NAM: Global Manufacturing Economic Update

The World Bank reported that the global economy is expected to grow 3.1 percent in 2018, matching the pace in 2017, according to the latest “Global Economic Prospects” publication. That is predicted to slow a bit to 3.0 percent and 2.9 percent in 2019 and 2020, respectively. The authors of this report see real GDP in the United States rising 2.7 percent this year and 2.5 percent next year.

This report also noted softening in the manufacturing sector worldwide, which can also be seen in the most recent purchasing managers’ index (PMI) data. Indeed, the J.P. Morgan Global Manufacturing PMI declined to 53.1 in May, the lowest level since August 2017. On the positive side, manufacturers continue to cite progress over the past few years, with activity still expanding modestly even with some slowing. In the latest survey, nearly all underlying data reflected pullbacks in activity, including new orders, output, exports and employment. In addition, input prices remained highly elevated, with that index exceeding 60—a threshold suggesting robust growth—in eight of the past nine months. Despite the slowing in current data, manufacturing leaders remain upbeat in their global outlook for the next six months.

Two of the top 20 markets for U.S.-manufactured goods contracted in May. In addition to South Korea, which continues to grapple with political and economic challenges, Hong Kong struggled for the second straight month. That was the weakest headline number for Hong Kong since July 2016 and mainly reflected declining demand and output. More positively, the rest of the top 20 markets for U.S.-manufactured goods grew, and the longer-term trend continues to be encouraging, even with some easing in the past few months. Among the top 20 markets, the fastest growth in manufacturing activity in May occurred in Switzerland, the NetherlandsGermanySingapore, the United Arab Emirates and Canada.

Meanwhile, the IHS Markit Canada Manufacturing PMI rose to 56.2 in May, the best pace since April 2011. The latest survey continues to be consistent with improvements in the economy that began last year as the energy market stabilized.New orders expanded at a 13-month high in the latest figures, and exports grew at the fastest rate since March 2011. At the same time, employment and future output slowed somewhat in the May survey, with the latter still suggesting very healthy production growth over the next six months. Still, economic growth was somewhat soft in the first quarter—not unlike what was seen in the United States. Real GDP grew 0.3 percent in the first quarter, which translated into 1.3 percent growth at the annual rate, down from 1.7 percent in the fourth quarter. On the positive side, the unemployment rate registered 5.8 percent in May, remaining the lowest rate since comparable data became available in January 1976.

For manufacturers in the United States, exports have started 2018 on a positive note, extending the nice rebound in 2017. U.S.-manufactured goods exports totaled $377.28 billion through the first four months of 2018 using non-seasonally adjusted data, up 6.75 percent from the year-to-date total of $353.44 billion in 2017. The U.S. trade deficit eased for the second straight month in April after soaring to the highest level since October 2008 in February. The trade deficit declined to $46.20 billion in April, the lowest level since September. Goods exports rose to a new all-time high, up to $141.25 billion, boosted by a record level of exports for industrial supplies and materials ($45.66 billion), largely on strength in the petroleum segment. Indeed, petroleum exports registered a new high as well ($19.92 billion).

The stronger U.S. dollar is the other trend worth noting, as it has risen 5.1 percent since January 25.
The trade-weighted U.S. dollar index against major currencies from the Federal Reserve Board has risen from 84.6338 on January 25—the lowest level since December 18, 2014—to 88.9338 on June 8. This index reflects currency units per U.S. dollar, suggesting that the dollar can now purchase somewhat less today than it could on January 25. The index registered 75.7513 on June 30, 2014, illustrating the dollar’s continued strength, up 17.5 percent over that time frame. With that said, one of the most significant stories last year was the depreciating U.S. dollar. Since the end of 2016, it has declined 7.1 percent against major currencies. The weaker dollar in 2017 helped to spur more export growth, which benefited manufacturers in the United States.

Negotiations to update the North American Free Trade Agreement (NAFTA) have yet to conclude with little to no time left for Congress to consider a completed deal this year. The administration plans to release a final China retaliation list by the end of this week. The White House moved forward to impose Section 232 steel and aluminum tariffs on the European Union (EU), Canada and Mexico, while negotiating quota deals with Argentina and Brazil. The EU, Canada and Mexico, as well as five other countries, have already imposed or announced retaliation. Legislation to reform and expand the review of foreign investment into the United States and certain outbound transactions is moving forward, with Senate passage of this legislation, as part of the broader National Defense Authorization Act (NDAA), expected as early as this week.

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