Global Manufacturing Economic Update: February 2016

A Publication of the National Association of Manufacturers

MONDAY ECONOMIC REPORTNAM/IndustryWeek Survey of Manufactures Business Outlook by Quarter, 2012-2014

U.S.–manufactured goods exports declined 6.1 percent in 2015, according to seasonally-adjusted data from Trade Stats Express. Exports fell from an all-time high of $1.40 trillion in 2014 to $1.32 trillion in 2015. This trend extends to the top four markets for U.S.-manufactured goods: Canada, Mexico, China and Japan. On the other hand, exports rose to our fifth and sixth largest trading partners, the United Kingdom and Germany. The bottom line, however, remains. It is a challenging environment right now for growing international demand, particularly given the strong U.S. dollar and persistent economic weaknesses in key markets. This finding is consistent with the 57.9 percent of respondents to the most recent NAM Manufacturers’ Outlook Survey who said that the global slowdown had negatively impacted their company’s export sales.

Significant worldwide financial market volatility in the early weeks of 2016 has challenged the growth outlook for many manufacturers. While manufacturing production is expected to increase around 1.5 percent this year, there are sufficient downside risks to that forecast, especially from abroad.

At the top of that list is China, whose slowdown has prompted global contagion worries. The Caixin China General Manufacturing PMI has now contracted for the 13th time in the past 14 months. Even though the Chinese economy officially grew 6.8 percent year-over-year in the fourth quarter—a number that is viewed with suspicion by many analysts—overall activity continues to decelerate faster than the government would prefer. This includes industrial production, which has declined from 7.9 percent year-over-year growth in December 2014 to 5.9 percent in December 2015, but it is also true for fixed asset investment and retail sales. As a result, I would not be surprised if the Bank of China continues to seek stimulative moves in an attempt to spur more growth. Using the official estimates, my outlook is for 6.4 percent year-over-year growth in China for 2016.

Overall, the global economy continues to grow ever-so-modestly even as it remains quite challenged. The J.P. Morgan Global Manufacturing PMI edged slightly higher, up from 50.7 in December to 50.9 in January. The underlying data were mixed, with the pace of new orders picking up but employment growth slowing. Output and exports were both positive, but flat for the month. It should be noted that one-quarter of the weighting of the global index comes from the United States (up from 51.2 to 52.4), where manufacturing activity rebounded at the start of the new year after falling to a three-year low in December. Interestingly, this differs from the Institute for Supple Management’s competing survey, which showed contraction in January for the fourth straight month. Beyond these headline numbers, the narrative mostly remains the same so far in 2016 as it was in 2015, with several countries remaining chronically challenged on the growth front. This includes Brazil, Canada, Hong Kong, Singapore and South Korea, which all contracted in January much as they did throughout last year, similar to China. On the positive side, several of them also experienced some improvement in January, albeit still in negative territory.

Europe has not been immune to global softness, but it has generally made progress in its economy over the course of the past year. Still, the Markit Eurozone Manufacturing PMI decreased from 53.2 to 52.3, pulling back from its highest level since April 2014. The easing in activity reflected slowing—but still somewhat modest—growth for new orders, output and exports. At the same time, employment picked up in January, with hiring expanding for 17 straight months. Eurozone manufacturing activity closely tracks sentiment in Germany. Demand and production pulled back in January in Germany but nonetheless expanded at a decent pace. Ireland (up from 54.2 to 54.3) and Spain (up from 53.0 to 55.4) also accelerated in their expansions in January, boosted by strong growth in new orders in each country. The data for other nations were more mixed, but with continuing modest growth overall. With that said, growth in Europe remains slower-than-desired, and the European Central Bank (ECB) continues to worry about deflation. (The latter is true even though the annual inflation rate ticked up in January.) There remains speculation that the ECB will further expand its quantitative easing program at its March meeting.

The Senate prepares to take up and pass trade facilitation and enforcement legislation, while the Trans-Pacific Partnership (TPP) agreement is signed and the Transatlantic Trade and Investment Partnership (TTIP) talks head to their 12th round. New developments are also reviewed on customs automation, Iran sanctions, intellectual property, and India and Chinese economic policies.

