By Chad Moutray, Ph.D., CBE, Chief Economist, National Association of Manufacturers
January 11, 2018 According to the World Bank, “The global economy is experiencing a cyclical recovery, reflecting a rebound in investment, manufacturing activity and trade.” In the World Bank’s latest Global Economic Prospects publication, it projects 3.1 percent growth in worldwide GDP in 2018, improving from 2.4 percent and an estimate of 3.0 percent in 2016 and 2017, respectively. More importantly, it adds, “Global growth is expected to be sustained over the next couple years—and even accelerate somewhat in emerging market and developing economies….” Of course, there are also some downside risks to note, including tighter monetary policies and policy and geopolitical uncertainties.
Nonetheless, the larger narrative globally is that the economic outlook has strengthened considerably, with the manufacturing sector expanding at new record or multiyear highs in many markets. Along those lines, the J.P. Morgan Global Manufacturing PMI rose to its best reading since February 2011 on robust gains in new orders, output and employment. In December, all but one of the top-15 markets for U.S.-manufactured goods expanded. (There is no manufacturing PMI for comparison purposes for Belgium, which is our 10th-largest trading partner.) South Korea contracted ever so slightly, ending three months of expansions. It is hoped sentiment in the South Korean economy will rebound in the January data. Along those lines, future output signals modest growth for the first half of 2018.
Europe continued to dominate the list of the top export markets with strong manufacturing growth. In fact, the IHS Markit Eurozone Manufacturing PMI grew to its best reading since the survey began in June 1997. In reaching this new milestone, demand and production both accelerated to 17-year highs. In addition, manufacturing activity in Austria, Germany and Ireland reached their own all-time highs, with the headline index in France at its best reading since 2000. Moreover, the good news was not limited to sentiment surveys. Real GDP in the Eurozone rose 0.6 percent in the third quarter, or 2.6 percent year-over-year, the quickest pace since the first quarter of 2011. The unemployment rate fell in November to 8.7 percent, its lowest level since January 2009. Stronger economic growth and improved labor market news likely boosted spending, with retail sales up 1.5 percent in November and 2.8 percent over the past 12 months.
Turning to our largest trading partner, the IHS Markit Canada Manufacturing PMI inched up to a three-month high, expanding modestly and reflecting notable progress from one year ago. Much of that improvement has come from stabilization in energy markets, but the global economic turnaround has also helped. Along those lines, the unemployment rate fell to 5.7 percent in December, its lowest rate “since comparable data became available in January 1976.” Yet, manufacturers lost 3,600 workers on net for the month. In 2017, however, the sector added 85,700 employees. In addition, retail spending jumped 1.5 percent in October, with Canadians spending a whopping 6.7 percent more over the past 12 months. With that said, real GDP growth eased to 0.4 percent in the third quarter, with 1.7 percent growth at the annual rate, down from 4.3 percent in the second quarter.
Most importantly, U.S.-manufactured goods exports have improved so far in 2017, trending in the right direction through the first 11 months of 2017. This is a welcome development after weaker data across the past two years. Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $999.84 billion year to date in November, up 4.19 percent from $959.65 billion one year ago. Economic strength in international markets has helped, but a “cheaper” dollar has also been a factor in improving the export picture. The trade-weighted U.S. dollar index against major currencies from the Federal Reserve Board fell 8.6 percent in 2017, even as it remains 15.5 percent stronger than the levels in June 2014.
The administration has undertaken several enforcement investigations, with reports and action expected early this year. Manufacturers are seeking congressional approval of the Miscellaneous Tariff Bill (MTB) and the four nominees to the Board of the U.S. Export-Import (Ex-Im) Bank. Negotiators are preparing for the sixth round of talks to modernize the North American Free Trade Agreement (NAFTA), although big differences remain on several U.S. proposals. U.S. and Korean negotiators also met to improve implementation and potentially modify the U.S.–Korea (KORUS) Free Trade Agreement (FTA).