Fluid Power Journal

Economic Report

Global Manufacturing Update

By Chad Moutray, Chief Economist, National Association of Manufacturers

February 2016 – U.S.-manufactured goods exports declined 6.1% in 2015, according to seasonally adjusted data from Trade Stats Express. Exports fell from an all-time high of $1.40 trillion in 2014 to $1.32 trillion in 2015. This trend extends to the top four markets for U.S.-manufactured goods: Canada, Mexico, China, and Japan. On the other hand, exports rose to our fifth and sixth largest trading partners, the United Kingdom and Germany. The bottom line, however, remains. It is a challenging environment right now for growing international demand, particularly given the strong U.S. dollar and persistent economic weaknesses in key markets. This finding is consistent with the 57.9% of respondents to the most recent NAM Manufacturers’ Outlook Survey who said that the global slowdown had negatively impacted their company’s export sales.

Significant worldwide financial market volatility in the early weeks of 2016 has challenged the growth outlook for many manufacturers. While manufacturing production is expected to increase around 1.5% this year, there are sufficient downside risks to that forecast, especially from abroad.

At the top of that list is China, whose slowdown has prompted global contagion worries. The Caixin China General Manufacturing PMI has not contracted for the 13th time in the past 14 months. Even though the Chinese economy officially grew 6.8% year-over-year in the fourth quarter—a number that is viewed with suspicion by most analysts—overall activity continues to decelerate faster than the government would prefer. This includes industrial production, which has declined from 7.9% year-over-year growth in December 2014 to 5.9% in December 2015, but it is also true for fixed asset investment and retail sales. As a result, I would not be surprised if the Bank of China continues to seek stimulative moves in an attempt to spur more growth. Using the official estimates, my outlook is for 6.4% year-over-year growth in China for 2016.

econ chart

Overall, the global economy continues to grow ever-so-modestly even as it remains quite challenged. The J.P. Morgan Global Manufacturing PMI edged slightly higher, up from 50.7 in December to 50.9 in January. The underlying data were mixed, with the pace of new orders picking up but employment growth slowing. Output and exports were both positive, but flat for the month. It should be noted that one-quarter of the weighting of the global index comes from the United States (up from 51.2 to 52.4), where manufacturing activity rebounded at the start of the new year after falling to a three-year low in December. Interestingly, this differs from the Institute for Supply Management’s competing survey, which showed contraction in January for the fourth straight month. Beyond these headline numbers, the narrative mostly remains the same so far in 2016 as it was in 2015, with several countries remaining chronically challenged on the growth front. This includes Brazil, Canada, Hong Kong, Singapore, and South Korea, which all contracted in January much as they did throughout last year, similar to China. On the positive side, several of them also experienced some improvement in January, albeit still in negative territory.

Europe has not been immune to global softness, but has generally made progress in its economy over the course of the past year. Still, the Markit Eurozone Manufacturing PMI decreased from 53.2 to 52.3, pulling back from its highest level since April 2014. The easing in activity reflected slowing—but still somewhat modest—growth for new orders, output, and exports. At the same time, employment picked up in January, with hiring expanding for 17 straight months. Eurozone manufacturing activity closely tracks sentiment in Germany. Demand and production pulled back in January in Germany, not nonetheless expanded at a decent pace. Ireland (up from 54.2 to 54.3) and Spain (up from 53.0 to 55.4) also accelerated in their expansions in January, boosted by strong growth in new orders in each country. The data for other nations were more mixed, but with continuing modest growth overall. With that said, growth in Europe remains slower-than-desired, and the European Central Bank (ECB) continues to worry about deflation. (The latter is true even though the annual inflation rate ticked up in January.) There remains speculation that the ECB will further expand its quantitative easing program at its March meeting.

The Senate prepares to take up and pass trade facilitation and enforcement legislation, while the Trans-Pacific Partnership (TPP) agreement is signed, and the Transatlantic Trade and Investment Partnership (TTIP) talks head to their 12th round. New developments are also reviewed on customs automation, Iran sanctions, intellectual property, and India and Chinese economic policies.

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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