Tag: eurozone

Global Manufacturing Economic Update – April 11, 2014

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

In its latest World Economic Outlook, the International Monetary Fund (IMF) now predicts global GDP growth of 3.6 percent in 2014 and 3.9 percent in 2015. The forecast for this year was essentially unchanged from the outlook in October, and it suggests that the global economy continues to recover. Global growth in 2013 was 3.0 percent. The IMF projects U.S. growth of 2.8 percent this year and 3.0 percent next year, up from 1.9 percent last year. Europe is another area where the IMF sees progress this year—albeit quite modestly—with real GDP growth of 1.2 percent in 2014 and 1.5 percent in 2015, with the continent emerging from its deep two-year recession. Despite the slightly better data overall, the IMF worries about low inflation in advanced economies, structural challenges in emerging markets and geopolitical risks.

The IMF also notes that China’s economy continues to decelerate, with real GDP growth of 7.5 percent in 2014 and 7.3 percent in 2015. This is consistent with recent data, which show activity in the manufacturing sector slowing down. The HSBC China Manufacturing Purchasing Managers’ Index (PMI) has contracted for three straight months with falling levels of new orders and output. On the positive side, export sales appeared to pick up a bit in March. Next week, we will get new data for industrial production, fixed-asset investment and retail sales. Each has eased significantly in recent reports. Still, even with these slower rates, the outlook for China remains strong overall, and China has already begun to put stimulative measures in place to boost the economy further. As noted in the past report, the Bank of China has also supported a depreciation of the yuan in the past few months, but it asserts that its actions have been mainly to fend off speculators.

Weaknesses in China and Russia have also weighed heavily on manufacturing activity figures for emerging markets. The HSBC Emerging Markets Manufacturing PMI fell below 50 for the first time since July as demand and production stagnated. Nonetheless, outside of China and Russia, the picture for emerging markets was somewhat more positive. Several countries continued to experience modest growth rates, albeit with a slower pace than the month before in some cases. Two notable strengths among emerging markets hail from Eastern Europe. The Czech Republic and Poland continue to see strong growth in their manufacturing sectors despite some deceleration in March. For instance, the production index in the Czech Republic has now exceeded 60 for two straight months, a sign that output is experiencing healthy gains of late.

In all of Europe, manufacturers report slow-but-steady progress. The Markit Eurozone Manufacturing PMI has now expanded for nine consecutive months, an encouraging sign after the deep two-year recession. France, which had lagged behind many of its peers on the continent, had its manufacturing PMI figure exceed 50 for the first time since July 2011. However, overall economic growth remains modest. The unemployment rate continues to be elevated, even as it fell below 12 percent for the first time in 13 months. Weak income growth has caused many to worry about possible deflationary concerns. Annual inflation rates in the Eurozone have fallen from 1.7 percent in March 2013 to 0.5 percent in March 2014, and producer prices declined in February. Aware of these trends, the European Central Bank (ECB) held interest rates steady and said it was prepared to pursue quantitative easing, if necessary, to stimulate the economy further.

Meanwhile, the U.S. trade deficit widened in February due to a decrease in goods exports and an increase in service-sector imports. Manufactured goods exports in the first two months of 2014 were 0.6 percent lower than during the same time period last year, which was disappointing. Nonetheless, we continue to be optimistic that better economic growth rates abroad will lead to improvements on the export front. Fortunately, four of our top five markets for U.S.-manufactured goods notched year-to-date increases in the first two months relative to last year, including Mexico, China, Japan and Germany.

Efforts to move forward U.S.–European and Asian–Pacific negotiations continue, and the World Trade Organization (WTO) is heading to the next stage of implementing the recently completed Trade Facilitation Agreement. On the legislative side, Export-Import (Ex-Im) Bank reauthorization efforts continue, while manufacturers keep pressing for congressional action on key trade legislation, such as Trade Promotion Authority (TPA) and the Miscellaneous Tariff Bill (MTB).

