Global Manufacturing Update
By Chad Moutray, Chief Economist, National Association of Manufacturers
September 2015 – The global economy continues to be one of the larger headwinds for manufacturers in the United States, with exports from the sector down 4.93% year-to-date using non-seasonally adjusted data through July. The stronger U.S. dollar and slowdowns in key economies have dampened international demand for U.S.-manufactured goods, with half of the top 10 markets in August experiencing contracting levels of manufacturing activity, up from four in July. This includes Canada, our largest trading partner, which continues to struggle and significantly lower crude oil prices. The other four nations remained the same: Brazil, China, Hong Kong, and South Korea, with all but the latter reaching multiyear lows in their PMI values. On a more positive note, the U.S. trade deficit narrowed in July, mostly on reduced goods imports.
China presents a major challenge for worldwide growth, with its economy decelerating faster than anticipated. The Caixin China General Manufacturing PMI declined to its lowest level in more than six years. Next week, we will get new industrial production data for August, which is expected to show continued easing in activity for the sector, building on recent trends for production, fixed-asset investments, and retail sales. Recent challenges also cast doubts on real GDP growth, which is likely less than the 7% year-over-year rate that has been reported. Beyond these economic statistics, the Shanghai Stock Exchange Composite Index has fallen more than 38% since June 12, and the yuan has depreciated by 2.5% since August 11. Led by weaknesses in China and Brazil (which fell to nearly a four-year low with its manufacturing PMI value), the emerging markets are struggling. The Markit Emerging Market Manufacturing Index contracted for the fifth consecutive month, declining to its lowest level since April 2009.
In contrast to other regions, Europe has been trending in the right direction. The Markit Eurozone Manufacturing PMI was off marginally, but many of the key subcomponents of this index were higher for the month. The improvement in the Eurozone headline number stemmed largely from improvements in Germany, with output rising to a five-month high and rebounding from springtime softness. As such, Eurozone manufacturers have reported modest growth in the sector, brushing off recent challenges in Greece and headwinds from China. Real GDP rose 0.4% in the second quarter. On a year-over-year basis, the Eurozone economy expanded 1.5%, up from 1.2% in the prior quarter. The unemployment rate reflects this progress as well, falling to 10.9% in July, the lowest since February 2012 even as it continues to remain highly elevated. Deflation has been a concern in recent months, spurring quantitative easing moves by the European Central Bank, but the annual inflation rate remained steady at 0.2% in August, the fourth straight month with positive price growth.
Congress has before it several important pieces of legislation, including legislation to reauthorize the Export-Import (Ex-Im) Bank, modernize customs, improve trade and intellectual property enforcement, and create a new Miscellaneous Tariff Bill (MTB) process. In addition, negotiations on both the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) talks will continue, as efforts to implement the World Trade Organization (WTO) Trade Facilitation Agreement (TFA). This month, trade with key partners, such as China and India, will be in the spotlight as high-level meetings take place.
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.