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

Global Economic and Trade Trends

The global economy remains quite challenged, even as overall activity continues to expand ever so slightly.
The J.P. Morgan Global Manufacturing PMI edged slightly lower, down from 51.2 in November to 50.9 in December. Growth in the sector worldwide slowed across 2015, with the headline index generally lower after peaking at 51.9 in February. The most recent easing in the data reflected slower growth in new orders (down from 51.4 to 51.1), exports (down from 51.1 to 50.6) and output (down from 52.3 to 51.7). Employment (up from 50.6 to 50.8) picked up a little, but hiring remained soft. It should be noted that one-quarter of the weighting of the global index comes from the United States (down from 52.8 to 51.2), where manufacturing activity fell to its lowest level since October 2012.

Manufacturing activity expanded in December in six of the top 10 markets for U.S.-manufactured goods, a slight improvement from five in November. South Korea (up from 49.1 to 50.7) accounted for the shift for the month, with activity expanding for the first time since February on stronger demand and production. Other nations with expanding activity levels in December included Germany (up from 52.9 to 53.2), Japan (unchanged at 52.6), Mexico (down from 53.0 to 52.4), the Netherlands (down from 53.5 to 53.4) and the United Kingdom (down from 52.5 to 51.9). Manufacturing growth in the United Kingdom was one of the bright spots in mid-2014, but it has largely decelerated since then, mirroring data globally. With that said, the Eurozone ended 2015 trending higher (up from 52.8 to 53.2), led by stronger growth in Germany.

In contrast, the four countries experiencing contractions in December remained in negative territory for all or most of 2015, with each suffering from persistent problems. Softness in the energy market has weakened Canada’s economy (down from 48.6 to 47.5), and Brazil (up from 43.8 to 45.6), China (down from 48.6 to 48.2) and Hong Kong (down from 46.6 to 46.4) continue to report an easing in overall activity. Illustrating these difficulties, manufacturing activity in China has not expanded since October 2014, and the pace of decline for Brazilian manufacturing activity rebounded only slightly from its lowest level since March 2009.

The U.S. dollar remained strong, with crude oil prices plummeting.
The trade-weighted U.S. dollar index against major currencies from the Federal Reserve Board has risen from 75.6968 on July 1, 2014, to 94.9133 on January 8, 2016, a 25.3 percent increase. (The data are revised each Monday.) This index reflects currency units per U.S. dollar, suggesting that the dollar can now purchase more than it could before and vice versa. For manufacturers, growth in the dollar’s value presents a real challenge as firms seek to increase international demand.

Meanwhile, the price of petroleum fell to levels not seen since 2003, the result of a stronger dollar and weaknesses in China. The price of West Texas Intermediate crude oil briefly fell to below $30 per barrel on January 12. In the larger context, the current price is off more than 70 percent since its recent peak of $107.95 per barrel on June 20, 2014.

Growth in China continues to decelerate.
The Caixin China General Manufacturing PMI fell from 48.6 to 48.2, contracting for the 12th time in the past 13 months. The lower figure in December stemmed from declines across-the-board in key subcomponents, including new orders (down from 47.8 to 47.7), exports (down from 51.6 to 47.8), output (down from 50.0 to 48.7) and employment (down from 47.4 to 47.3). As such, the stabilization in production in the November data eroded a little. Similarly, the official manufacturing PMI release from the National Bureau of Statistics of China also indicated contracting activity levels in December, with weaker data for small and medium-sized enterprises.

The release of the Caixin manufacturing PMI report prompted corrections in financial markets around the world, as analysts feared that China’s problems might spill over to other economies. The stock market bubble, which led to an all-time high of 5,166.348 in the Shanghai Stock Exchange Composite Index on June 12, has burst, with the headline index down more than 40 percent since then.

Next week, we will get a number of data points on the current health of the Chinese economy, including real GDP data for the fourth quarter of 2015. Real GDP is expected to fall from the 6.9 percent growth rate in the third quarter, which was already viewed suspiciously. For 2016, the outlook is for 6.4 percent growth in real GDP. Other economic indicators being released next week of note include the latest numbers for industrial production, retail sales and fixed asset investment. Industrial production grew 6.2 percent year-over-year in November. While that represented a rebound from the 5.6 percent rate in October, it continued to be a deceleration from the 7.9 percent pace in December 2014.

