global economy Archives - Shopfloor

New State Department “Investment Climate Statements” Serve as Important Resource for Businesses and Roadmap for Governments to Grow

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The U.S. State Department just released its annual “investment climate statements” that examine trade, investment, rule of law and related issues for more than 170 foreign markets. As I explained at an event organized by the Center for Strategic & International Studies (CSIS), these statements provide invaluable information for U.S. manufacturers and other businesses that seek access to foreign markets through exports, investments and other partnerships.

International commerce and investment are critical to manufacturers in the United States. Exports support the jobs of more than half of America’s 12 million manufacturing workers, and foreign investment by U.S. companies spurs those exports.

Foreign investment and U.S. exports work hand-in-hand to benefit U.S. companies, consumers and workers. Indeed, U.S. companies that invest overseas are outsized participants in the U.S. economy and are stronger because of their access to foreign markets. In fact, the primary reason that companies invest abroad is to sell to foreign consumers and bolster their U.S. operations.

Based on the most recent data available from the U.S. Bureau of Economic Analysis, consider that U.S. companies that invest overseas are some of America’s:

  • Largest exporters, exporting 47 percent of all U.S.-manufactured goods sold overseas ($660 billion in 2014). More than 40 percent ($269 billion) of those manufactured exports go to the overseas operations of American companies to help promote U.S. products in foreign markets.
  • Biggest producers, accounting for nearly $1.4 trillion, or almost 65 percent, of all U.S. private-sector value-added manufacturing output in 2014.
  • Most important innovators, expending nearly $269 billion on research and development in the United States in 2014. Of that, 68 percent (or $183 billion) was spent by manufacturers.
  • Largest investors in capital expansion, investing $713.5 billion, or 24 percent, of all spending on new property, plants and capital equipment in the United States in 2014.
  • Most generous employers, paying U.S. manufacturing workers on average $96,030, or about 18 percent more than average U.S. manufacturing wages in 2014.

For manufacturers and other businesses seeking foreign customers, identifying the most promising foreign markets is a difficult, time-consuming process that requires extensive knowledge. The State Department “investment climate statements” provide a valuable resource to businesses, offering detailed information on many of the critical factors they need to understand, including:

  • Openness to trade and investment, market barriers and business requirements;
  • Rule of law, including transparency, impartial rulemaking, corruption and the legal system;
  • The protection of private property (foreign and domestic), including innovation and intellectual property, the sanctity of contracts and land rights;
  • Competition policy, including with respect to state-owned enterprises,
  • Political risk; and
  • Digital policy trends.

Manufacturers welcome this year’s analysis of digital issues, including regulations on cross border data flows and the localization of information and communications technology infrastructure. As manufacturers implement technology and data in overseas sales, production and product usage, these issues have become increasingly important.

These investment climate statements also aid foreign countries looking to bolster their commercial climate. Many of manufacturers’ strong concerns with barriers, distortions and weak standards that are limiting U.S. growth appear in these statements.

Given the significance of international commercial engagement to the U.S. economy, manufacturing sector and workforce, the National Association of Manufacturers advocates open markets overseas, robust standards of governance and the protection of property. This includes investment and intellectual property as well as strong enforcement mechanisms like neutral investment dispute settlement mechanisms to prevent foreign country mistreatment or theft of U.S. property.

To learn more, read about or listen to the discussion at the launch of these statements at the CSIS event.

Monday Economic Report – February 23, 2015

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

In the minutes of its January 27–28 meeting, the Federal Open Market Committee (FOMC) provided a nuanced view of the economic outlook. Participants noted that “economic activity had been expanding at a solid pace,” and they were mostly optimistic about the “prospects for further improvement in 2015.” Yet, the FOMC also pointed to some significant headwinds in the U.S. economy, including sluggish global growth, a stronger U.S. dollar, federal government sequestration and reduced crude oil prices. Regarding the latter, the Federal Reserve said that it was concerned that “persistently low energy prices might prompt a larger retrenchment of employment [and capital investment] in these industries.” Read More

The U.S. Economy Grew 2.6 Percent in the Fourth Quarter, or 2.4 Percent for 2014 as a Whole

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The Bureau of Economic Analysis said that the U.S. economy grew 2.6 percent in the fourth quarter, somewhat slower than the consensus estimate of around 3 percent. This was down from the 4.6 percent and 5.0 percent growth rates experienced in the second and third quarters, respectively, and for 2014 as a whole, real gross domestic product (GDP) rose 2.4 percent. The annual figure was not too far from the 2.2 percent pace observed in 2013, but that somewhat understates the strength of the economy since the weather-related weaknesses of the first quarter. Indeed, real GDP grew an annualized 4.1 percent over the last three quarters of 2014.   Read More

Monday Economic Report – December 15, 2014

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

The biggest domestic economic news story last week was actually a global one: The price of petroleum continued to plummet. Since peaking at $107.95 per barrel on June 20, the price of West Texas Intermediate crude has fallen dramatically, down to $57.49 a barrel on Friday. There are a number of factors at play here, including increased North American energy production, excess supply worldwide, a stronger U.S. dollar and a slowing global economy. It is this latter point that has spooked financial markets, on fear that the weakened global demand for petroleum might be a harbinger of larger challenges. Indeed, as discussed in the most recent Global Manufacturing Economic Update, North America’s economy appears to be a bright spot in an otherwise sluggish international economic climate. Read More

