Global Manufacturing Update
By Chad Moutray, Chief Economist, National Association of Manufacturers
May 2015 – The global economy has garnered a lot of attention lately, with sluggish growth hampering the ability of manufacturers to increase international sales. Indeed, net exports served as a drag on real GDP in the United States in each of the past two quarters, subtracting 1.25 percentage points from growth in the first quarter of 2015. Weakened demand abroad, a stronger U.S. dollar, and residual impacts from the West Coast ports slowdown have been attributed to the recent softness in export growth (as well as for the larger U.S. economy). Regarding exchange rates, the U.S. dollar has appreciated roughly 17% since the end of June against major currencies, according to the Federal Reserve, and that was actually an improvement from the 22.3% gain just a few weeks ago. The net impact of these headwinds has been a widening of the U.S. trade deficit to its highest level in six and a half years, with year-to-date manufactured goods exports down 3.8% relative to the same time frame in 2014.
The J.P. Morgan Global Manufacturing PMI fell to its lowest level since August 2013. Most notably, exports stalled. The good news is that the manufacturing sector continues to expand, but at a pace that remains less than robust. The country-by-country analysis was also weaker in April. Indeed, six of the top 10 markets for U.S.-manufactured goods had contracting levels of manufacturing activity in April, up from two in February and five in March. Four of the six were in Asia: China, Hong Kong, Japan, and South Korea. Japan’s addition to this list marked the first production decline since July 2014. Brazil and Canada were the other two contracting nations, with the latter suffering on falling energy prices and contracting for the third straight month. Outside of Alberta and British Columbia, manufacturers in Canada reported modest growth in activity.
Manufacturers in China have reported contracting activity levels in four of the past five months, with the pace of decline in April at a 12-month low. Overall, China’s economic data reflect slower – but still sizable – growth. Real GDP rose 7.0% percent year-over-year in the first quarter, down from 7.3% growth in the fourth quarter. Yet, output in the sector remains below the 8.7% annual growth rate seen 12 months ago, and it continues a larger easing trend over the past few months. Along those lines, retail sales and private investment in fixed assets each experienced slower year-over-year growth rates in April. To be fair, each of these paces for expansion remains at healthy rates of activity, but they are much lower than what market participants are accustomed to seeing.
Meanwhile, the Markit Eurozone Manufacturing PMI decelerated a bit in April, but growth in manufacturing activity remains better today than a few months ago. Indeed, hiring in the sector grew at its fastest pace since August 2011. The overriding story in Europe continues to be an improving situation, but one in which strong growth remains elusive. Real GDP rose 0.4% in the first quarter, edging up from 0.3% growth in the fourth quarter. On a year-to-year basis, the Eurozone grew 1.0%. At the same time, industrial production and retail sales were both lower in March, and the unemployment rate remained elevated at 11.3%. On the positive side, two-thirds of respondents expect conditions to improve in the coming months, and annual inflation was unchanged after reflecting deflation for four straight months. Some might suggest that these better indicators of late have been the result of the European Central Bank’s effort to prop up the economy, but it is also true that Europe has a long way to go before it is out of the woods entirely.
Action on the Trade Promotion Authority (TPA), trade facilitation and enforcement, and trade preference measures takes place now, while concrete movement on a long-term Export-Import (Ex-Im) Bank reauthorization is still sought. Negotiations are moving forward with the Asia-Pacific and Europe, while the NAM seeks to tackle the other important policy and commercial issues.
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.