|The international economy has made tremendous strides over the past few months, and while there were a few pullbacks in growth in January, that progress was mostly sustained as we began 2017. The J.P. Morgan Global Manufacturing PMI was unchanged at 52.7, continuing to represent the fastest pace of growth since February 2014. After essentially stagnating in May 2016, the global economy has stabilized, generally moving in the right direction. In January, the rate of expansion quickened for new orders and exports, with both measures at their highest levels since mid-2014. At the same time, the employment index expanded for the sixth straight month, with the current expansion continuing to be at its swiftest rate since March 2014.
Eleven of the top-15 markets for U.S.-manufactured goods exports experienced growth in their manufacturing sectors in January, slipping a little from 12 in December but up from just seven in August. (There is no manufacturing PMI for comparison purposes for Belgium, which is our 10th-largest trading partner.) Hong Kong returned to an ever-so-slight contraction in January after expanding in December for the first time since February 2015. Brazil and South Korea remained mired in negative territory, much as they have for the past two years. Brazil’s manufacturing sector contracted at its fastest pace since June 2016, led by sharp declines in orders and output. In contrast, the strongest manufacturing growth among our top trading partners was in the Netherlands, Germany, the United Kingdom, Taiwan, Canada and France. Canada, France and Germany all saw multiyear highs.
Indeed, Canadian manufacturing activity expanded at its fastest clip in 25 months, with stronger data across-the-board and representing progress after nearly stalling in September. The national headline number was boosted by improvements in Alberta and British Columbia as well as Ontario, with the former expanding at its fastest rate since October 2013, assisted by stabilizing energy prices. Real GDP grew 0.9 percent in the third quarter, bouncing back from the 0.3 percent decrease in the second quarter. At the annual rate, Canada’s economy expanded 3.5 percent, its fastest pace since the second quarter of 2014. Fourth-quarter data will be released on March 2.
At the same time, manufacturers in the Eurozone reported their best growth rates since April 2011. More importantly, survey respondents were more upbeat about output over the next six months. Beyond sentiment surveys, Eurozone real GDP grew 0.5 percent in the fourth quarter, according to preliminary data, edging up from 0.4 percent in the third quarter. That translated to 1.8 percent growth year-over-year. In addition, the Eurozone unemployment rate in December fell to 9.6 percent, its lowest level since May 2009, and with stronger growth, pricing pressures have started to pick up, with the annual inflation rate rising to 1.8 percent in January, its highest level since February 2013.
In a similar manner, Chinese manufacturing sentiment eased slightly in January but remained encouraging.The Caixin China General Manufacturing PMI decreased from 51.9 in December—its fastest pace since January 2011—to 51.0 in January. Despite the slower rate, it was the fifth consecutive monthly expansion in manufacturing activity in China, illustrating just how much the market has stabilized recently. In fact, the index for future output increased to a six-month high, suggesting more optimism in the months ahead. The Chinese economy grew 6.8 percent year-over-year in the fourth quarter, with 6.7 percent growth for 2016 as a whole. As such, we continue to see decelerated activity in China from more robust expansions in prior years. For instance, fourth-quarter growth in 2010 in China was 10.0 percent. Better data in China and elsewhere have also pushed up sentiment in the emerging markets, with the Markit Emerging Markets Manufacturing Index expanding for the seventh straight month.
Despite some improvements in global economic conditions, manufacturers in the United States have struggled to grow international demand over the past two years. The U.S. trade deficit, which was $44.26 billion in December, totaled $502.3 billion in 2016 as a whole. That was the highest annual trade deficit since 2012, and it edged slightly higher from the $500.4 billion deficit in 2015. Meanwhile, U.S.-manufactured goods exports declined 5.43 percent year to date in December, illustrating the challenges posed by a strong U.S. dollar—up 23 percent since June 2014—and economic and political uncertainties. Not surprisingly, exports were lower in five of the top-six markets for U.S.-manufactured goods in 2016, most notably to Canada, our largest trading partner. The lone exception was Japan, with exports to that market eking out a small gain for the year.
The first few weeks of the new Trump administration showed some notable trade developments, including the United States’ formal withdrawal from the Trans-Pacific Partnership (TPP), discussions with the United Kingdom to launch a U.S.–U.K. bilateral trade agreement negotiation, movement toward an expected renegotiation of the North American Free Trade Agreement (NAFTA) and a reexamination of the U.S. conflict minerals rule. The NAM remains focused as well on additional bilateral relationships, including with Japan, India and Cuba, and other issues, such as working toward a fully functioning U.S. Export-Import (Ex-Im) Bank, a regularized and fact-based Miscellaneous Tariff Bill (MTB) process and entry into force of the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA).