Tag: trade deficit

Monday Economic Report – August 11, 2014

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

In a light week for economic indicator releases, geopolitical events dominated the headlines and moved equity markets. With U.S. airstrikes in Iraq, battles between Israel and Hamas in the Gaza Strip, and mounting tensions with Russia, financial markets have a lot to absorb, with uncertainty sending stock values lower. Even with a triple-digit gain on Friday, the Dow Jones Industrial Average has fallen 3.5 percent since hitting an all-time high of 17,138.20 on July 16. From an economic perspective, geopolitical challenges could put downward pressure on forecasts for the second half of 2014 depending on how they evolve in the coming days and months. Absent these global anxieties, manufacturers have tended to be mostly upbeat about the next six months, and several recent data points have suggested rebounding demand and output as we began the third quarter.

New factory orders have risen in four of the past five months, increasing 1.1 percent in June and 4.6 percent since January. With that said, year-over-year growth has been less robust, up just 1.5 percent. This shows the extent to which winter weather weakened sales earlier this year. Still, June’s new factory orders figure of $503.2 billion reached an all-time high, which was encouraging. This data is largely consistent with positive news of late on real GDP, manufacturing sentiment surveys, and hiring. Indeed, manufacturing labor productivity increased by a relatively healthy 3.6 percent in the second quarter, lifted by robust gains in output. Unit labor costs declined 1.3 percent, with durable goods industries accounting for much of that decrease. Productivity gains since 2009 have helped to keep the sector more competitive globally, particularly for durable goods firms.

In June, the U.S. trade deficit fell to its smallest level since January, as goods imports declined at a faster pace than goods exports increased. Nonetheless, 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 of the year, as the current pace represents a deceleration from last year’s 2.6 percent rate of growth. Of course, challenges abound on this front, with news of weak growth in Europe, flat export sales growth to our largest trading partner Canada, and decelerating growth rates in China.

This week, we will get new industrial production figures for July. We anticipate manufacturing output growing for the sixth straight month, modestly extending upon the 3.1 percent growth observed since January. The New York Federal Reserve Bank’s Empire State Manufacturing Survey is also expected to show continued expansion for the sector in its district. Other highlights this week include the latest data on consumer sentiment, job openings, producer prices, retail sales, and small business optimism.

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. 

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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. 

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Monday Economic Report – June 9, 2014

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

The latest NAM/IndustryWeek Survey of Manufacturers—being released today—found that roughly 86 percent of manufacturers were either somewhat or very positive about their own company’s outlook, essentially unchanged from three months ago. Yet, the underlying data show higher levels of anticipated activity across the board over the next 12 months. For instance, sales are expected to grow 4.1 percent on average over the next year, up from an average of 3.6 percent in the last survey and the fastest pace in two years. Capital spending and hiring plans were also anticipated to increase, with almost half of respondents planning to add workers in the coming months.

Nonetheless, the survey also found that manufacturers remain frustrated with the slower-than-expected pace of economic growth this year and with the political process. The top challenges continue to be health care costs, the tax and regulatory environment and the skills gap. Along those lines, the Federal Reserve’s Beige Book reported that manufacturing activity expanded across the country in its analysis, with rebounds noted in many of its districts. In addition, several businesses are having difficulty finding skilled workers, a challenge that has concerned manufacturers for some time. For instance, a recent study from Accenture and the Manufacturing Institute found that more than 75 percent of manufacturers have a moderate to severe shortage of skilled resources.

Several data releases last week support the view that the economy is rebounding. For instance, the number of nonfarm payroll workers rose by 217,000 in May, with an average of 231,000 over the past four months. This helped push nonfarm payrolls over its pre-recessionary levels for the first time—a feat that took roughly five years. The news for manufacturers was more mixed. While manufacturing has averaged just shy of 12,000 additional workers per month since August, the pace has slowed this year, and May’s 10,000-worker gain stemmed mainly from durable goods firms. We would like to see broader-based job increases in the sector moving forward, with monthly hiring growth between 15,000 and 20,000 on average.

