- Worldwide manufacturing activity continued to expand in January, building on the strength seen in the second half of 2013 but with some slight easing in growth. The JPMorgan Global Manufacturing PMI decreased marginally from 53.0 in December to 52.9 in January. Several indicators in January had a somewhat slower pace of growth than in December. This included new orders (down from 54.4 to 54.3), exports (down from 51.9 to 51.2), output (down from 54.9 to 54.5) and employment (down from 51.3 to 51.0). At the same time, the data have shown expanding levels of growth since contracting in November 2012, with a slight acceleration in activity since July 2013. With that in mind, JPMorgan Director of Global Economics Coordination David Hensley said, “The global manufacturing sector maintained solid growth momentum at the start of the year.”
Yet, there were also some challenges of note, particularly in emerging markets. China’s manufacturing activity contracted for the first time since July, and there were broader concerns about financial difficulties in emerging markets (see below). Nonetheless, the other nine of the top 10 markets for U.S.-manufactured goods reported growing manufacturing activity in January.
- Manufacturing orders and output have generally improved in emerging markets, but recent headlines have put them into greater focus. The flight of capital out of several emerging markets has forced some countries to raise interest rates to defend their currencies. This includes Argentina, India, South Africa and Turkey, among other countries. The plight of these emerging markets helped to drag down global equity values earlier in the month, but lately, this issue has become less important, with the view that these challenges might be isolated to just a handful of countries.
Even with such worries, manufacturing activity in emerging markets has continued to expand overall. The HSBC Emerging Markets Index was off slightly, down from 51.6 to 51.4. Likewise, the manufacturing PMI for emerging markets mirrored this decline, down from 51.1 to 50.9. Despite some deceleration in the pace of growth during the past two months, this was the sixth consecutive month of expansion in the manufacturing sector in emerging markets. The easing in January’s data resulted from somewhat slower growth for new orders (down from 52.3 to 52.2) and output (down from 52.1 to 52.0), with export sales only slightly above neutral (up from 50.1 to 50.3). In addition, hiring further contracted for the second straight month (down from 49.8 to 49.1).
Digging into the data, the news continues to be mostly positive, particularly when looking at activity now versus weaknesses from just a few months ago. Both the Czech Republic (up from 54.7 to 55.9) and Poland (up from 53.2 to 55.4) had growth rates at their highest levels since early 2011. Meanwhile, Brazil (up from 50.5 to 50.8), Indonesia (up from 50.9 to 51.0) and Turkey (down from 53.5 to 52.7) noted expanding levels of sales and production, even as the latter has seen some easing over the past two months. One of the weaker countries remains Russia (down from 48.8 to 48.0), with manufacturing activity sinking to its lowest level since June 2009.
- Manufacturers noted a quicker pace of activity in Mexico, but growth slowed in Canada. The HSBC Mexico Manufacturing PMI increased from 52.6 to 54.0, its highest level in 12 months. Jumps in new orders (up from 54.3 to 56.6) and output (up from 52.7 to 55.7) fueled the higher figure, with exports (up from 51.2 to 52.1) also increasing. Hiring remains just above neutral (down from 50.5 to 50.2), but survey respondents have observed positive employment growth since November. Overall, the Mexican economy remains weak, with real GDP up 1.6 percent in the second quarter and 1.3 percent in the third quarter. In December, total industrial production declined by 0.3 percent, although manufacturing output rose 1.1 percent. Such data suggest underperformance overall, with manufacturing production down from a 3.6 percent year-over-year pace in October.
At the same time, the RBC Canadian Manufacturing PMI fell for the third straight month, down from 53.5 in December to 51.7 in January, its slowest pace since April. New export orders (up from 50.9 to 53.0) were a strength. However, an easing in domestic sales and production weighed down manufacturers, with measures for new orders (down from 55.0 to 52.9) and output (down from 53.8 to 52.6) lower. Moreover, employment slightly contracted (down from 51.6 to 49.8) for the first time in 24 months.
The slower start to the new year follows progress in Canada in mid-2013. For instance, real GDP expanded 2.7 percent at the annual rate in the third quarter, up from 1.6 percent in the second quarter. The expectation is that Canada’s economy grew a modest 2.5 percent in the fourth quarter, with new data scheduled to be released on February 28. The unemployment rate jumped from 6.9 percent in November to 7.2 percent in December, but manufacturers added 7,500 net new workers for the month. On a year-over-year basis, however, the sector shed 41,600 employees.
- Manufacturing activity in China slipped back into contraction. The HSBC China Manufacturing PMI dropped from 50.5 to 49.5, its lowest level in six months. Since peaking at 50.9 in October, the composite measure has declined each month. While much has been made about the sub-50 reading, output continued to expand, albeit at a slower pace (down from 51.4 to 50.8). Weaknesses stemmed from an easing in new orders (down from 51.6 to 50.1) and declines in exports (down from 49.1 to 48.4) and employment (down from 48.7 to 47.3). Meanwhile, the official government PMI data were also lower, down from 51.0 to 50.5, suggesting very slow growth but otherwise similar trends.
