Fluid Power Journal

Economic Report

Global Manufacturing Update

By Chad Moutray, Chief Economist, National Association of Manufacturers

March 2016 – The latest NAM quarterly survey (www.nam.org/outlook) found that 56.6% of respondents were positive about their own company’s outlook, falling for the fourth straight quarter and down sharply from 91.2% in December 2014. Export expectations help to explain much of the deceleration in the economic outlook for the sector. Of those companies that anticipated increased exports over the next 12 months, 75.9% were positive in their outlook in this survey. In contrast, the percentage of respondents who were positive fell to 64.9% for those expecting their exports to remain the same and to 31.4% for those predicting decreased exports over the next year. Overall, respondents expect exports to fall 0.6% over the next 12 months.

Along those lines, 61.5% said that the recent slowdown in global growth had impacted their international sales negatively. Indeed, U.S.-manufactured goods exports fell 6.1% in 2015, with continued weaknesses with growing international demand so far in 2016. The U.S. trade deficit widened again in January, up to its highest level in five months, with goods exports and imports both lower. Moreover, the global economy appeared to stall in February, with the J.P. Morgan Global Manufacturing PMI declining from 50.9 in January to 50.0 in February. It was the lowest level for this measure since November 2012. It should be noted that one-quarter of the weighting of the global index comes from the United States (down from 52.8 to 51.2), where manufacturing activity eased once again after rebounding in January, returning to not far from December’s three-year low.

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Four of the top nine exports markets for U.S.-manufactured goods contracted in February: Canada (up from 49.3 to 49.4), China (down from 48.4 to 48.0), Hong Kong (up from 46.1 to 46.4), and South Korea (down from 49.5 to 48.7). The challenge is that each nation has contracted for much of the past year. Canadian struggles are closely tied to lower crude oil prices, although beyond Alberta and British Columbia, manufacturers are citing modest growth. At the same time, the Chinese economy remains a significant concern. We will get new data on industrial production, retail sales, and fixed-asset investment on March 12, which will provide an important gauge of how well the Chinese industrial sector is faring in the early months of 2016. For much of last year, activity continued to decelerate. Real GDP rose by 6.8% year-over-year in the fourth quarter, and the Bank of China continues to seek stimulative moves in an attempt to spur more growth. My outlook is for 6.4% year-over-year growth in China for 2016.

Eurozone manufacturing activity continued to expand, even as it slows on global concerns. The Markit Eurozone Manufacturing PMI decreased from 52.3 to 51.2, its slowest rate of growth in 12 months. The decline in the headline number mirror the pullback in activity in Germany (down from 52.3 to 50.5), Europe’s largest economy, with the PMI falling to its lowest level since November 2014. Real GDP grew 0.3% in the Eurozone in the fourth quarter, or 1.6% year-over-year, which was positive but far from a spectacular pace. Industrial production fell 1.0% in December, with January data forthcoming on March 14, and the annual inflation rate declined 0.2% in February. On the positive side, retail sales were up 0.4% in January, rising 2.0% over the past 12 months, and the unemployment rate dropped to 10.3%, is lowest rate since August 2011. Nonetheless, amid persistent concerns about deflation and sluggish growth, the European Central Bank (ECB) will likely expand its quantitative easing program.

Trade talks continued between the United States and Europe, and a new data privacy agreement was reached, while the United Kingdom set the date for its referendum on leaving the European Union. Discussions and activity have continued on the Trans-Pacific Partnership (TPP) and on negotiations to eliminate tariffs on environmental goods. The United States is undertaking new actions regarding export controls and the standards for the importation of products subject to energy conservation standards. Efforts to promote reform in India and China continue to show little movement on issues of importance to manufacturers.

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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