September to 50.9 in October. Moreover, while economic growth has decelerated over the past few years, real GDP picked up from 7.5 percent in the second quarter to 7.8 percent in the third quarter. Industrial production and fixed asset investments have also been higher in the third quarter, suggesting improvements in overall activity. Furthermore, stabilization in Europe and Asia has helped to buoy most of the emerging markets, with the HSBC Emerging Markets Index up from 50.7 to 51.7.

Nonetheless, growth in U.S.-manufactured goods exports remains frustratingly low so far this year despite modest gains in the economies of our major trading partners. U.S.-manufactured goods exports have risen just 1.8 percent through the first eight months of 2013 relative to the same time period in 2012, using non-seasonally adjusted data. This represents only marginal improvement from July’s 1.6 percent pace, and it presents a challenge in our nation’s ability to double exports by 2015 as outlined in the President’s National Export Initiative. Reduced year-to-date exports to Europe account for much of the slower pace of U.S.-manufactured goods exports, with eased growth rates to many of our other large trading partners as well. However, the recent deceleration in the U.S.–euro exchange rate should help to boost our exports to the EU.

Next week, we will get industrial production data from a number of countries, including the United States. Output is expected to continue to show signs of improvement in the United States and China, but production is predicted to decline somewhat in the Eurozone. Europe is also anticipated to report its second straight month of positive real GDP growth, with third-quarter data similar to the second-quarter growth rate of 0.3 percent.

On the trade front, negotiations continue around the clock on the Trans-Pacific Partnership (TPP) talks, while the Administration, Congress and the business community accelerate efforts to move forward on Trade Promotion Authority (TPA). Manufacturers worked across the Atlantic to support the inclusion of key trade secret issues in the Transatlantic Trade and Investment Partnership (T-TIP) trade discussions as U.S. and EU negotiators prepare to return to the table this month and next to make progress on these negotiations. All eyes turn again toward Bali as the World Trade Organization (WTO) seeks to address trade facilitation and information technology liberalization to cut red tape and unnecessary costs at the border.

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

euro exchange rate - nov2013

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Global Manufacturing Economic Update – November 2012

Below is the summary of this month’s Global Manufacturing Economic Update, with the full report found here:

In the past month, there have been some signs that the overall global economy is improving, despite significant headwinds. We continue to see modest growth in North America, including the United States and our largest trading partners, Canada and Mexico. Both Brazil and China have seen gains in production activity, with Brazil edging into expansion territory (with a Purchasing Managers’ Index (PMI) of 50.2) and China just barely there (49.5). (PMI values over 50 suggest that manufacturing activity is expanding, with contractions for values under 50.) This is not to suggest that these nations’ economies are strong, as persistent weaknesses continue to dampen growth, but it does indicate a more positive picture than seen in other regions of the world, most notably in Europe.

Manufacturing activity in the Eurozone is off sharply. The Flash Eurozone Manufacturing PMI fell from 46.1 in September to 45.3 in October. Declining new orders continue to reduce production and employment across the continent. October manufacturing PMI values from Markit show contracting activity levels, even as some indices improved for the month. This includes France (43.5, up from 42.7), Germany (45.7, down from 47.4) and the United Kingdom (47.7, down from 48.4). At the same time, these data are supported by reports that Eurozone industrial production has fallen nearly 3 percent over the past year, and unemployment has risen to an all-time high of 11.6 percent. (Spain’s unemployment rate is a whopping 25.8 percent.) Nonetheless, despite these dire statistics, it is important to note that the European Central Bank’s actions—including its program to purchase sovereign debt from troubled nations—has lifted spirits somewhat, even if it has not solved the underlying structural challenges.

As noted last time, six of the top 10 export markets for U.S.-manufactured goods are currently contracting, with PMI values of less than 50. This complicates our ability to increase exports. The most recent data suggest that the U.S. trade deficit widened in August on lower goods exports and imports. Higher petroleum costs accounted for much of this, but there were also significant declines in other categories, including industrial supplies, foods and consumer goods. On the other hand, year-to-date manufactured goods exports were $43.6 billion higher in 2012 than for the same period in 2011. While this suggests a much slower pace than in 2010 or 2011 (mostly due to the slower global economic environment), it is perhaps surprising that export growth is positive at all given the number of headwinds in the marketplace right now.

Over the course of the next week, several PMI reports will come out providing even greater detail on the current global manufacturing environment. This will culminate in the release of the JPMorgan Global Composite PMI on Tuesday, which summarizes activity across 32 different countries. The last one observed falling output, new orders and employment across the world manufacturing sector, with some countries helping to lift the index from 48.1 to 48.9. I would expect this figure to reflect some gains overall but continuing to contract. The other highlight of the week will come on Thursday, with the release of new international trade data for September.

