Fluid Power Journal

Economic Report

Global Manufacturing Update

By Chad Moutray, Chief Economist, National Association of Manufacturers

August 8, 2014 – The International Monetary Fund (IMF) predicts that world output will grow 3.4% in 2014, down from 3.7% in its April forecast. Much of the downward movement stems from weaker-than-expected data from the first quarter. In the United States, for instance, real GDP declined by a disappointing 2.1%, and even with a rebound in the second quarter, the economy expanded by just 0.9% in the first half. Fortunately, manufacturers are mostly upbeat about the second half, and the IMF predicts 1.7% and 3.0% growth in the United States for 2014 and 2015, respectively. Europe is anticipated to grow 1.1% this year, and the Chinese economy should increase by 7.4%. While the emerging markets as a whole have started to see signs of improvement, notable weaknesses still exist in Brazil, Russia, and South Africa, to name just a few. Geopolitical risks abound, of course, with crises around the world also negatively impacting activity.

The good news is that global manufacturing activity continues to expand modestly, with the pace little changed in July from June. New orders, production, and employment growth slipped a little for the month, but exports picked up. In July, eight of the top 10 markets for U.S.-manufactured goods had expanding economies, with Brazil and South Korea contracting once again. Among the expanding nations, Canada and China saw accelerating levels of manufacturing demand and production in July, with relatively decent growth seen in both the Netherlands and the United Kingdom. At the same time, manufacturers in the United States have continued to rebound from softness earlier in the year. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) increased to its highest level since November on strong output and sales growth.

The Chinese economy has begun to stabilize, with manufacturers in China expanding for the second straight month. New orders, exports, and production growth all strengthened in July, and we anticipate a pickup in industrial production and fixed-asset investment rates when they are released next week. China’s real GDP has increased slightly from 7.4% at the annual rate in the first quarter to 7.5% in the second quarter. Meanwhile, Eurozone manufacturers have now expanded for 13 straight months, but activity has decelerated since January. Confidence measures have weakened, year-over-year inflation remains very low, and the unemployment rate stayed elevated (even as it fell to 11.5%). Still, the latest industrial production and retail sales have reflected a rebound.

econ chart

In general, we have seen the U.S. trade deficit narrow over the past couple years as we have become less dependent on foreign sources of energy. In June, the trade deficit was at its smallest level since January as goods imports declined at a faster pace than goods exports increased. Still, we continue to see relatively slow growth for U.S.-manufactured goods exports, which have increased 1.7% year-to-date. Ideally, we will see improvements moving into the second half, as the current pace represents a deceleration from last year’s 2.6% rate of growth.

The last month saw important progress on ongoing trade negotiations with Europe and 11 Pacific Rim nations, as well as environmental goods talks in the World Trade Organization (WTO). However, India and others successfully blocked agreement on a global trade facilitation package that would add an estimated $1 trillion to the world economy, potentially setting up a last-ditch effort to revive the deal in September. Responding to rising tensions in the Ukraine, the United States and the European Union (EU) imposed fresh sanctions on Russia in the financial, energy, and defense sectors.
With Congress now in recess for the month of August, manufacturers are engaging Senators and Representatives in their states and districts, and gearing up for action in the fall on a range of stalled trade measures—including reauthorization of the Export-Import Bank, Trade Promotion Authority, a miscellaneous tariff bill, and the Generalized System of Preferences. A House bill that would provide access to federal civil enforcement for trade secrets theft is fast gaining cosponsors, laying the groundwork for a Judiciary Committee markup and possible passage in September. The planned official visit of India’s new Prime Minister, Narendra Modi, to Washington at the end of next month will provide another opportunity to address outstanding trade and investment barriers in that important market.

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
Click here for the latest Fluid Power Journal white paper

Get Our E-News!

Our Latest Tweets

@FPJTeam