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

eurozone inflation rates - apr2014

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Monday Economic Report – March 31, 2014

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

The U.S. economy grew 2.6 percent in the fourth quarter, according to the most recent revision, and for 2013 as a whole, real GDP growth was a rather lackluster 1.9 percent. Consumer spending, business investment and net exports were bright spots in the fourth quarter, with reduced government spending subtracting nearly one percentage point from growth.

Meanwhile, business economists predict real GDP growth of 2.8 percent on average for 2014, with 1.9 percent growth in the current quarter. (My own forecast is marginally higher for both, up 3.0 percent for the year and 2.1 percent for the first quarter of 2014.) Weather-related slowdowns account for the deceleration in activity, particularly for manufacturers, in the current quarter. However, modest growth is expected to resume once temperatures warm up, and we have already begun to see that. The National Association for Business Economics (NABE) Outlook Survey also suggested that the industry should grow 3.2 percent in 2014 and 3.4 percent in 2015, which would indicate a pickup from the current pace.

The latest manufacturing surveys show a rebound in sentiment after softness from December to February. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) slowed a bit, down from 57.1 in February to 55.5 in March. Despite the lower figure, new orders and production growth continued to grow relatively strongly, with overall manufacturing activity improved from January’s winter storms. A similar recovery was seen in regional data from the Kansas City Federal Reserve Bank, mirroring the findings from New York and Philadelphia the week before. Still, not everyone has seen improvements yet. The Richmond Federal Reserve reported lackluster growth in sales and output, with weather continuing to “wreak havoc” for many manufacturers. In addition, while new durable goods orders were up a strong 2.2 percent in February, sales growth increased at the less-than-robust rate of just 0.2 percent when transportation orders were excluded.

On the consumer front, the data were mostly positive, but with some caveats. Personal income and spending both increased 0.3 percent in February, with each rising 3.0 percent over the past 12 months. This was a decent pace, but increased purchases of nondurable goods and services mainly fueled spending growth in February. Durable goods spending declined for the third month in a row. In terms of consumer confidence, the two reports out last week were mixed. The Conference Board’s measure of consumer sentiment reached a six-year high; yet, labor market worries dampened enthusiasm for the current environment. Likewise, the University of Michigan and Thomson Reuters reported that consumer sentiment edged lower in March, with employment and income growth also weighing on respondents’ minds. In both surveys, however, Americans are more confident today than in the fall during the government shutdown.

Looking overseas, Markit released preliminary manufacturing PMI data for China and the Eurozone. Chinese manufacturing activity has now contracted for three consecutive months, with March’s pace being the slowest since July. The data mirror other recent indicators, including industrial production, fixed asset investment and retail sales, which have slowed. As such, they all suggest that real GDP might fall below the 7.7 percent rate in the fourth quarter. (First-quarter real GDP for China will be released on April 15.) Meanwhile, European manufacturers have seen expanding activity levels for nine straight months, even as Eurozone PMI values eased slightly in March. New orders and production remain strong in Germany, and, of note, French manufacturers were positive in their sentiment for the first time since June 2011.

This week, the focus will be on the March jobs numbers, which will come out on Friday. The consensus expectation is for nonfarm payroll growth of around 190,000, with manufacturers hiring somewhere near the 12,000 average experienced in the sector since August. In addition, the Institute for Supply Management (ISM) is expected to show a slight rebound in manufacturing PMI activity in its March data, up from 53.2 in February. Other highlights this week include the latest data on construction spending, factory orders and international trade.

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

gdp forecast - mar2014

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Markit: Chinese Manufacturing Activity Has Contracted in Each Month So Far in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ index (PMI) continued to decelerate, down from 48.5 in February to 48.1 in March. The index has contracted for three consecutive months, with March’s pace being the slowest since July. As noted in the most recent Global Manufacturing Economic Update, these data mirror the easing that we have seen in other indicators, including industrial production, fixed asset investment, and retail sales. As such, they also suggest that real GDP might fall below the 7.7 percent rate seen in the fourth quarter.

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 April 1. The March data reflect decelerating levels of activity for new orders (down from 48.1 to 46.9) and output (down from 49.2 to 47.3). On the positive side, export sales shifted from contraction (49.3) to a slight expansion (51.4), and employment growth declined at a slower rate (up from 46.9 to 49.3).