The European economy continues to move in the right direction overall, even amid global challenges.
The Markit Eurozone Manufacturing PMI increased from 52.8 in November to 53.2 in December, the highest level since April 2014. Most of the key indicators were higher for the month, including new orders (up from 53.5 to 54.2), exports (up from 53.0 to 53.2) and output (up from 54.0 to 54.5). The employment index was unchanged at 51.9, continuing to expand somewhat modestly. More importantly, hiring has increased on net for 16 straight months. The European Central Bank has worried about deflationary pressures in the economy, and input prices (up from 45.6 to 47.0) remained negative, albeit with some easing in the rate of decline.

Improvements in the headline index were pushed higher by better manufacturing activity in Germany (up from 52.9 to 53.2), which notched its best reading since August. Other nations with better data in December included France (up from 50.6 to 51.4), Ireland (up from 53.3 to 54.2), Italy (up from 54.9 to 55.6) and Spain (up from 53.0 to 53.1). Demand and production in Italy grew at the fastest pace in nearly five years, which was very encouraging. At the same time, activity eased in Austria (down from 51.4 to 50.6), the Netherlands (down from 53.5 to 53.4) and the United Kingdom (down from 52.5 to 51.9), but manufacturing remained at a decent pace in each. Meanwhile, manufacturers in Greece reported activity that was barely expansionary for the first time since August 2014 (up from 48.1 to 50.2). More importantly, it represented significant progress from July’s miserable 30.2 reading, even as the Greek economy will continue to have structural issues.

Despite some signs of strength over the longer term, industrial production fell 0.7 percent in November. Production in the sector rose 1.1 percent over the past 12 months, down from a 2.0 percent pace in October. Reduced energy production pulled output lower, with capital goods and consumer durables activity also down for the month. A similar trend could be seen for retail sales, which decreased 0.3 percent in November but were up 1.4 percent year-over-year. On the positive side, the unemployment rate declined to 10.5 percent in November, its lowest rate since October 2011. Nonetheless, the European Central Bank has been concerned enough about low annual inflation to lower its key interest rate and expand its quantitative easing program through March 2017.

Canada, our largest trading partner, continues to struggle due to lower crude oil prices.
The RBC Canadian Manufacturing PMI fell to its lowest level in the survey’s five-year history, down from 48.6 to 47.5. Indeed, manufacturing activity in Canada contracted in nine of the 12 months of 2015, illustrating the extent of the weaknesses over the past year. Reduced new orders (down from 48.1 to 47.4), output (down from 48.9 to 46.9) and employment (down from 47.9 to 46.4) each contributed to the lower PMI value in November. In contrast to those measures, however, export growth picked up in December to a six-month high (up from 50.9 to 51.4), likely aided by a weaker Canadian dollar. Conditions remained soft in Alberta and British Columbia (up from 43.4 to 43.9) and Quebec (down from 49.1 to 46.2), but there continued to be modest growth in Ontario (down from 54.6 to 52.6) despite some easing for the month to its slowest pace since February.

The Canadian economy grew 0.6 percent, or 2.3 percent at the annual rate in the third quarter, but real GDP was unchanged in October. Manufacturing output was down 0.3 percent that month as well, extending the 1.0 percent decrease in September. Retail sales were slightly more encouraging, up 0.1 percent in October, or 1.9 percent over the past 12 months. Meanwhile, the unemployment rate remained at 7.1 percent in December, even as it has inched up from 6.8 percent in July. Yet, manufacturing employment rose by 6,100 in December, with 35,900 more workers year-over-year.

Mexico slowed a little in December but experienced modest growth overall.
The Markit Mexico Manufacturing PMI declined from 53.0 in November to 52.4 December, with output (down from 54.1 to 52.3) and employment (down from 52.2 to 51.9) both easing for the month. On the other hand, new orders (up from 54.4 to 54.6) accelerated ever so slightly to a four-month high, and exports also improved (up from 51.2 to 52.5). Overall, Mexican manufacturing activity slowed across 2015, with the PMI down from 56.6 in January. Raw material costs remain elevated (up from 57.0 to 57.4), likely on strength in the U.S. dollar, but have decelerated from the more robust pace of input price growth seen from August to October.

