Global Manufacturing Economic Update

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As outlined in a speech by International Monetary Fund (IMF) Managing Director Christine Lagarde this week, the global economy is faring better this year, especially when compared to the multitude of challenges seen at this point last year. Specifically, she said:

For advanced economies, the outlook has improved with stronger manufacturing activity. This upswing is broad-based across countries—including in Europe—although some countries here still face high debt and weaknesses in some banks. The prospects for emerging and developing economies also bode well for global growth. These countries have driven the global recovery in recent years, and they will continue to contribute more than three-quarters of global GDP growth in 2017.

With that said, the IMF—which will release its quarterly World Economic Outlook next week—noted that there might be even more robust growth if it were not for political uncertainty and slower productivity growth.

The IMF’s assessment is consistent with other indicators, as well. For instance, the J.P.Morgan Global Manufacturing PMI was unchanged at 53.0 in March, which remained its fastest growth rate since May 2011. New orders reflected a modest expansion for the month, with growth at its quickest clip in just more than three years. In addition, 11 of the top 15 markets for U.S.-manufactured goods exports experienced growth in their manufacturing sectors in March, unchanged in each of the past 2 months but up from just 7 in August. The strongest manufacturing growth among our top trading partners in March were Germany, the Netherlands, Taiwan, the United Arab Emirates (UAE) and Canada. German activity was the fastest since April 2011, with Taiwan, the UAE and Canada also hitting multiyear highs.

The most recent sentiment data in North America, home to our largest two exports markets, has been favorable. For instance, manufacturing activity in Canada expanded at levels not seen since October 2013.That represents continued progress after activity nearly stalled in September, with six consecutive improvements in the headline number since then. In March, the pace of expansions for new orders, output and employment accelerated, with exports also continuing to expand at a very modest pace. In addition, manufacturing sales in Canada increased for the third straight month, up 0.6 percent in January, with year-over-year growth of 2.7 percent, and manufacturers added 24,400 workers in March, with flat employment growth year-over-year.

At the same time, Mexican activity improved to its best reading since October.The Markit Mexico Manufacturing PMI rose from 50.6 to 51.5. That represents some progress after slowing to a near-halt in December. The higher headline number was boosted by strength in new orders to a six-month high, with output also shifting positive. Despite the improvement in the overall PMI figure, it is worth noting that manufacturing activity remained subpar. Indeed, Mexican industrial production declined for the fifth time in the past six months, down 1.7 percent year-over-year in February. Manufacturing output also slowed, down from 4.3 percent growth in January to 1.1 percent in February, even as it expanded year-over-year for the fourth straight month.

Mirroring the global numbers, Markit Eurozone Manufacturing PMI expanded at its best growth rate since April 2011, boosted by improved activity across-the-board. There was notable strength in Germany, with manufacturing activity at a 71-month high, and Italy, which rose to levels not seen in 6 years. Robust growth was also seen for manufacturing in the Netherlands and Austria, each of which remained not far from recent multiyear highs, with modest growth in most of the other European markets outside of Greece. With that said, Eurozone industrial production edged down 0.3 percent in the Eurozone in February, with 1.2 percent growth over the past 12 months. At the same time, manufacturing production ticked up by 0.2 percent for the month and increased by 0.9 percent year-over-year. On the positive side, the unemployment rate in January dropped to 9.5 percent, its lowest level since January 2009.

With just three months under our belt, it is still too early to say too much about trade trends for 2017. Yet, so far, the manufactured goods exports picture has already reflected better data than what has been seen over the past two years. Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $166.89 billion year-to-date in February 2017, up 3.18 percent from $161.75 billion one year ago. Meanwhile, the U.S. trade deficit pulled back from a nearly 5-year high, down from $48.17 billion in January to $43.56 billion in February. The lower figure stemmed mainly from a drop in goods imports, with goods exports little changed. The pace for goods exports was its fastest since April 2015.

On the policy front, President Donald Trump issued two trade-related executive orders and met with the German and Chinese leaders to discuss commercial and broader strategic issues. The United Kingdom (UK) formally began the process for Brexit negotiations to leave the European Union (EU). The National Association of Manufacturers (NAM) launched a new coalition to grow U.S. leadership in global institutions to tackle the proliferation of activities that harm U.S. competitiveness and jobs, while also continuing to advance priorities on the Export-Import (Ex-Im) Bank, the North American Free Trade Agreement (NAFTA), the miscellaneous tariff bill (MTB) and other key issues.

Chad Moutray, Ph.D., CBE
Chief Economist
National Association of Manufacturers