Hongbin Qu, HSBC’s China Chief Economist and the Co-Head of Asian Economic Research, said, “Weakness is broadly-based with domestic demand softening further. We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.”

Meanwhile, Eurozone manufacturers have seen expanding levels of activity for nine straight months, with continued modest growth in March. Nonetheless, the Markit Flash Eurozone Manufacturing PMI edged slightly lower, down from 53.2 in February to 53.0 in March. The underlying data were mixed. Sales growth picked up marginally from 54.1 to 54.4, but production (down from 55.5 to 55.4), exports (down from 54.7 to 53.6), and hiring (down from 50.4 to 50.3) moved slightly lower. Still, growth in output and new orders remained relatively healthy, even with some easing in many of the key figures.

One of the lagging economies in Europe has been France, which had contracting levels of manufacturing activity in all but 2 of the past 27 months. The good news was that French manufacturing sentiment turned positive once again in March, with the Markit Flash France Manufacturing PMI up from 49.7 to 51.9. Activity was up across the board, and growth in new orders (up from 46.6 to 53.3) were at their highest level since June 2011. Elsewhere in Europe, German manufacturing activity slowed a bit, down from 54.8 to 53.8. Despite the deceleration, output (down from 57.6 to 57.0) and sales (down from 57.2 to 55.6) growth remained strong.

Likewise, the Markit Flash U.S. Manufacturing PMI moved lower for the month, down from 57.1 to 55.5. February’s figure reflected the strong rebound from January’s weather-related softness due to severe winter storms. Much like the European data, the larger story is the continued modest growth for manufacturers in the U.S. market. For instance, new orders (down from 58.8 to 58.0) continued to grow strongly even with a little easing for the month, and production (up from 57.2 to 57.5) and exports (up from 50.9 to 51.0) had a slightly faster pace of growth.

Employment growth (down from 54.0 to 53.9) was essentially unchanged for the month despite edging a bit lower for the month. After hiring nearly stalled last June, manufacturers have continued to add to their workforces, albeit at a modest pace.

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

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Markit: Chinese Manufacturing Contracts Further, While U.S. Activity Rose Sharply in February

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) decelerated further in February, contracting for the second straight month. The index declined from 49.5 in January to 48.3 in February, its lowest level since June. 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 March 3.

This data suggests that overall manufacturing activity remains soft in China. Hongbin Qu, HSBC’s China Chief Economist and the Co-Head of Asian Economic Research, suggested that “Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year.”

Unlike in January, all of the key indicators were in contraction territory. This included the index for output, which fell from 51.3 to 49.2. As such, after expanding for six consecutive months, manufacturing production in China turned negative. Meanwhile, new orders (down from 49.8 to 48.1), exports (up from 49.0 to 49.3), employment (down from 47.8 to 46.9), and finished goods inventories (down from 51.3 to 49.7) were all contracting, as well.

This report suggests that the easing that we saw in Chinese industrial production at the end of 2013 has continued into 2014. Industrial output decreased from a year-over-year pace of 10.3 percent in October to 10.0 percent in November to 9.7 percent in December. At the same time, we should caution that China continues to grow quite steadily, as witnessed by the above numbers but also by the fact that real GDP increased 7.7 percent in the fourth quarter. This indicates that the Chinese economy continues to grow solidly, even if it is slower than the double-digit rates that some had been accustomed to a few years ago.

In contrast to China, the Markit Flash U.S. Manufacturing PMI rose sharply, up from 53.7 in January to 56.7 in February. Given the fact that several other economic indicators have shown negative impacts due to weather, the jump in sentiment in Markit’s survey was a bit of a surprise. Indeed, the pace of growth for new orders (up from 53.9 to 58.8) and output (up from 53.5 to 57.2) were both up significantly. That was the highest level for sales growth since May 2010, a hopeful sign that some of the momentum that we saw in the U.S. manufacturing sector in the second half of last year might be flowing over into 2014.

