Fluid Power Journal

Economic Report

Global Manufacturing Update

By Chad Moutray, Chief Economist, National Association of Manufacturers

November 12, 2014 – The global economy has seen its share of challenges this year. These include deflationary worries in Europe, decelerating growth in China, and declining activity in South America, among others. Along those lines, the Bank of Japan announced on October 31 that it would increase the amount of its monthly asset purchases, stepping up its quantitative easing program in an effort to spur faster growth. The United States fares pretty well in comparison. The International Monetary Fund slightly downgraded its global outlook, with world output now estimated to expand by 3.3% and 3.8% in 2014 and 2015, respectively. Yet, it raised its estimates for real GDP growth in the United States in 2014 from 1.7% to 2.2%.

Indeed, the U.S. economy grew 3.5% in the third quarter, and manufacturers are largely upbeat about demand and production for the coming months. Still, international sales have continued to be rather sluggish so far this year. U.S-manufactured goods exports inched up just 2.2% through the first three quarters of 2014 relative to the same time frame in 2013, according to Trade Stats Express. This represents a slight deceleration from last year’s 2.6% pace. Fortunately, we have seen positive growth in our export sales year to date to our five largest trading partners: Canada (up 0.6%), Mexico (up 6.1%), China (up 8.2%), Japan (up 0.8%), and Germany (up 6.9%). Moreover, while net exports served as a drag on real GDP in the first half of the year, they added 1.32 percentage points to the headline figure in the third quarter. Hopefully, this bodes well moving forward.

econ chart

For those who look at the world with an optimistic eye, October saw signs of progress for manufacturers worldwide. Seven of the top ten markets for U.S.-manufactured goods experienced expanding levels of activity in October, up from six in September. In addition, activity in each of those countries picked up for the month, which was encouraging. Most notably, Germany shifted from an ever-so-slight contraction to modest growth. On the other hand, there were three nations that continued to see declining sales and output. Indeed, Brazil, Hong Kong, and South Korea weakened further in October. Moreover, the J.P. Morgan Global Manufacturing PMI was 52.2 in October, unchanged from September. Yet, the pace of new orders, export and output eased for the month, with each showing modest growth overall.

The good news was that our two largest trading partners appear to be moving in the right direction. The RBC Canadian Manufacturing PMI rose from 53.5 to 55.3, its highest level since October, and the pace of sales expanded at their fastest levels in 11 months. While the manufacturing production data show some softness in August, the latest jobs numbers illustrate a rebound more recently, with the sector adding 33,200 net new workers in October. Meanwhile, the HSBC Mexico Manufacturing PMI also increased, up from 52.6 to 53.3. This marks the best reading for manufacturing activity since January, particularly for sales and output. As a whole, however, the Mexican economy has been subpar as of late, with industrial production growing just 1.4% year-over-year in August.

Breakthroughs on the long-delayed Information Technology Agreement and the implementation of the Trade Facilitations Agreement in early November augur well for moving both agreements forward and strengthening the role of the World Trade Organization. U.S. trade talks with Asia-Pacific and Europe continue, as do U.S.-China bilateral investment treaty negotiations and global environmental goods talks. Legislative action on outstanding trade priorities is still sought, as manufacturers also urge action to prevent a West Coast port shutdown.

Excerpt reprinted with permission. For the full report, visit www.nam.org.

The National Association of Manufacturers (NAM) represents small and large manufacturers in every industrial sector and in all 50 states. For more information, visit www.nam.org.

Fluid Power Journal is the official publication of the International Fluid Power Society
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