Real GDP in China grew 7.7 percent in the fourth quarter and for all of 2013. This was both higher than the 7.5 percent growth rate in the second quarter and down from the more robust pace from a few years ago. For instance, real GDP expanded 11.9 percent in the first quarter of 2010, its recent high. Growth in industrial production edged slightly lower in December to an annualized 9.7 percent, down from 10.3 percent in October and 10.0 percent in November. Similarly, retail sales were off marginally, down from a year-over-year rate of 13.7 percent in November to 13.6 percent in December. Still, this was the second-fastest pace for retail spending in 2013, a sign that Chinese consumers accelerated their purchases as the year progressed.
Elsewhere in Asia, production activity was up across-the-board, continuing the progress from the fall months. Hong Kong (up from 51.2 to 52.7), Japan (up from 55.2 to 56.6), Taiwan (up from 55.2 to 55.5) and Vietnam (up from 51.8 to 52.1) notched multiyear highs in manufacturing sentiment, with expanding levels in new orders and exports. In addition, India (up from 50.7 to 51.4), Indonesia (up from 50.9 to 51.0) and South Korea (up from 50.8 to 50.9) experienced faster sales growth overall. This was true despite a slight contraction in output in Indonesia. Indian manufacturing production has bounced back from contracting as recently as October, with export sales picking up to their fastest pace since June.
- European manufacturers experience their strongest growth since May 2011. The Markit Eurozone Manufacturing PMI increased from 52.7 to 54.0, up for the fourth straight month and now at the fastest pace in 32 months. After a deep two-year recession, the recent progress is welcome news. The data show gains in new orders (up from 54.1 to 55.7), exports (up from 53.8 to 55.3) and output (up from 54.9 to 56.7). Hiring also shifted from being essentially neutral in December (49.9) to slight growth in January (51.0). This was the first time the employment index has been above 50 since January 2012.
While the European economy has improved overall, some wide disparities in the levels of progress of individual countries continue. Germany (up from 54.3 to 56.5), Italy (up from 53.1 to 53.3) and Spain (up from 50.8 to 52.2) experienced multiyear highs, and Greece (up from 49.6 to 51.2) saw its manufacturing sector expand for the first time since August 2009. Other countries continued to experience growth overall, even as the pace slowed or eased somewhat, such as Austria (unchanged at 54.1), Ireland (down from 53.5 to 52.8), the Netherlands (down from 57.0 to 54.8) and the United Kingdom (down from 57.2 to 56.7). In some of these markets, production continued to expand strongly. Meanwhile, France (up from 47.0 to 49.3) remains one of the few European nations that continues to struggle, contracting each month since February 2012. Yet, new orders in France were at their highest level since September, even as they were still declining overall.
These variations also extend to industrial production, which increased an annualized 1.8 percent in November. Yet, the year-over-year comparisons ranged from robust growth in Ireland (up 13.2 percent) and the Czech Republic (up 8.8 percent) to modest gains in Poland (up 4.4 percent), Germany (up 4.0 percent) and the United Kingdom (up 2.3 percent) to declines in Greece (down 6.2 percent) and Malta (down 8.6 percent).
It is important to keep such progress in perspective. Real GDP in the Eurozone increased just 0.1 percent in the third quarter, down from 0.3 percent in the second quarter. In addition, the unemployment rate was unchanged for the third straight month in December at 12.0 percent, and retail sales declined 1.6 percent in December. It is clear that challenges remain on the continent, even with recent stabilization. For instance, the Eurozone is expected to grow just 1.0 percent in 2014.
- Growth in U.S.-manufactured goods exports was disappointing in 2013. Manufactured goods exports grew just 2.4 percent in 2013. This indicates that growth in manufactured goods exports remains soft, decelerating from the 5.7 percent growth rate through all of last year. It is well below the 15 percent rate needed to double exports by 2015, as outlined in the President’s National Export Initiative.
We hope stabilization in the global economy and cautious optimism for better worldwide growth rates in 2014 will produce improved manufactured goods exports moving forward.
- The U.S. trade deficit narrowed in 2013, but it rose somewhat in December. The U.S. trade deficit rose from $34.56 billion in November to $38.70 billion in December. The rise stemmed entirely from a decline in goods exports, down from $137.05 billion to $132.76 billion. Goods imports were essentially unchanged, up from $191.28 billion to $191.58 billion. Meanwhile, the service sector trade surplus increased somewhat, up from $19.68 billion to $20.12 billion.
The trade deficit narrowed in 2013 as a whole. The average monthly trade deficit in 2013 was $39.29 billion, or $5.26 billion less than the $44.56 billion average in 2012. Behind this figure, the goods trade deficit declined from an average of $61.79 billion in 2012 to $58.60 billion in 2013, with the service sector trade surplus rising from $17.24 billion to $19.30 billion.
December’s decline in goods exports was primarily from nonpetroleum factors. While the petroleum trade deficit increased slightly (up from $9.07 billion to $9.59 billion), the larger contributor to the higher total trade deficit stemmed from the nonpetroleum trade deficit (up from $41.36 billion to $45.18 billion). One of the bigger trade stories of the past year has been the narrowing of the petroleum trade deficit, down from an average of $13.15 billion each month in 2012 to $11.00 billion in 2013. Increased exports and fewer imports of petroleum led to this result.
Looking specifically at the goods exports sector, December’s numbers were mostly lower, as noted. There were reduced exports in industrial supplies and materials (down $1.1 billion), nonautomotive capital goods (down $1.1 billion), automotive vehicles and parts (down $769 million) and consumer goods (down $708 million). On the positive side, exports of foods, feeds and beverages increased by $364 million, mainly due to higher exports for soybeans and wheat.