|As financial markets digest the economic and political ramifications of a Donald Trump victory in the U.S. presidential election, there will likely be some lingering uncertainties that could increase market volatility, at least in the short term. At the same time, there were some signs of progress to report in recent data, even as manufacturers continue to grapple with global headwinds. For instance, the J.P. Morgan Global Manufacturing PMI increased from 51.0 in September to 52.0 in October, its highest level since October 2014, with strong accelerations in both new orders and output. In addition, 11 of the top 15 markets for U.S.-manufactured goods had growing manufacturing sectors in October, up from seven in August and nine in September. As such, trends are moving in the right direction. The strongest manufacturing growth among our top trading partners was in the Netherlands, Germany and the United Kingdom. In contrast, Brazil, Hong Kong and South Korea remained mired in negative territory.
While there have been some improvements in international trends, manufacturers have continued to struggle in growing demand overseas. Beyond soft economic growth in key markets, one of the other larger factors suppressing global sales has been the U.S. dollar, which has appreciated nearly 21 percent since mid-2014 against major currencies. Indeed, U.S.-manufactured goods exports have fallen 5.2 percent year to date in 2016 through the third quarter relative to the same time period in 2015, according to new seasonally adjusted data from TradeStats Express. Moreover, year-to-date exports were lower in eight of the top 10 markets. On the positive side, the U.S. trade deficit fell to its lowest level since February 2015.The reduced headline number stemmed from increased goods exports, fewer goods imports and a higher service-sector trade surplus, with the latter at its highest point so far this year.
As noted above, there has been continued strength in the United Kingdom’s manufacturing sector despite ongoing Brexit uncertainties. Those concerns were heightened when the U.K. government lost an important ruling, which said that Theresa May’s government cannot invoke Article 50 without Parliament’s approval. Prime Minister May plans to appeal that ruling to the country’s Supreme Court, but either way, she has said that she plans to move forward with the previously outlined timetable. The process of leaving the European Union could take up to two years, meaning that the United Kingdom could be out by mid-2019. Given recent developments, the British pound has appreciated 1.7 percent over the past three weeks, spurred on by the court ruling. Nonetheless, the pound has fallen 19.4 percent since the June 23Brexit vote. This should provide a buffer to help the British manufacturing sector and the U.K. economy (but make U.S. exports to Britain more expensive).
Beyond the United Kingdom, several markets reported stronger manufacturing activity in the past month. The Caixin China General Manufacturing PMI increased to its fastest pace in more than two years on better demand and output figures. Nonetheless, there were also some lingering weaknesses, including exports and hiring, and much of the underlying data continue to reflect decelerating activity in China. Meanwhile, the Markit Eurozone Manufacturing PMI rose to a 22-month high, as the continent continued to brush off post-Brexit worries. The stronger Eurozone data were buoyed by improvements in both Germanyand France, with the latter growing for the first time since February and expanding at a two-and-a-half-year high. On a year-over-year basis, the Eurozone economy has grown 1.6 percent since the third quarter of 2015. Closer to home, Canadian manufacturing activity rebounded in October after slowing considerably in September, with improvements in every region of the country. However, Canadian manufacturing outputhas been very soft over the past 12 months, up just 0.4 percent year-over-year, and employment in the sector was down 7,500 in October and 1,500 year-over-year.
In addition, the emerging markets expanded at the fastest rate since February 2015.It was the third straight month with expanding activity, rebounding after contracting in 14 of the prior 15 months. A number of markets showed relative strength in their manufacturing sectors in October, with India and Russia reaching multiyear highs on stronger demand and production activity. The Czech Republic and Taiwan also cited improved manufacturing performance for the month. At the other end of the spectrum, Indonesia returned to negative territory for the second time in the past four months (down from 50.9 to 48.7), and several other emerging markets remain stuck in contraction.
The Trans-Pacific Partnership (TPP), export financing, ongoing trade negotiations and challenges created by foreign government market-distorting activities continue to be top issues for manufacturers as Congress is set to begin its lame-duck session next week and the Obama administration seeks to complete several trade initiatives that it has undertaken. The new NAM-sought Miscellaneous Tariff Bill (MTB) process is now accepting petitions, which are due by December 12.