The expansion was mainly due to domestic factors, but export sales also expanded for the month, albeit with less gusto (up from 48.9 to 50.9). Inventory stockpiles declined at a slower rate (up from 45.0 to 45.7). Hiring also picked up in February (up from 53.2 to 54.0), growing modestly. According to Markit, the increase in employment was the result of “greater production requirements, confidence in the economic outlook and, in some cases, pressures on operating capacity.”

Meanwhile, the Markit Flash Eurozone Manufacturing PMI declined from 54.0 to 53.0. Despite the slight easing in activity, this was the eighth consecutive month of expansion for the Eurozone, which continues to be welcome news for a continent still grappling with the effects of its deep two-year recession. Nonetheless, the pace of growth decelerated across-the-board, including new orders (down from 55.4 to 54.1), output (down from 56.7 to 55.5), exports (down from 55.2 to 54.7), and employment (down from 50.7 to 50.4).

German manufacturing activity followed the Eurozone trend (down from 56.5 to 54.7), with sales and production growth off marginally in February. One bit of good news, however, was that French manufacturers reported positive growth for the first time since February 2012 (up from 48.8 to 50.5). Yet, while output was higher in France (up from 48.2 to 50.5), new orders remained quite weak (down from 47.9 to 46.6).

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

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Global Manufacturing Economic Update – February 14, 2014

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

Worldwide equity markets have grappled with struggles in emerging markets in recent weeks, with some countries forced to defend their currencies by raising interest rates. Turkey, for instance, raised its key interest rate to as much as 12 percent to stem significant declines in its lira. Argentina, India, South Africa and other countries have taken similar moves. While many of these nations have suggested that the Federal Reserve’s polices have contributed to their current plight, recent events have exposed larger structural weaknesses in these countries that the Federal Reserve’s quantitative easing program might have camouflaged. Realizing that these challenges might be more isolated, global stock markets have recovered mostly of late.

For manufacturers, the latest data continue to show improvements in most major economies, including emerging markets. Some measures indicated a pullback to begin the new year, with the JPMorgan Global Manufacturing PMI down slightly from 53.0 in December to 52.9 in January. Yet, the larger story is that manufacturer sentiment has increased globally for 15 straight months, and several of our largest trading partners are experiencing multiyear highs. The Markit Eurozone Manufacturing PMI, for example, reflected the fastest pace of growth since May 2011, buoyed by strong gains in new orders and output in countries such as Germany, Italy and Spain. Even Greece had positive manufacturing activity for the first time since August 2009. France remains one of the few European countries that continues to struggle.

In all, nine of the top 10 markets for U.S.-manufactured goods had manufacturing PMI values greater than 50—the threshold for expansion. The one country where the manufacturing sector contracted in January was China. The HSBC China Manufacturing PMI dropped from 50.5 to 49.5, its lowest level in six months. However, we should not make too much of this decline, particularly if February’s data rebound. The measure for output continued to show modest growth, albeit at a slower pace. Moreover, real GDP in China grew 7.7 percent in the fourth quarter and for all of 2013, higher than the 7.5 percent rate in the third quarter. While Chinese economic growth has decelerated from past years, the country has shown improvements from mid-2013 and still continues to grow strongly.

Meanwhile, the U.S. trade deficit narrowed in 2013 overall, but it rose somewhat in December. Spurred energy production in the United States has helped the overall trade balance, with petroleum exports up and imports down for the year. Still, one of the more frustrating storylines of 2013 was the sluggish growth of manufactured goods exports, up just 2.4 percent for the year. This was below the 5.7 percent pace of 2013, and the disappointing increase remained true even with overall improvements in the global economy. Exports of manufactured products to South America and Europe were down 2.0 percent and 0.1 percent, respectively, with an easing in the growth rate of exports to our two largest trading partners—Canada (0.7 percent) and Mexico (5.1 percent). One of the brighter spots was China—defying conventional wisdom—with U.S.-manufactured goods exports up 18.4 percent in 2013. To be fair, however, the manufactured goods trade deficit with China remains large.