Real GDP grew 2.6 percent at the annual rate in the third quarter of 2015, its strongest pace since the fourth quarter of 2014. Industrial production slowed from 1.8 percent year-over-year in September to just 0.1 percent in November. On the other hand, manufacturing production picked up from 1.5 percent year-over-year in October to 1.8 percent in November, even as this remained down from the 3.6 percent pace in September. Likewise, retail sales have decelerated from 6.4 percent at the annual rate in August to 4.8 percent in October. The labor market news was better, with the unemployment rate declining from 4.6 percent in October to 4.0 percent in November.

Emerging market economies contracted for the ninth consecutive month.
The Markit Emerging Markets Manufacturing Index edged slightly higher, up from 49.2 in November to 49.3 in December. While this continued to reflect declining activity, the headline index was at its highest level in six months. This suggests some improvement from September’s 48.5 reading, which had been the lowest level since March 2009. December’s higher overall figure came from better new orders (up from 48.8 to 49.1) and employment (up from 48.7 to 48.9). Still, demand and hiring have fallen each month since the beginning of 2015, illustrating persistent challenges. Along those lines, output (down from 49.9 to 49.4) and exports (down from 50.1 to 49.0) both pulled back again for the month. The forward-looking composite index for future output (down from 58.4 to 58.1) indicates some cautious optimism in the months ahead for production in the emerging markets, even as that measure has eased significantly since peaking at 64.8 in February.

The Czech Republic (up from 54.2 to 55.6) remained the bright spot in the emerging markets, particularly with relatively strong demand and output, ending the year on a high note with a four-month high in its manufacturing PMI value. Several other nations also experienced modest gains in December. Three Asian economies expanded for the first time in several months: South Korea (up from 49.1 to 50.7), Taiwan (up from 49.5 to 51.7) and Vietnam (up from 49.4 to 51.3). Poland (unchanged at 52.1) and Turkey (up from 50.9 to 52.2) also grew somewhat in December, with activity in the latter up to its highest level since November 2014. Meanwhile, a number of emerging markets contracted in December, and unfortunately, several experienced decreases in new orders and production for much of 2015. Manufacturers reported contracting activity levels in Brazil (up from 43.8 to 45.6), China (down from 48.6 to 48.2), Hong Kong (down from 46.6 to 46.4), Indonesia (down from 47.8 to 46.9), India (down from 50.3 to 49.1), Russia (down from 50.1 to 48.7) and South Africa (down from 49.6 to 49.1). With that said, India’s contraction had more to do with floods in Chennai, as it was the first negative reading for that nation since October 2013.

Manufactured goods exports declined in 2015.
Overall, this report continues to show how much manufacturers have struggled from global headwinds last year. Manufactured goods exports totaled $1,025.32 billion year-to-date through the first 11 months of the year using non-seasonally adjusted data. This was down 6.39 percent from the $1,095.30 billion observed in the same time period in 2014.

This trend extends to the top four markets for U.S.-manufactured goods: Canada (down from $287.69 billion year-to-date to $259.02 billion), Mexico (down from $221.47 billion to $217.80 billion), China (down from $111.51 billion to $106.06 billion) and Japan (down from $61.05 billion to $57.71 billion). In addition, exports of manufactured goods to Europe, our second-largest trading region after North America, were also lower year-to-date (down from $306.83 billion to $294.73 billion).

The U.S. trade deficit narrowed in November.
The trade deficit declined from $44.58 billion in October to $42.37 billion in November. These data points mirror averages from the past two years. For instance, the year-to-date average for 2015 was $44.37 billion, which was up from the overall 2014 average of $42.36 billion. The reduced trade deficit in this latest report stemmed mostly from reduced goods imports (down from $187.18 billion to $183.48 billion), with goods exports also slightly lower (down from $123.61 billion to $122.19 billion). Meanwhile, the service-sector trade surplus edged down marginally (from $18.99 billion to $18.91 billion).

At least part of the decline in goods exports could be explained by a reduction in petroleum exports (down from $7.53 billion to $7.26 billion) to its lowest level since December 2010. As a result, the petroleum trade deficit increased from $4.48 billion to $5.36 billion. Still, the petroleum trade deficit has declined significantly across the past year on reduced energy prices. The monthly average has decreased from $15.81 billion for all of 2014 to $6.92 billion through the first 11 months of 2015.

