Fluid Power Journal

Economic Report

Global Manufacturing Update

By Chad Moutray, Chief Economist, National Association of Manufacturers

June 2016 – Global manufacturing activity stagnated in May, pulled lower by continued weaknesses in the emerging markets and by softer-than-desired economic growth in the United States. The J.P. Morgan Global Manufacturing PMI edged down from 50.1 in April to 50.0 in May, its neutral point. Overall, this suggests that manufacturers continue to face significant headwinds to growth despite recent signs of progress. Exports and employment continued to contract in May, with new orders and output expanding ever so slightly. As noted in prior press releases, U.S. manufacturing performance accounted for one-quarter of the weighting in the global index, with output contracting for the first time since September 2009, according to Markit. Interestingly, this reading contrasts with more favorable data from the Institute of Supply Management (ISM). The ISM Manufacturing PMI expanded for the third straight month, up from 50.8 to 51.3. Nonetheless, the most recent jobs numbers suggest that manufacturing’s challenges remain far from over, with cautious business leaders holding back on hiring, at least for now.

The top 15 markets for U.S.-manufactured goods were equally divided in May, with seven nations expanding and seven contracting (Belgium does not have a manufacturing PMI for comparison purposes). That represented some progress from April, which had only five markets expanding. South Korea and the United Kingdom saw improvements in May, with both recording expansion just marginally above neutral and the latter brushing off worries about a possible “Brexit.” Voters in the United Kingdom will decide on June 23 whether or not to stay in the European Union. For its part, real GDP in the Eurozone also rebounded in the first quarter of 2016, up 0.6% following a 0.4% gain in the fourth quarter of 2015. Of the seven contracting markets, Brazil fared the worst in May, declining at its fastest pace since February 2009. This, of course, followed recent impeachment proceedings for President Dilma Rousseff.

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Meanwhile, manufacturing activity in China pulled lower once again in May, falling to a three-month low and contracting for the 15th straight month. We will get new data on industrial production, retail sales, and fixed asset investment on June 12, but recent data reflected ongoing deceleration. For instance, industrial production expanded by 6.0% year-over-year in April, down from 6.8% in March, whereas two years ago, that figure hit 8.7% year-over-year. Fixed asset investment and retail sales followed a similar trend in April. In the first quarter of 2016, the Chinese economy grew 6.7% year-over-year, down from the 6.8% in the fourth quarter. My forecast is for real GDP to expand 6.5%, using official estimates, in 2016. At the same time, emerging markets, which include China, continued to struggle. The Markit Emerging Markets Manufacturing Index remained unchanged at 49.5 in May, holding in negative territory for 13 of the past 14 months.

On the positive side, Canada’s manufacturers report modest gains in activity outside of energy regions. The RBC Canadian Manufacturing PMI declined from 52.2 to 52.1, but even with a slight easing, this marks the third consecutive monthly expansion in manufacturing activity. April’s reading showed the fastest pace since December 2014, with May’s report not far from that level. As with prior releases, manufacturers in Alberta and British Columbia remained weak due to reduced energy prices, with other regions of Canada expanding at a more decent pace. The Canadian economy improved in the first quarter of 2016, growing 2.4% at the annual rate, up from 0.5% in the fourth quarter of 2015. Yet, manufacturing output and retail sales were softer than desired in March.

Global headwinds have hampered the goal of increasing international demand. Using non-seasonably adjusted data, U.S.-manufactured goods exports totaled $342.72 billion year-to-date in April, down 7.5% from $370.51 billion in April 2015. Moreover, exports fell for the top four markets of U.S.-manufactured goods, including Canada, Mexico, China, and Japan. Exports to the European Union were also off, even as the fifth-largest market, the United Kingdom, experienced slight growth. Overall, the U.S. trade deficit edged higher in April, with growth in goods imports outpacing the gain in goods exports. One bright spot in the data: the April petroleum deficit of $3.13 billion hit its lowest point since February 1999.

The NAM strongly welcomed the enactment of a new Miscellaneous Tariff Bill (MTB) that will finally allow manufacturers to seek tariff relief for products not available in the United States. Work continues to intensify on action on the Trans-Pacific Partnership (TPP) and Senate consideration of the nominee to the Export-Import (Ex-Im) Bank board. Manufacturers also continued to promote strong outcomes in other negotiations and to address foreign barriers and other market distortion in India and China. Manufacturers celebrated World Trade Month with lots of activity and commentary in the face of continuing opposition to strong trade agreements and policies from major presidential candidates.

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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