From the President’s remarks on Trade Promotion Authority (TPA) in his State of the Union address to hearings on the reauthorization of the Export-Import (Ex-Im) Bank, trade legislation is a prominent part of the discussion in our nation’s capital. Globally, U.S. negotiators will be seeking to make progress in the next rounds of the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (T-TIP) this month and next. India garners substantial attention from the Office of the United States Trade Representative (USTR) and business groups, while the sanctions agreement with Iran takes effect.

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

manufactured exports growth - feb2014

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Markit: Cold Weather Hurts U.S. Production, and Chinese Output Contracts for First Time since July

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) eased somewhat, down from 54.4 in December to 53.7 in January. 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 February 3. All of the key subcomponents of the index were lower to begin the new year, with winter weather impacting overall U.S. production.

For instance, the index for output dropped 3.9 points from 57.3 to 53.4. As such, production growth continued to expand, but at the slowest pace in three months. Similarly, there were lower data points for new orders (down from 56.1 to 54.1) and employment (down from 54.0 to 53.2). To the extent that sales growth was positive, it stemmed largely from domestic increases. New export orders (down from 51.4 to 48.9) contracted slightly in January for the first time since September.

Despite the deceleration in activity in January, the longer-term trend for U.S. manufacturers has generally shown improvement. After weaknesses in the spring months (e.g., the Markit Manufacturing PMI bottomed out at 51.9 in May), the data have made progress in recent months, reflecting modest growth overall. If cold weather contributed to January’s slower activity, the impact should be temporary, and we should get some indication of that, either in the final data release or in the February numbers.

Meanwhile, financial markets have reacted to news that manufacturing activity in China has unexpectedly contracted. The HSBC Flash China Manufacturing PMI fell from 50.5 in December to 49.6 in January. This was the first decline since July, following stabilization in the Chinese economy over the past six months. The reduction in the overall PMI figure stemmed largely from fewer new orders (down from 51.8 to 49.8) and exports (down from 50.3 to 49.0). Hiring continued to be negative (down from 48.8 to 47.8), with the employment index below 50 each month since March.

On the other hand, the manufacturing output data (down from 51.8 to 51.3) remain expansionary, albeit at a slower pace than the month before. In fact, the output measure has exceeded 50 for six consecutive months, suggesting that growth might be soft but it is still expanding modestly. Indeed, real GDP in the fourth quarter of 2013 decelerated, as well, from an annual rate of 7.8 percent in the third quarter to 7.7 percent. Nonetheless, the Chinese economy continues to grow solidly, even if it is slower than the double-digit rates that some had been accustomed to a few years ago.

In contrast to the Chinese and U.S. reports, European manufacturing activity strengthened. The Markit Flash Eurozone Manufacturing PMI increased from 52.7 in December to 53.9 in January. This was the highest point for the PMI since May 2011. The underlying data were mostly higher, including new orders (up from 54.2 to 55.4), output (up from 54.8 to 56.7), exports (up from 53.9 to 55.2), and employment (up from 49.9 to 50.7). The hiring figure is notable in that it was the first time since January 2012 that net employment growth was positive.

The pace of growth has varied from country to country, with German manufacturing accelerating (up from 54.3 to 56.3) but French production continuing to contract (up from 45.2 to 48.2), albeit with a slower rate of decline.

Even with stabilizing conditions in Europe, growth on the continent remains far from robust, with real GDP in the third quarter up just 0.1 percent and some worries about deflation, with pricing pressures decelerating. Despite such worries, the Markit PMI data reflect modest growth in output prices, which have been slightly expansionary since July.

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

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Global Manufacturing Economic Update – January 10, 2014

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

As we begin 2014, the global economy appears poised to grow stronger than it did last year. For only the second time since we have prepared this report, all top 10 markets for U.S.-manufactured goods were expanding, with Purchasing Managers’ Index (PMI) readings greater than 50. (The other time was last October) As recently as September, just six of these nations were growing. Such progress suggests that weaknesses experienced over the summer months have begun to dissipate, and indeed, we have seen stabilization in both China and Europe since then.