The overall trend in this release is the softness of international trade across-the-board. Goods exports were off for industrial supplies and materials (down $677 million) and consumer goods (down $644 million), with the volume of the former at its slowest pace since September 2010. There were very small increases for exports of automotive vehicles and parts (up $85 million) and food, feeds and beverages (up $33 million), with the latter buoyed by stronger wheat exports (up $197 million). On the imports side of the ledger, the data were mostly lower. This included reduced imports for consumer goods (down $2.95 billion), capital goods (down $597 million) and industrial supplies and materials (down $339 million).

International Trade Policy Trends

The global economy continues to grow ever-so-modestly even as it remains quite challenged.
The J.P. Morgan Global Manufacturing PMI edged slightly higher, up from 50.7 in December to 50.9 in January. The underlying data were mixed, with the pace of new orders picking up (from 50.8 to 51.4), but employment growth slowing (down from 50.6 to 50.4). Output (unchanged at 51.5) and exports (unchanged at 50.4) were both positive, but flat for the month. It should be noted that one-quarter of the weighting of the global index comes from the United States (up from 51.2 to 52.4), where manufacturing activity rebounded at the start of the new year after falling to a three-year low in December. Interestingly, this differs from the competing survey from the Institute for Supply Management, which showed contraction in January for the fourth-straight month.

The storyline has not changed much in 2016 from what was seen in 2015 for the top 15 markets for U.S.–manufactured goods. Many of the countries experiencing contractions in January have done so for much of the past year. This includes Brazil (up from 45.6 to 47.4), Canada (up from 47.5 to 49.3), China (up from 48.2 to 48.4), Hong Kong (down from 46.4 to 46.1), Singapore (down from 49.7 to 49.3) and South Korea (down from 50.7 to 49.5). The latter returned to negative territory, where it has contracted in nine of the past 10 months. On the other hand, several of these nations experienced some stabilization in their rates of decline in January, including Brazil, which had its highest PMI level in 11 months.

The U.S. dollar remained strong, with crude oil prices plummeting.
The trade-weighted U.S. dollar index against major currencies from the Federal Reserve Board has risen from 75.70 on July 1, 2014, to 93.42 on February 5, 2016, a 23.4 percent increase. (The data are revised each Monday.) This index reflects currency units per U.S. dollar, suggesting that the dollar can now purchase more than it could before and vice versa. For manufacturers, growth in the dollar’s value presents a real challenge as firms seek to increase international demand. With that said, the dollar weakened a little since late January, with the index measuring 95.5871 on January 29, on changing views of when the Federal Reserve might raise short-term rates again.

Meanwhile, the price of petroleum fell to levels not seen since 2003, the result of a strong U.S. dollar and weaknesses in the global economy, particularly in China. The price of West Texas Intermediate crude oil briefly closed just below $28 on February 9. To put this in a larger context, the current price is off more than 70 percent since its recent peak of $107.95 per barrel on June 20, 2014. Moreover, the average price of regular conventional gasoline in the U.S. fell to $1.66 per gallon on February 8, its lowest level since December 29, 2008, according to the Energy Information Administration.

Chinese growth remains a significant concern.
The Caixin China General Manufacturing PMI increased from 48.2 to 48.4, contracting for the 13th time in the past 14 months. On the positive side, the rate of decline for new orders (up from 47.7 to 48.5) slowed somewhat. Yet, other measures were generally lower for the month, including output (down from 48.7 to 48.0), exports (down from 47.8 to 47.1) and employment (down from 47.3 to 47.0). Similarly, the official manufacturing PMI release (down from 49.7 to 49.4) from the National Bureau of Statistics of China also indicated notable weakness, and it was the lowest level since August 2012. The declines were mostly for small and medium-sized enterprises.