Meanwhile, the Institute for Supply Management’s Purchasing Managers’ Index (PMI) has risen each month since January, up from 54.9 in April to 55.5 in May. The data were mostly positive, with higher levels for both new orders (up from 55.1 to 56.9) and production (up from 55.7 to 61.0). The output index exceeded 60—signifying strong monthly gains—for the first time since December. At the same time, new factory orders increased for the third straight month, up 0.7 percent in April and building on healthy figures for both February and March. This release was another sign of recovery in manufacturing sales after weather-related softness in December and January. Yet, the underlying data also indicated some weaknesses beyond defense capital goods spending. Excluding defense, new durable goods orders would have shrank by 0.1 percent for the month. As such, there is room for improvement even with the recent rebound in activity.

While total construction spending increased for the third straight month, manufacturing construction declined 1.1 percent in April, and it has been down slightly since December. Still, the longer-term trend remains more encouraging, up 7.3 percent year-over-year. On the trade front, manufactured goods exports have seen marginal gains so far in the early months of 2014 relative to 2013, but we have seen increased exports in each of the top-five export markets so far this year. Still, export growth has been disappointing of late, and due to a significant increase in goods imports in April, the trade deficit rose to its highest level in 12 months. One positive continues to be energy, with the petroleum trade deficit narrowing on increased exports and fewer imports.

This week, we will get new data releases for consumer confidence, job openings, producer prices, retail trade and small business sentiment. In particular, we will see if Americans are becoming more confident and if the rebound will translate into increased purchasing. The expectation is that May retail sales will bounce back from slower April numbers. Regarding inflation, producer prices in April were higher mainly due to increased costs for food—namely, meat, eggs and dairy products. Energy costs were also up a bit. Analysts will be looking to see if core inflation creeps ever closer to the Federal Reserve’s 2 percent goal, which is anticipated.

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

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U.S. Trade Deficit Widened to its Highest Level in Two Years

The Bureau of Economic Analysis and the Census Bureau said that the U.S. trade deficit widened from $44.18 billion in March to $47.24 billion in April, its highest level since April 2012. The trade deficit has edged higher each month since November, when it hit a four-year low of $35.97 billion. Over that time frame, we have seen goods imports rise from $191.52 billion to $200.90 billion, essentially explaining much of the shift over the past five months. At the same time, goods exports declined slightly from $136.75 billion in November to $135.11 billion in April.

The goods trade deficit increased from $62.52 billion in March to $65.79 billion in April. This was due to mainly non-petroleum forces, as the petroleum trade deficit narrowed from $19.03 billion to $18.00 billion. Petroleum exports rose by $355 million in the month, with petroleum imports declining by $666 million. This continues a trend seen over the past couple years whereby improved energy production in the U.S. has slightly helped the trade balance picture.

Looking specifically at goods exports by sector, there were declining levels of exports for non-automotive capital goods (down $303 million); foods, feeds and beverages (down $262 million); automotive vehicles and parts (down $173 million); and consumer goods (down $87 million). The one major area with export growth in April was industrial supplies and materials (up $237 million), boosted by fuel oil (up $632 million), organic chemicals (up $343 million) and natural gas (up $128 million).

Meanwhile, year-to-date growth in manufactured goods exports increased from $384.70 billion in 2013 to $385.79 billion (using non-seasonally adjusted data), or a gain of 0.3 percent. As such, export growth for manufacturers continues to be lower than desired, with weaker global economic activity impacting our ability to grow international sales. (Note that using seasonally-adjusted data from Trade Stats Express, manufactured goods exports growth was slightly higher for the first quarter of 2014, up 1.1 percent over last year, but still disappointing.)

Still, we have seen increased exports in each of our top 5 export markets in the first four months of this year relative to the same time frame last year: Canada (up $98.96 billion to $99.62 billion), Mexico (up from $73.50 billion to $77.28 billion), China (up from $37.00 billion to $40.09 billion), Japan (up from $20.79 billion to $22.22 billion), and Germany (up from $15.84 billion to $16.98 billion). Each of these figures is not seasonally-adjusted.