The U.S. manufacturing sector has also begun to pick up, with sales and production accelerating from the third quarter forward. Moreover, the budget deal passed in December and negotiated by Sen. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI) hopefully will avoid a potential government shutdown until the fall of 2015—something that has helped ease some anxieties in the business community. Christine Lagarde, managing director of the International Monetary Fund (IMF), has said that the improved outlook in the United States will allow the fund to revise its global growth prospects. In contrast, the IMF had downgraded its estimates for worldwide growth in the midst of October’s budget impasse. At that time, it predicted 3.6 percent growth in world output for 2014, down from 3.8 percent in its summer forecast. The IMF will release its next World Economic Outlook by the end of January.

Despite progress on the international economic front, exports of U.S.-manufactured goods have continued to grow very slowly. Through the first 11 months of 2013, manufactured goods exports have risen just 2.0 percent relative to the same time frame in 2012. This represents a deceleration from the 5.7 percent annual pace for 2012 and the roughly 15 percent required to meet President Obama’s National Export Initiative goals. Goods exports to Europe fell from 2012 to 2013, and we saw some easing in many other key markets as well. One of the brighter spots was goods exports to China, even as we continue to have a large trade deficit with that country.

We hope the better global growth will yield improvements for U.S.-manufactured exports in 2014. Many markets ended the year with manufacturing activity on a positive note. The Markit Eurozone Manufacturing PMI rose from 51.6 in November to 52.7 in December, expanding for the sixth consecutive month and reaching a level not seen since May 2011. While growth in Europe still has much room for improvement, it is clear that its emergence from the continent’s deep two-year recession has had a positive impact on overall sentiment. Likewise, manufacturing activity was generally higher in Asia and the emerging markets, even as the pace of growth in many of these economies eased a bit in December. For instance, the HSBC China Manufacturing PMI decreased from 50.8 to 50.5, but more importantly, activity has now risen modestly in the country for five straight months.

Our two largest trading partners have also made progress in recent months. While the RBC Canadian Manufacturing PMI fell from 55.3 to 53.5, manufacturers in Canada have reported steady improvements in activity since contracting briefly in March. Similar to the United States, the Canadian economy has picked up, with real GDP rising from 1.6 percent at the annual rate in the second quarter to 2.7 percent in the third quarter. Manufacturing capacity utilization rose to 80.5 percent in the third quarter, which was better than the 79.9 percent rate in the second quarter (but still below the 81.7 percent rate one year ago). Meanwhile, manufacturing activity in Mexico has risen for the fifth straight month, with stronger sales and production in December. Nonetheless, Mexican growth continues to climb quite slowly, with real GDP up just 1.6 percent in the second quarter and 1.3 percent in the third quarter.

Legislatively, House and Senate trade champions moved forward this week on new trade promotion authority (TPA) legislation, while trade negotiations in the Asia-Pacific region and with Europe continue to move forward.

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

emerging markets PMI - jan2014

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Markit: Despite a Slight Easing in December, Manufacturing Activity Continues to Expand

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) edged slightly lower, down from 54.7 in November to 54.4 in December. Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data released on January 2. The bottom line was that growth in U.S. manufacturing activity was decent overall, picking up from weaknesses earlier in the year.

For instance, output growth rose at its fastest pace in November since March 2012, and the December data were only barely below that rate. (The output index was down from 57.4 in November to 57.3 in December.) Still, growth in new orders decelerated a bit for the month (down from 56.2 to 54.5). Export sales remained up modestly (unchanged at 51.4). This suggested that the slower pace of new orders stemmed from an easing in domestic demand.

One piece of good news for the U.S. was a slight uptick in the pace of hiring (up from 52.3 to 53.7). It was the sixth consecutive month of positive gains in employment in the Markit PMI survey data. This corresponds to the more-positive manufacturing jobs numbers over the past few months.

Meanwhile, we continue to see stabilization in the Chinese and European economies. For example, the HSBC Flash Eurozone Manufacturing PMI rose from 51.6 in November to 52.7 in December. This was the highest point for the PMI since May 2011. The underlying data were mostly higher, as well, including new orders (up from 52.3 to 54.2) and output (up from 53.1 to 54.8). Employment growth moved to almost neutral (up from 48.8 to 49.9), suggesting that the declining in hiring might be close to turning around.