The Chinese economy grew 6.8 percent year-over-year in the fourth quarter, slowing from 6.9 percent in the third quarter. For the year as a whole, China said that real GDP rose 6.9 percent. Yet, these numbers were viewed with suspicion, as many analysts assume that China is expanding much slower than that. In 2015, industrial profits fell 2.3 percent. Overall, activity continues to decelerate significantly. This includes industrial production, which has declined from 7.9 percent year-over-year growth in December 2014 to 5.9 percent in December 2015. A similar story exists for fixed asset investment (down from 15.7 percent to 10.0 percent) and retail sales (down from 11.9 percent to 11.1 percent); although, consumer spending has held up better than other indicators.

The slowdown in China has prompted global contagion worries—a major source of recent financial market volatility. As a result, I would not be surprised if the Bank of China continues to seek stimulative moves in an attempt to spur more growth. Using the official estimates, my outlook is for 6.4 percent year-over-year growth in China for 2016.

European growth has slowed somewhat, even as it continues to move in the right direction overall.
The Markit Eurozone Manufacturing PMI decreased from 53.2 to 52.3, pulling back from its highest level since April 2014. Most of the key indicators eased for the month, including new orders (down from 54.2 to 53.0), output (down from 54.5 to 53.4) and exports (down from 53.2 to 52.3). Note that each of these measures continue to reflect somewhat modest expansions in activity even with some deceleration. At the same time, employment (up from 51.9 to 52.1) picked up a little, with hiring expanding for 17 straight months. On the negative side, input prices (down from 47.0 to 42.1) and output prices (down from 49.8 to 48.3) each slid further in January, echoing worries from the European Central Bank (ECB) about deflationary pressures in the economy.

The Eurozone PMI data closely mirror manufacturing activity in Germany (down from 53.2 to 52.3), including coincidently having the same PMI values. Demand and production pulled back in January in Germany but nonetheless expanded at a decent pace. Ireland (up from 54.2 to 54.3) and Spain (up from 53.0 to 55.4) also accelerated in their expansions in January, boosted by strong growth in new orders in each country. The data for other nations were more mixed, but with continuing modest growth overall. This included activity for Austria (up from 50.6 to 51.2), Italy (down from 55.6 to 53.2), the Netherlands (down from 53.4 to 52.4) and the United Kingdom (up from 52.1 to 52.9). In the U.K., production growth remained healthy (58.6), but the headline index was softer than desired due to still-weak demand and falling exports. Meanwhile, activity stagnated in both France (down from 51.4 to 50.0) and Greece (down from 50.2 to 50.0).

On February 12, we will get new data on fourth quarter GDP and industrial production for the Eurozone. The expectation is that real GDP will increase by 1.7 percent year-over-year in the fourth quarter, up slightly from the 1.6 percent pace seen in the third quarter. At the same time, the December industrial production data are not predicted to change much from the 1.1 percent year-over-year growth rate observed in November. In other news, retail sales were up 0.3 percent in December, rising 2.4 percent over the past 12 months, and the unemployment rate dropped to 10.4 percent, its lowest rate since September 2011. Finally, despite concerns about deflation (discussed above), the annual inflation rate ticked up from 0.2 percent in December to 0.4 percent in January. Pricing pressures remain low, however, and speculation persists that the ECB will further expand its quantitative easing program at its March meeting.

Canada, our largest trading partner, continues to struggle due to lower crude oil prices.
The RBC Canadian Manufacturing PMI rose from 47.5 in December, its lowest level in the survey’s five-year history, to 49.3 in January. While that figure was a five-month high, manufacturing activity has now contracted in eight of the past 10 months. New orders (up from 47.4 to 49.6), output (up from 46.9 to 49.1) and employment (up from 46.4 to 48.5) continued to fall on net in January, albeit at a slower pace than in the prior report. At the same time, exports (up from 51.4 to 53.1) grew more strongly for the month, likely boosted by exchange rates. Conditions remained weak in Alberta and British Columbia (up from 43.9 to 44.9) and Quebec (up from 46.2 to 47.0) even with progress for the month, but there was decent growth in Ontario (up from 52.6 to 55.4).

Real GDP increased by 0.3 percent in November, with manufacturing output up 0.4 percent. Retail sales were also higher, up 1.7 percent, boosted by strong spending on building materials, clothing, electronics and motor vehicles. Nonetheless, the Canadian economy is expected to slow somewhat in the fourth quarter (with data out on March 1) from the 2.3 percent annual rate observed in the third quarter. In addition, the unemployment rate inched up from 7.1 percent in December to 7.2 percent in January, its highest level since December 2013. This figure has trended higher in recent months, up from 6.8 percent in July. Meanwhile, manufacturing employment declined by 11,000 in January, but on a year-over-year basis, it has increased by 17,100.