Global Manufacturing Economic Update – March 8, 2013

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

Last month, we noted that many of our largest trading partners were experiencing progress in their economies, with improving levels of manufacturing activity and other economic indicators. That trend has mostly continued into February. Some countries, such as China and the United Kingdom, have either weakened or slowed down the pace of growth, whereas new orders were strong enough in Germany to allow its manufacturing sector to start expanding again, albeit quite modestly. While the composition of growth has shifted in the past month, seven of the top 10 markets for U.S.-manufactured goods had Purchasing Managers’ Indices (PMIs) greater than 50—the threshold for expansion—in February, suggesting continued improvement from some of the challenges from last fall. The JPMorgan Global Manufacturing PMI has been greater than 50 for three straight months, even as it eased somewhat in the most recent figure.

The United States is growing modestly, making it one of the brighter spots in world economic markets. The Institute for Supply Management’s most recent report found that new orders rose from 53.1 in January to 54.2 in February, with the principal driver being higher sales. In addition, while real GDP barely grew in the fourth quarter of 2012, the data also show that consumers and businesses increased their spending moderately, helping to lessen the blow of reduced federal defense spending and lower inventory replenishment. Nonetheless, manufacturers continue to worry about the U.S. fiscal situation and sales. Non-petroleum goods exports did not change much in January from their December rates, and the 5.5 percent pace of manufactured goods exports in 2012 was well below the 15.9 percent pace of 2011.

The economic woes in Europe continue to negatively impact manufacturers. Manufactured goods exports were essentially flat last year, with the Eurozone’s recession deepening. Real GDP for the continent fell 0.6 percent in the fourth quarter, its fifth straight quarter of declining output, and the Markit Eurozone Manufacturing PMI has contracted for 16 consecutive months. However, all of Europe is not the same. As noted above, Germany’s economy appears to be stabilizing, while others continue to experience reduced sales, production and hiring. The unsettled election in Italy has exacerbated the Eurozone’s problems, reminding world markets about Italy’s large debt obligations and bringing Europe’s sovereign debt crisis once again back into the public eye.

Over the course of the next two weeks, we will get new data on industrial production for a number of countries around the world. Among the highlights to look for: China’s data should reflect the recent pickup in activity, while U.S. production should recover from the decline in manufacturing production observed in January. On the policy front, the Obama Administration formally announced that the United States would move forward with comprehensive trade negotiations with the European Union (EU) and issued its 2013 Trade Policy Agenda, including new initiatives on trade secret protection and localization barriers to trade.

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

Global Manufacturing Economic Update – January 4, 2013

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

While much of the focus of late has been on the fiscal cliff, manufacturers have also been worried about slowing global sales. Business leaders have said that increasing their exports has been a struggle. Yet, despite these headwinds, year-to-date growth in U.S.-manufactured goods has risen almost 5 percent. The good news is that this figure represents positive growth, but it also shows significant easing from the same time period last year. Much of the deceleration in exports corresponded with challenging economic environments in a number of countries, going beyond Europe’s struggles to include Brazil, China, Japan and elsewhere.

The latest data indicate that the global economy appears to be strengthening, which should bode well for improving international trade this year. Europe and Japan are exceptions as both continue to experience significant weaknesses in their respective markets. The purchasing managers’ indices (PMIs) for both remain negative, with new orders, production and employment contracting. Political and economic uncertainties permeate these data, with manufacturers uncertain about what  the future holds. Elsewhere, the trends are more positive. Seven of the top 10 markets for U.S.-manufactured goods have economies that are growing—a definite improvement from three months ago when just four of them did. As a result, we are seeing pickups in manufacturing activity and business confidence. This does not mean that these economies are growing strongly, but it does suggest that global trends have stabilized and are moving in the right direction.

Ironically, the political battles over U.S. fiscal policy had implications beyond our borders, with concerns about a possible economic downturn a top concern among our trading partners. This was especially the case for Canada, our largest trading partner, but other nations fretted about our fiscal situation, as well. With a deal to avert the fiscal cliff, at least some of these anxieties will go away for now. However, there are still larger concerns about the long-term fiscal health of the United States, and possible battles over raising the debt ceiling will keep these issues front and center. Nonetheless, the United States is now poised for modest growth in 2013, with rising exports a major contributor both to our macroeconomic picture and to manufacturers’ business plans.

Next week, we will receive data on November’s U.S. trade balance. The previous month saw a widening of the trade deficit, with both exports and imports lower. Hopefully, a slowly improving global economy will help to turn that around. Globally, we will get the latest industrial production and retail sales data from a number of European countries, with the European Central Bank meeting to discuss its monetary policy plans for the first time in 2013. Trade data will also be released for China, as well as indices for consumer and producer prices. The larger number to watch from the Chinese perspective will be real GDP growth, which will be out on Wednesday, January 16, and is expected to show an increase of 7.7 percent.

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

Global Manufacturing Economic Update – November 2012

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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.

Exports Lower on Slowing Global Growth in January

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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.