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

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U.S. Trade Deficit Narrowed Slightly in March on Increased Goods Exports and Imports

The Bureau of Economic Analysis and the Census Bureau said that the U.S. trade deficit narrowed slightly from $41.87 billion in February to $40.38 billion in March. The average trade deficit in the first three months of 2014 was $40.51 billion, up somewhat from the $39.57 billion average of 2013 but down from the $44.56 billion average of 2012. The change in the March deficit resulted from an increase in goods exports (up from $131.38 billion to $135.10 billion) that mostly offset the rise in goods imports (up from $192.73 billion to $195.84 billion). In addition, the service sector surplus increased by $899 million in March.

Looking specifically at goods exports by sector, the largest increase came from non-automotive capital goods (up $2.11 billion). Civilian aircraft, including engine components, accounted for $1.53 billion of this figure. Other gainers included industrial supplies and materials (up $888 million); automotive vehicles, parts and engines (up $596 million); and foods, feeds and beverages (up $97 million). Consumer goods exports declined by $304 million for the month, led by decreases in pharmaceuticals and cell phones.

Growth in manufactured goods exports continue to disappoint. Exports in the first three months of 2014 were $286.90 billion using non-seasonally adjusted data. This was down 0.1 percent from the $287.31 billion in manufactured goods exports in the first quarter of 2013. As such, it indicates that growth in manufactured goods exports were essentially unchanged this year despite some economic progress abroad in recent months, continuing a trend that we saw last year.

In 2013, manufactured goods exports rose 2.4 percent, decelerating from the 5.7 percent annual growth rate observed in 2012. It is also well below the 15 percent rate that would be needed to double exports by 2015, as outlined in the President’s National Export Initiative. Hopefully, cautious optimism for better worldwide growth rates will produce improved manufactured goods exports moving forward.

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

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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 – April 7, 2014

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

Manufacturers appear to be recovering from softness in the first two months of the year, mainly due to the number of severe winter storms. The Institute for Supply Management (ISM) reported that its Purchasing Managers’ Index (PMI) edged higher, up from 53.2 in February to 53.7 in March. Production began expanding again, with the pace of new orders and exports picking up slightly. Despite some degree of progress in March, sentiment remains lower than just a few months ago. PMI values averaged 56.3 in the second half of last year, with sales and output measures exceeding 60—indicating strong growth—each month from August to December.

Likewise, new factory orders increased 1.6 percent in February, partially offsetting the sharp declines in December and January. Beyond autos and aircraft, however, durable goods sales were just barely higher, suggesting more needs to be done for broader growth in the sector. Meanwhile, the Dallas Federal Reserve Bank’s manufacturing survey reflected a rebound in activity consistent with other Federal Reserve districts. Texas manufacturers remain positive about sales, output, hiring and capital spending moving forward. For example, more than half of respondents anticipate increased demand over the next six months. Still, some cited regulatory, pricing pressure, workforce and foreign competition concerns.

On the hiring front, Friday’s jobs numbers provided mixed news for manufacturers. The sector lost 1,000 workers in March, mainly due to declines in nondurable goods industries. This was particularly disappointing given consensus expectations that were closer to the ADP’s estimates, which had a gain of 5,000 workers for the month. Yet, revisions to January and February data provided some comfort, adding 15,000 more employees than original estimates. As a result, the longer-term trend for manufacturing did not change much despite March’s lower figure. Manufacturers have added more than 600,000 workers since the end of the recession, and since August, the sector has generated an average of 12,125 net new jobs per month. Another positive in this report was that the average number of hours worked and average compensation both rose, findings that mirror the rebound in overall activity.

Meanwhile, the latest international trade figures were also disappointing. The U.S. trade deficit widened from $39.28 billion in January to $42.30 billion in February. This was the highest deficit since September and the result of a decrease in goods exports and an increase in service-sector imports. Petroleum exports were also marginally lower. The numbers were particularly discouraging given that manufactured goods exports in January and February of this year were 0.6 percent lower than the first two months of last year. Still, outside of softness in our goods exports to Canada, the other top-five export markets for U.S.-manufactured goods registered increases year-to-date in 2014 relative to 2013. In addition, there remains cautious optimism that export sales will improve in the coming months.