Growth in Mexico's manufacturing sector slowed a little in January.
The Markit Mexico Manufacturing PMI declined from 52.4 to 52.2, dropping to a four-month low. With that said, new orders (up from 54.6 to 55.4) and exports (up from 52.5 to 53.6) each accelerated for the month, with sales rising to a nine-month high. The headline number was pulled lower by easing in both output (down from 52.3 to 51.3) and employment (down from 51.9 to 51.2). In addition, raw material costs remain highly elevated (up from 57.4 to 59.8), likely on strength in the U.S. dollar relative to the Mexican peso.

New industrial production data for December will be out today, hopefully improving upon the November figures. Manufacturing production grew 1.8 percent year-over-year in November, but that was down from 3.6 percent in September. On the other hand, retail spending picked up recently, rising from 4.8 percent year-over-year in October to 5.7 percent in November. The unemployment rate has also trended lower, down from 4.6 percent in October to 4.0 percent in both November and December.

Emerging market economies contracted for the tenth consecutive month.
The Markit Emerging Markets Manufacturing Index edged up from 49.2 to 49.3, its highest level since June. Yet, it has also remained below 50 each month since March, with the emerging markets continuing to struggle overall. The underlying data for January were mixed. The pace of decline for new orders (up from 49.0 to 49.6) eased for the month, but other measures decreased, including output (down from 49.4 to 49.2), exports (down from 48.9 to 48.5) and employment (down from 48.7 to 48.4). Nonetheless, the forward-looking composite index for future output (up from 57.4 to 58.1) moved somewhat higher, indicating some cautious optimism for the months ahead. This figure, however, was 64.3 one year ago.

The Czech Republic (up from 55.6 to 56.9) remained the bright spot in the emerging markets, with manufacturing activity expanding at its fastest rate since July. Other economies grew more slowly, including Poland (down from 52.1 to 50.9), Taiwan (down from 51.7 to 50.6), Turkey (down from 52.2 to 50.9) and Vietnam (up from 51.3 to 51.5). India (up from 49.1 to 51.1) expanded in January after suffering from floods in Chennai in December; whereas, South Korea (down from 50.7 to 49.5), which expanded in December for the first time since last February, returned to contraction territory once more in January. Meanwhile, a number of countries have remained mired in contraction for much of the past year or so, a trend which continued in the latest data, albeit with some improvements for the month in some cases. This included Brazil (up from 45.6 to 47.4), China (up from 48.2 to 48.4), Hong Kong (down from 46.4 to 46.1), Indonesia (up from 47.8 to 48.9), Russia (up from 48.7 to 49.8) and South Africa (up from 49.1 to 49.6).

Manufactured goods exports declined 6.1 percent in 2015.
According to Trade Stats Express, U.S.-manufactured goods exports fell from an all-time high of $1.40 trillion in 2014 to $1.32 trillion in 2015. This trend extends to the top four markets for U.S.–manufactured goods: Canada (down from $271.6 billion to $246.3 billion), Mexico (down from $215.7 billion to $214.2 billion), China (down from $91.2 billion to $89.1 billion) and Japan (down from $54.7 billion to $52.1 billion). On the other hand, exports rose to our fifth and sixth largest trading partners, the United Kingdom (up from $45.2 billion to $48.6 billion) and Germany (up from $43.8 billion to $44.7 billion).

The U.S. trade deficit widened in December.
The trade deficit increased from $42.23 billion in November to $43.36 billion. The underlying data were little changed from the month before, with marginal shift in goods exports (down from $121.94 billion to $121.16 billion) and goods imports (up from $183.18 billion to $183.67 billion). The service sector trade surplus also inched up a touch, increasing from $19.02 billion to $19.16 billion. For 2015 as a whole, the trade deficit averaged $42.29 billion, which was not far from the $42.36 billion seen in 2014. Yet, the underlying data reflect some major changes behind the scenes. Goods exports were off sharply, down from an average of $136.05 billion in 2014 to $126.16 billion in 2015, and a similar trend was seen for goods imports, down from $197.84 billion to $183.48 billion.