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

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Markit Finds Modest U.S. Manufacturing Growth in August, With Slowing Activity Globally

New data from Markit provides mixed news for manufacturers and the economy. First, the Markit Flash Manufacturing Purchasing Managers’ Index (PMI) continues to show modest growth for the United States. The “flash” PMI – which is an advance measure of the final PMI data using 85 to 90 percent of the total responses – edged slightly higher from 51.7 in July to 51.9 in August. A small increase was observed in output and new orders, which helped to push the composite figure higher. Pricing pressures also continue to ease.

Still, it is important to keep in mind that manufacturing activity remains sub-par. According to their press release, August’s PMI is the “third-lowest reading in 35 months.” This includes having employment growth at its slowest pace in a year and a half. Not only were many of the components decelerating from earlier in the year, but some of them were shrinking outright. For instance, new export orders remain virtually unchanged at 48.7 in August, with values under 50 suggesting contracting activity.

Falling export orders are the result of slowing global activity. The Markit Flash Eurozone PMI was mostly unchanged, up from 46.5 in July to 46.6 in August. This was the seventh consecutive monthly contraction, with the Flash Eurozone Manufacturing PMI at 45.3. New orders and employment continue to fall, as the continent grapples with the economic consequences of its sovereign debt crisis.

This includes even the strongest economies globally. The Flash German Manufacturing PMI is currently 45.1, up slightly from 43.0 last month. The key point is that manufacturing remains very weak, with similar findings in France (46.2) and China (47.8). The coming weeks will bring new data on other countries, as well. For China, the Flash Manufacturing PMI figure was the lowest in nine months, with falling new orders, exports, and employment. Its press release says, “… Chinese producers are still struggling with strong global headwinds.”

Indeed, these figures provide further evidence that the global economy is slowing, and while the U.S. manufacturing sector continues to have modest gains, there are significant headwinds on the horizon. The Institute for Supply Management, which also produces a PMI report, has found that the U.S. manufacturing sector has contracted for two consecutive months, led by declining new sales. As such, we will be closely looking at the latest ISM figures, which will be released on September 4th, to see how the slowing global economy and uncertainty domestically impact U.S. manufacturing activity.c

Chad Moutray is chief economist, National Association of Manufacturers.

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Exports Lower on Slowing Global Growth in January

The Bureau of Economic Analysis and the Census Bureau reported that the U.S. trade deficit grew from $50.4 billion in December to $52.6 billion in January. Americans imported $233.4 billion in goods and services for the month (up from $228.7 billion the previous month) and exported $180.8 billion (up from $178.2 billion). This was the third consecutive month of a widening trade deficit, and the highest that it has been since October 2008.

A widening of the deficit for petroleum was the largest factor behind this month’s higher overall deficit. Exports of petroleum dropped from $10.6 billion to $9.4 billion; at the same time, imports grew from $37.8 billion to $39.1 billion.

The trade deficit for goods widened in the month, while there was a modest improvement in the services sector. The value of U.S. manufactured goods exported in January was $77.2 billion, down from $83.0 in December. Despite the decline, exports are still up overall from the $70.8 billion registered in January 2011.

Among goods exports, areas of strength included capital goods excluding automotive (up $1.3 billion), automotive vehicles and parts (up $1.05 billion) and foods, feeds and beverages (up $97 million). Declining exports were found among industrial supplies (down $295 million), consumer goods (down $215 million) and other goods (down $548 million). Meanwhile, the largest increases among goods imports were found in automotive vehicles (up $2.4 billion), industrial supplies (up $1.1 billion) and foods, feeds and beverages (up $437 million).

One of the things that definitely stands out with these numbers is the impact of slowing global growth. This is clear with both Europe (with exports falling from $27.2 billion to $24.5 billion) and China (down from $10.1 billion to $8.1 billion). Europe is currently in a recession, and China just announced slower growth targets for this year.

Overall, these figures show that exports have slowed recently due to weaknesses in the global economy. With import growth outstripping export growth, our trade balance has widened. For manufacturers – which contribute 60 percent of our total exports – it will be important for us to regain our footing by selling more of our goods overseas.

This, of course, will hinge on faster growth around the world, but it will also depend heavily on adding new markets and exploring new opportunities abroad. For this, policymakers can be helpful. Among their top priorities: getting the Export-Import Bank reauthorized. Beyond that, Washington should work to expand the number of trade agreements for greater access to new markets.

Chad Moutray is chief economist, National Association of Manufacturers.

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