The pace of growth has varied from country to country, with German manufacturing accelerating (up from 52.7 to 54.2) but French production falling further into contraction territory (down from 48.0 to 45.3).

Nonetheless, there do continue to be weaknesses in Europe – a sign that the continent has not fully recovered from its two-year recession. As noted in the most recent Global Manufacturing Economic Update, real GDP growth in the third quarter was far from robust, up just 0.1 percent. Eurozone industrial production declined 1.1 percent in October, as well, even as the year-over-year pace was marginally positive, up 0.2 percent.

Elsewhere, the HSBC Flash China Manufacturing PMI decreased from 50.8 to 50.5. Even with the lower PMI figure, the key finding was that Chinese manufacturing activity has now expanded – albeit very modestly – for five straight months. The subcomponents of the report were somewhat mixed. On the positive side, the index for new orders (up from 51.7 to 51.8) rose to its highest level since March. Yet, production growth slowed a little (down from 52.2 to 51.8), and hiring remained negative (down from 48.9 to 48.8). The employment measure has been below 50 in eight of the past nine months.

In general, we have seen the Chinese economy pick up in the past few months. Real GDP has accelerated from an annualized 7.5 percent in the second quarter to 7.8 percent in the third quarter, and industrial production has averaged 10.2 percent at the annual rate over the past four months (August to November). Prior to that, the pace of production had slowed to annualized 8.9 percent growth rate in June.

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

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Monday Economic Report – November 25, 2013

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

The latest forecast from the Organisation for Economic Co-operation and Development (OECD) calls for continuing improvements in markets around the world, with global GDP accelerating from 3.7 percent in 2013 to 5.5 percent in 2014. According to the OECD, the U.S. economy, which should grow by 2.1 percent this year, is predicted to strengthen to 3.2 percent next year. If true, it would be the first year since 2005 that annual output would expand by more than 3.0 percent. However, weaknesses persist in emerging markets, and continued political risks could dampen the prospects for better growth.

The latest data tend to reflect the recent pickup in the global economy. Manufacturers in China and Europe have seen improvements in sales, exports and production over the past few months as their respective economies have begun to stabilize. At the same time, manufacturing activity in the United States has accelerated in the past few months from midyear weaknesses. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) rose from 51.8 in October to 54.3 in November, with output at its fastest pace since February. Meanwhile, surveys from the Kansas City and Philadelphia Federal Reserve Banks have reported expanding activity levels since the summer, even as some weaknesses continue. Hiring growth remains quite soft, with new orders slowing in the Philadelphia region and exports falling for manufacturers in the Kansas City region. Nonetheless, respondents tend to be mostly upbeat about the sector over the next six months in most sentiment surveys, including these.

Consumer spending and the rebound in the housing sector have both been bright spots in the economy over the past few years, but in data released last week, the two were moving in opposite directions. Retail spending increased 0.4 percent in October, with year-over-year growth of 3.9 percent. While the annual pace of retail sales has decelerated since June, October’s modest gains were a sign that consumer purchases were beginning to strengthen, especially for automobiles.

In contrast, existing home sales have fallen for two consecutive months, down from an annualized 5.39 million units in July and August to 5.12 million units in October. Higher mortgage rates were to blame for the decrease, with many buyers rushing to close in-process deals during the summer when interest rates were soaring. This made the levels in those months an outlier. The good news is that existing home sales are still on an overall upward pace, and mortgage rates have declined from their early September highs. Of course, long-term interest rates are likely to move higher again in the coming months, which could once again dampen housing purchases. My guess, however, is that homebuyers will become accustomed to the new normal in mortgage rates, which, while higher than earlier in the year, are still at historic lows. This will allow housing to once again move in the right direction.