A fair share of the reduction in goods trade over the past year can be explained by shifts in the petroleum market. Petroleum exports averaged $8.29 billion in 2015, down from $12.03 billion in 2014. Likewise, petroleum imports fell from an average of $27.83 billion in 2014 to $15.17 billion in 2015. In this latest report, the petroleum trade balance widened marginally, up from $5.46 billion to $5.93 billion. Much of the dynamics in these changes over the past year are attributable to sharply lower crude oil prices, and indeed, the average price per barrel in the December calculations ($36.60) was the lowest since January 2005.

The goods exports by sector data were mostly lower in December, including declines for automotive vehicles and parts (down $559 million), industrial supplies and materials (down $414 million), foods, feeds and beverages (down $374 million) and capital goods (down $339 million). These were somewhat offset, however, by increased exports for consumer goods (up $937 million). In contrast, higher goods imports were led by strength in automotive vehicles (up $980 million), industrial supplies and materials (up $507 million) and foods, feeds and beverages (up $181 million). There were decreasing imports for consumer goods (down $631 million) and capital goods (down $27 million).

Exports in Action

Webinars: Hannover Messe: An Unequaled Global Opportunity at the World's Largest Industrial Trade Show
February 17: Your Global Customers in One Venue
March 16: Five Trade Shows in One
These are the final two dates in a series of five webinars that highlight the benefits of participating at Hannover Messe, the world’s largest industrial trade show. This is the first year the United States will be featured as a Partner Country, which will provide an opportunity to highlight America’s most innovative technologies. The February 17 webinar will feature commentary from commercial specialists from some of the top 25 markets at Hannover Messe. The March 16 webinar will include expertise from industry specialists on how companies can benefit most from participation at Hannover. For more information on both, click here.

Webinar: Business Opportunities in Bolivia
March 2
The United States is one of Bolivia’s top trading partners. This webinar will provide information on business opportunities for American exporters in a number of industries including equipment and parts manufacturing and energy exploration. For more information, click here.

Webinar: Opportunities in China's Medical Device Market
March 3
The medical device industry is one of China’s fastest growing industry sectors. Over the past 10 years, the sector has grown at an average rate of 20 percent. This webinar will provide an overview of the market, insight into regulatory requirements for imported devices and intellectual property protections, and highlight opportunities for U.S. companies at the 2016 China Medical Equipment Fair. For more information, click here.
 

Webinar: Business Opportunities in Paraguay
March 16
With a rapidly growing open economy and the potential for continued growth, Paraguay is an increasingly important market for U.S. exporters. Presently, main import commodities include: road vehicles, consumer goods, tobacco, petroleum products, electrical machinery, tractors, chemicals and vehicle parts. During this webinar, international trade specialists will discuss new and existing business opportunities in Paraguay. For more information, click here.

U.S. Safety & Security Trade Mission to Honduras, Guatemala, and El Salvador
May 16–20
The International Trade Administration will lead a Trade Mission to Honduras, Guatemala, and El Salvador for U.S. companies interested in launching or increasing exports of U.S. safety and security goods or services. Throughout the mission, participants will attend business and market briefings; meet with pre-screened potential buyers and partners; attend receptions and events with business leaders and government officials; and gain media exposure. Application deadline is March 4. For more information, click here.  

Cyber Security Business Development Mission to Japan, South Korea, and Taiwan
May 16–24
The International Trade Administration is organizing an executive-led Business Development Mission for U.S. firms and associations in the information and communication technology (ICT) security industries. In recent years, there has been a significant increase in cyber security investment by both private and public sectors in East Asia. This trade mission is dedicated to helping participants engage in business and policy opportunities and increasing U.S. exports of ICT security goods and services to the region. The itinerary will include customized one-on-one business meetings with pre-screened contacts; meetings with relevant government officials and business leaders; and industry networking events. Application deadline is March 4. For more information, click here.  

For a listing of other upcoming Commerce Department activities and trade missions, click here.

Questions or Comments?

Contact Chief Economist Chad Moutray at cmoutray@nam.org.

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