Fluid Power Journal

Economic Report

Global Manufacturing Update

By Chad Moutray, Chief Economist, National Association of Manufacturers

September 15, 2016 – Manufacturers continue to become more internationally focused, with export sales being one of the larger growth drivers for many firms. Indeed, 58.3% of respondents to the latest National Association of Manufacturers’ (NAM) Outlook Survey (http://www.nam.org/outlook) cited overseas sales as either somewhat or very important to their company’s growth strategies, and another 15.7% reported that trade was helpful for their customers, even though their own company was not directly selling abroad. If you were to add those figures together, that would signify that 74% of manufacturers benefit directly or indirectly from trade with overseas markets as part of their growth strategy. Indeed, of those firms that export, the average percentage of total sales that come from exports was 14.9%, and in total, 39.3% of firms had export revenues that equaled 10% or more of their total sales. With that in mind, it should not be surprising that manufacturers were more upbeat about their company’s outlook if they had higher expectations for export sales over the next 12 months.

Such data, of course, help to explain why global challenges have weighed so heavily on manufacturing business leaders’ minds. The strong U.S. dollar and economic weaknesses to key markets have made it much harder to increase exports. Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $607.12 billion year-to-date in July, down 7.5% from $656.46 billion from one year earlier. Moreover, exports were lower to the top six markets for U.S.-manufactured goods. In addition, 7 of the top 15 markets for U.S.-manufactured goods experienced expanding levels of growth in their manufacturing sectors in August, down from nine in July.

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Of these top 15 markets, countries with the fastest growth in manufacturing activity in August included Germany, the Netherlands, the United Kingdom, Singapore, and Taiwan. In contrast, many of the countries contracting in their latest PMI releases have been in negative territory for much of the past two years, including most notably Brazil and France. Of course, a fair share of Brazil’s problems has been political in nature, including the removal of President Dilma Rousseff in late August following impeachment proceedings in the spring. Australia and South Korea both slipped back into contraction in August on falling demand and output, and Chinese manufacturing activity stagnated following July’s expansion, which had been the first positive reading since February 2013. Meanwhile, the manufacturing sector in the United Kingdom bounced back after plummeting in the last release post-Brexit.

Markit sentiment surveys mostly reflected a slight expansion globally in August, but with persistent challenges. The J.P. Morgan Global Manufacturing PMI decreased from 51.0 in July to 50.8 in August, easing a bit from its fastest pace since November. More importantly, the sector has now expanded for three straight months after stagnating in May. Beyond the headline number, many of the underlying data points were mixed. Growth in new orders slowed somewhat, but output and exports picked up marginally. At the same time, employment returned to negative territory in August, contracting in six of the past seven months. Activity in Canada, the Eurozone, and emerging markets also softened marginally in August, even as each continued to reflect slight expansions. In addition, Mexican manufacturing activity remained weaker than desired, even with a slight pickup in sentiment in the August data.

With Congress back in session, several pieces of trade legislation are top of mind, from legislation to ensure a fully functioning Export-Import (Ex-Im) Bank and provisions to liberalize some parts of trade with Cuba to the potential for a Trans-Pacific Partnership (TPP) implementation bill later this fall. The NAM is also following key developments from the implementation of the new Miscellaneous Tariff Bill (MTB) process this fall and the recent U.S.-India commercial dialogue and the G-20 meetings in China to negotiations of both an Environmental Goods Agreement (EGA) and the Transatlantic Trade and Investment Partnership (TTIP).

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.

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