Monetary policy actions are behind the moves in interest rates. Fortunately, pricing pressures remain extremely modest. Consumer and producer prices were both lower in October, led by declining energy costs. With overall inflation mostly in check, at least for now, the Federal Reserve has been able to utilize highly accommodative measures to pursue its dual mandate of price stability and higher employment. The minutes of its October Federal Open Market Committee (FOMC) meeting and Federal Reserve Board Chairman Ben Bernanke’s remarks at the National Economists Club both suggested that the Federal Reserve does not plan to tighten its monetary policy anytime soon. While the FOMC will probably vote to taper (or reduce) its asset purchases in the coming months, it will keep short-term rates effectively at zero—at least until the unemployment rate hits 6.5 percent. Chairman Bernanke’s address made it clear that 6.5 percent was the threshold at which the Federal Reserve would begin to debate possible changes, and not a “trigger” that would automatically mean increased fund rates. That would suggest “easy money” policies for at least the next year and perhaps beyond.

This week will be a shorter one due to the Thanksgiving holiday, but there will be several important economic releases of note. First, we will finally get housing starts and permits data, which were delayed due to the government shutdown. As noted earlier, residential construction ebbed somewhat during the summer with higher mortgage rates, but the consensus estimate is for roughly 910,000 new starts at the annual rate in October, up from 891,000 in August. There will also be a number of key data points on manufacturing activity, including durable goods orders and regional reports from the Chicago, Dallas and Richmond Federal Reserve Banks. Other highlights include consumer confidence and leading indicators data.

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

retail sales - nov2013

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Manufacturing Activity Edges Higher in the U.S. and Europe in November, with China also Growing

Manufacturing activity accelerated in November to its fastest pace since March, according to the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) data. Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data released on December 2. The overall composite measure was up from 51.8 in October to 54.3 in November.

Behind these data, there were significant increases in new orders (up from 51.6 to 54.9), exports (up from 50.7 to 52.6), and output (up from 49.5 to 57.1). This suggests that the sector has begun to recover from softness in the spring and summer months, with the production levels at the highest point since February. With that said, manufacturers continue to be more hesitant about adding new employees, with the hiring index edging slightly lower from 52.3 to 52.2. The good news was that the sector is adding workers on net, but with only modest gains.

Meanwhile, we continue to see stabilization in the Chinese and European economies even as weaknesses persist. The HSBC Flash Eurozone Manufacturing PMI moved up marginally from 51.3 to 51.5. This is further proof that Europe has begun to move beyond its deep recession, with PMI values in expansion territory for the fifth consecutive month. Prior to that, Eurozone manufacturing activity had contracted for 23 straight months. Still, it should be said that real GDP rose just 0.1 percent in the third quarter, suggesting that the turnaround in Europe is only barely beginning.

The underlying statistics for European manufacturing activity were somewhat mixed. New orders (up from 52.1 to 52.3) and export sales (up from 53.0 to 54.0) were higher, but output was essentially unchanged (down from 52.9 to 52.8). In addition, hiring continues to be a challenge, even as the pace of the decline slowed in November (up from 48.7 to 49.1). Moreover, the pace of growth has varied from country to country, with German manufacturing accelerating (up from 51.7 to 52.5) but French production falling further into contraction territory (down from 49.0 to 47.2).

Elsewhere, the pace of the expansion eased a bit in China, with the HSBC Flash China Manufacturing PMI declining from 50.9 to 50.4. Despite the slower figure, it was the fourth straight month with the PMI above the key threshold of 50 – the level at which manufacturing activity is expanding on net. As such, the Chinese economy continues to improve from softness seen in the spring and summer. The output data support this, with production rising to its fastest pace since March (up from 51.0 to 51.3).

Nonetheless, overall activity was up only modestly, and several of the other key measures had a slower rate of growth for the month. For instance, the pace of new orders eased (down from 51.6 to 51.0), with exports declining (down from 50.8 to 49.4). Net hiring returned was also negative (down from 49.9 to 49.5).

Even with the softer data, Hongbin Qu, HSBC’s Chief Economist for China and the Co-Head of its Asian Economic Research division, added, “The muted inflationary pressures should enable Beijing to keep policy relatively accommodative to support growth.” In fact, it is hard to be too hard on China, as overall growth has been picking up in general. Industrial production rose from a 10.2 percent year-over-year pace in September to 10.3 percent in October.

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

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