- Manufactured goods exports have slowed considerably in the early months of 2013. New data from the Commerce Department show that manufactured goods exports rose just 1.0 percent on a seasonally adjusted basis in the first quarter of 2013 relative to the same time period in 2012. Unfortunately, it builds on an already slower pace from last year when manufactured goods exports were up only 5.5 percent. In the first quarter of 2013, the biggest disappointment was Europe, with exports off a whopping 8.3 percent. Outside of Europe, the other surprise was the 0.6 percent decrease in exports to Canada, our largest trading partner. South America and Asia saw the strongest growth. Exports to China, our third-largest trading partner, were up 9.3 percent.
- The U.S. trade deficit narrowed in March on reduced exports and imports. The trade deficit fell from $43.63 billion in February to $38.83 billion in March. This is the second-lowest level since January 2010, almost equaling the trade deficit of $38.14 billion in December 2012. This was a significant and unexpected narrowing in our trade position, resulting from a sharp drop in goods imports, which exceeded the decline in goods exports. Goods exports decreased from $132.18 billion to $130.35 billion, whereas goods imports fell from $192.93 billion to $186.49 billion.
Unlike the changes seen in the past few months, the narrowing in March was due mostly to nonpetroleum factors. The petroleum trade balance eased marginally from $21.45 billion to $21.13 billion, with the nonpetroleum trade balance dropping from $38.62 billion to $34.76 billion. Petroleum exports and imports were lower, with cost most likely helping to reduce these values by nearly equal amounts. The average price of West Texas Intermediate crude in March was $92.94 per barrel, down from $95.31 a barrel in February.
There were declines across-the-board in goods exports categories. Foods, feeds and beverages saw the largest decrease, down $1.05 billion. This was followed by motor vehicles and parts (down $331 million), industrial supplies and materials (down $288 million), nonautomotive capital goods (down $269 million) and consumer goods (down $260 million). The most notable exceptions were civilian aircraft (up $582 million) and pharmaceuticals (up $441 million).
- The global economy is growing very slowly. The JPMorgan Global Manufacturing PMI declined from 51.1 in March to 50.5 in April. This easing was fairly broad-based, with slower growth for output, new orders and employment. On a positive note, new export orders rose slightly. These developments are a bit of a reversal from improvements in the global economy over the past few months. Yet, this was the fifth consecutive month with a PMI of 50 or greater, following six months of lower levels. While there has been progress so far in 2013, it has been minimal.
Of the top 10 markets for U.S.-manufactured goods, four had PMI values less than 50 in April, suggesting that manufacturing activity in those nations was contracting. The good news is that Canada’s PMI returned to positive territory, albeit just barely, rising from 49.3 in March to 50.1 in April on a modest gain in sales. As our largest trading partner, Canada’s progress is notable. At the same time, several European nations continue to show weakness. These were Germany (down from 49.0 to 48.1), the Netherlands (up from 48.0 to 48.2) and the United Kingdom (up from 48.6 to 49.8). The other nation with marginally contracting activity levels was Hong Kong (down from 50.5 to 49.9).
- Europe’s problems deepen. The political challenges that made headlines in February and March have mostly ceded, with Italy selecting Enrico Letta as its new prime minister—ending a few months of uncertainty—and the Cypriot financial crisis over. Yet, the economic challenges on the continent have not gone away, as we continue to see in the latest data.
The Markit Eurozone Manufacturing PMI declined from 46.8 to 46.7, contracting for 21 straight months. The rates of decline picked up in several nations on weaker production, orders and hiring levels. In addition to the nations listed above, other countries with sub-50 levels of manufacturing activity in April included France (up from 44.0 to 44.4), Greece (up from 42.1 to 45.0), Ireland (down from 48.6 to 48.0), Italy (up from 44.5 to 45.5) and Spain (up from 44.2 to 44.7). Several markets had modest gains, but these were not enough to keep them from contracting. Many of these reports showed an easing of pricing pressures, with raw material costs lower and finished goods prices falling.
Next week, we will get the first reading of real GDP for 2013, with the Eurozone’s output expected to have modest declines. This would build on the 0.6 percent decline in the fourth quarter of 2012. In addition, Eurostat is expected to announce a slight reduction in industrial production for March, which would reverse February’s 0.4 percent gain. Retail sales fell 0.1 percent in March and 2.4 percent year-over-year in the Eurozone. Meanwhile, the unemployment rate in the Eurozone rose to 12.1 percent in March, up from 12.0 percent in February, with the highest rates in Greece (27.2 percent), Spain (26.7 percent) and Portugal (17.5 percent). Not surprisingly, consumer sentiment has also been weak, falling in April.
- Canada’s weaker economy has impacted exports. As noted above, manufactured goods exports to Canada in the first three months of 2013 were down 0.6 percent relative to the same period in 2012. Growth appears to have slowed north of the border, negatively impacting our largest trading partner. Real GDP was up just 0.7 percent and 0.6 percent in the last two quarters of 2012, respectively. First-quarter data, scheduled to be released later this month, are expected to reflect continued weaknesses. The forecast for 2013 is for only 1.3 percent growth.
The unemployment rate remained unchanged at 7.2 percent between March and April, up from 7.0 percent in both January and February. Although manufacturers added 20,600 net new workers in April, the sector has lost 51,800 workers over the past 12 months. Meanwhile, while the RBC Canadian Manufacturing PMI has suggested that manufacturing activity “stagnated” in April, official data on manufacturing shipments in February reported a 2.6 percent increase due to stronger transportation equipment, energy and food shipments. March’s data will be out next Wednesday.
Elsewhere in the Americas, manufacturing activity continues to pull back in Brazil and Mexico. The HSBC Brazil Manufacturing PMI fell from 51.8 in March to 50.8 in April, with slower production growth and falling exports dragging the measure lower. Brazilian industrial production rose 0.7 percent in March, rebounding from February’s 2.4 percent loss. Still, the data suggest softness in the market overall. Similarly, the HSBC Mexico Manufacturing PMI declined from 52.2 to 51.7. Mexico—our second-largest trading partner—saw new domestic orders ease significantly, even as its export sales grew very slowly. Industrial production in March fell at the annual rate of 4.9 percent, building on the 1.2 percent decline in February.
- Growth in Asia has slowed, but continues to expand modestly. Economies in Asia have shown some signs of easing in April. For instance, the HSBC China Manufacturing PMI fell from 51.6 in March to 50.4 in April. While this figure indicates growth for the sixth consecutive month, the pace of new orders pushed overall activity lower. Much of the slower sales figures stemmed from softness to export markets, including to the United States and Europe. Real GDP in the first quarter of 2013 was weaker than expected, up 7.7 percent year-over-year instead of the anticipated 8.0 percent growth rate. Industrial production also decelerated from 10.3 percent annual growth in December to 8.9 percent in March.
Elsewhere in Asia, manufacturing activity was largely mixed, even as most of the Asian economies had PMI values above 50, indicating modest expansion. Countries with improvements in production and new orders in April included Indonesia (up from 51.3 to 51.7), Japan (up from 50.4 to 51.1), South Korea (up from 52.0 to 52.6) and Vietnam (up from 50.8 to 51.0). This contrasts with slower growth in India (down from 52.0 to 51.0) and Taiwan (down from 51.2 to 50.7) and with marginally contracting activity in Hong Kong (down from 50.5 to 49.9).