This week, the focus will be on the release of the minutes from the March Federal Open Market Committee (FOMC) meeting. The minutes will provide additional insights on the internal debates that led the Federal Reserve Board to continue tapering but to also change its forward guidance for short-term interest rates. On Friday, the release of producer price data should continue to show that overall inflation remains minimal. Other highlights include the latest data on consumer confidence, job openings, small business optimism and wholesale trade.

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

ism pmi - apr2014

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Monday Economic Report – March 10, 2014

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

The Federal Reserve Board’s Beige Book noted recent progress in the economy but also reported the negative impacts of weather in many of its districts. The Federal Reserve wrote, “The weather was cited to have caused utility outages, disrupted supply chains and production schedules and resulted in a slowing of sales to affected customers.” However, the slowdown in activity in these regions is temporary, and manufacturers across the country were generally “optimistic about the future and expect manufacturing activity to rise in the coming months.”

Economists have had to try to parse through the data to determine just how much of the recent softness has been due to the weather. This is not an easy task, but in my view, the various reports suggest the momentum we saw at the end of last year should return with warmer temperatures. The latest NAM/IndustryWeek Survey of Manufacturers, which will be released this morning, echoes this finding, with 86.1 percent of respondents being positive about their company’s outlook for the next 12 months, up from 78.1 percent three months ago. Sales, capital spending and hiring expectations were also higher; however, the smallest manufacturers continue to be less upbeat about the economy and their company’s future plans. The top business challenges were an unfavorable business climate due to taxes, regulations and government uncertainties (79.0 percent) and rising health care and insurance costs (77.1 percent), with the latter serving as a proxy for frustrations with the Affordable Care Act.

Purchasing Managers’ Index (PMI) data released last week suggest that manufacturing sentiment has already begun to rebound from weather-related weaknesses of the month before. The Institute for Supply Management’s (ISM) measure rose from 51.3 in January to 53.2 in February, with a faster pace of new orders. On the negative side, production contracted for the first time since May, and manufacturing activity remains below December’s levels. Yet, the improvement in domestic sales was a step in the right direction. Along these lines, the Markit U.S. Manufacturing PMI reflected an even larger rebound, up from 53.7 to 57.1, on much stronger growth in output and sales. As such, these reports give us hope that the declines in new factory orders in both December and January, particularly in the auto sector, will turn around in the coming months.

On the labor front, nonfarm payrolls increased 175,000 in February, somewhat higher than anticipated and better than the 84,000 and 129,000 observed in December and January, respectively. Still, hiring remains below the 194,250 additional workers created each month in 2013, reflecting the easing that we have seen recently. Manufacturing employment has also grown more slowly over the past three months, with just 6,000 new hires in February. Nonetheless, manufacturers have added new workers on net in each of the past seven months, consistent with the rebound in activity since the beginning of the third quarter of last year. Once weather-related weaknesses go away, we hope to see hiring in the sector pick up once again. Elsewhere in the jobs report, the unemployment rate increased from 6.6 percent to 6.7 percent with a slight increase in the size of the labor force. Still, the participation rate remains at levels not seen since the late 1970s.

In our first look at international trade data for the new year, the U.S. trade deficit widened ever so slightly, up from $38.98 billion to $39.10 billion. There was a significant jump in the petroleum trade deficit for the month, with weather impacts more than likely increasing demand and prices for crude oil rising. Manufactured goods exports increased modestly, up 1.2 percent in January relative to the same month last year. While our goods exports were somewhat lower to Canada for the month, the data suggest slight increases in many of our other major trading partners. We remain hopeful that improvements in the global economic landscape will yield better manufactured goods exports growth than the 2.4 percent growth rate in 2013. At the same time, any expansion would build on last year’s $1.38 trillion in manufactured goods exports, an all-time high.

This week will be a slower one for economic releases. Highlights will be new data on consumer confidence, job openings, producer prices, retail sales and small business optimism.

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

employment situation - mar2014

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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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