Global Manufacturing Update
By Chad Moutray, Chief Economist, National Association of Manufacturers
December 2015 – The latest National Association of Manufacturers (NAM) quarterly survey found that 59.6% of respondents were positive about their own company’s outlook, down sharply from 91.2% one year ago. 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, 75.4% were positive in their outlook in this survey. In contrast, the percentage of respondents who were positive fell to 61.7% for those expecting their exports to remain the same and to 39.1% for those predicting decreased exports over the next year. Overall, respondents expect relatively flat export growth in 2016. Along those lines, 57.9% said that the recent slowdown in global growth had negatively impacted their international sales. Indeed, manufactured goods exports have declined 6.1% year-to-date through October in 2015, including to our top four markets.
In addition to the stronger U.S. dollar, the weaker international demand in large part reflects soft economic conditions abroad. Manufacturing activity expanded in half of the top 10 markets for U.S.-manufactured goods exports for the month, with the other half experiencing contractions. This has been unchanged since July, and the challenge remains that many of the nations in negative territory have been there for much of this year. Manufacturers in Brazil, for instance, reported a further deterioration in new orders and output, with its PMI falling to its lowest level since March 2009. Activity continued to decline in Canada, China, Hong Kong, and South Korea. Moreover, the emerging markets have now contracted for eight straight months, with only the Czech Republic and Poland standing out as bright spots.
Overall, manufacturing activity continued to expand, albeit at a pace of growth that remains far from robust. The J.P. Morgan Global Manufacturing PMI edged slightly lower, down from 51.4 in October to 51.3 in November, but each month reflected improvements after softer data in August and September. The October reading, for example, had represented a six-month high, and in November, output picked up a little, expanding at its fastest rate since March.
One area where conditions appear to be moving in the right direction overall is Europe, but even there, global challenges persist. The Markit Eurozone Manufacturing PMI increased to its highest level since April 2014, with key indicators higher across the board. With the exception of Greece, manufacturers reported expanding levels activity in every major market, even for those that experienced some easing in growth rates in November. Sentiment in Germany, Italy, and Spain improved for the month on decent demand and production growth. With that said, real GDP grew 0.3% in the third quarter, slowing from 0.4% growth in the second quarter, and retail sales were off by 0.1% in October. In addition, the unemployment rate remained highly elevated despite falling to 10.7% in October, its lowest rate since January 2012.
Along those lines, the European Central Bank (ECB) remains concerned enough about sluggish growth and a very low annual inflation rate to lower its key interest rate and expand its quantitative easing program through March 2017. These moves were less than financial markets anticipated, however, prompting speculation of further ECB moves down the line. In contrast to these moves (and similar stimulative moves in other nations), the Federal Reserve is likely to begin raising short-term interest rates at its next meeting, with further increases expected in 2016. More than half of respondents to the most recent NAM survey worry about such a move at the December 15-16 Federal Open Market Committee meeting, hoping that the Federal Reserve would wait for better manufacturing data before acting. More than anything, this likely speaks to current concerns over the global economic outlook, and it also speaks to the strength in the U.S. dollar, something that is exacerbated by the diverging monetary policy strategies of the Federal Reserve and its foreign counterparts.
After more than a five-month lapse, the President signed into law a multi-year reauthorization of the Export-Import (Ex-Im) Bank of the United States. Congress is preparing to act this week on new trade facilitation and enforcement legislation. Congress may also potentially repeal provisions on Country of Origin Labeling (COOL) for meat that are contrary to international rules. Next week, the World Trade Organization (WTO) holds its 10th Ministerial Conference in Nairobi, Kenya, with few concrete outcomes likely. Discussions continue between the Obama administration and Congress on the path for the Trans-Pacific Partnership (TPP) agreement, while the next round of the Transatlantic Trade and Investment Partnership (TTIP) talks will await the new year.
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.