Global Manufacturing Economic Update: 101113

 
A Publication of the National Association of Manufacturers
Monday Economic Report

October 11, 2013
Monday Economic Report Graph
Global Economic/Trade Trends

The International Monetary Fund (IMF) slightly downgraded its estimates of worldwide output for this year and next year. The IMF now forecasts global GDP to increase by 2.9 percent this year, down from the 3.2 percent estimate predicted three months ago. The lower figure was mostly attributable to some deceleration in emerging economies in Asia, Russia, Latin America and the Middle East. It also reflects a marginal downgrade in the forecast for the United States""consistent with other recent data""to 1.6 percent and 2.6 percent growth in 2013 and 2014, respectively. This is somewhat below the forecasted ranges stated by the Federal Reserve Board a few weeks ago. Yet, the IMF also acknowledges the current budgetary impasse in Washington, which could reduce growth in the fourth quarter and perhaps beyond. However, the IMF projections assume that "the ongoing shutdown in the federal government will be short-lived and the debt ceiling will be raised on time."

With the federal government shutdown, U.S. statistical agencies have been unable to release updates to many key economic indicators that we rely on. This includes the release of August's international trade data that were postponed on Tuesday. Without this information, it is difficult to ascertain whether or not we have begun to gain some traction in increasing manufactured goods exports, which have risen a paltry 1.6 percent through the first seven months of 2013 relative to the same time period in 2012. When the August data are released, we will look for some improvement to that figure.

Many of our largest trading partners have seen progress in their economies of late, which should bode well for increased demand moving forward. While the IMF downgraded its overall forecasts, there were also signs of stabilization in the data for both Europe and China. The IMF now predicts real GDP growth of 1.0 percent in 2014, which would be its first positive annual growth rate since 2011. Europe has suffered from a severe recession for the past few years, but the good news was that the Markit Eurozone Manufacturing Purchasing Managers' Index (PMI) has shown a gradual expansion every month during the third quarter. Even with some easing in September, new orders, output, utilization and exports continued to grow. However, manufacturers remain hesitant to hire.

In Asia, the Chinese economy has stabilized, but manufacturing activity remains only slightly above neutral. The HSBC China Manufacturing PMI edged marginally higher, up from 50.1 in August to 50.2 in September. This was still an improvement from softness seen from May to July, and in general, the Chinese economy has decelerated relative to past years. The IMF forecasts real GDP growth of 7.6 percent and 7.3 percent in 2013 and 2014, respectively, which is below the 9.3 percent rate in 2011. Yet, recent data suggest an uptick in industrial production, capital spending and retail sales, with exports rising for the first time since March, according to the PMI data. Japan's economy also continues to make progress, with the Markit/JMMA Japan Manufacturing PMI expanding for the seventh consecutive month. Overall, economies throughout Asia saw some improvements in September, even as a few still have some pressing issues.

Meanwhile, in North America, our two largest trading partners saw their economies moving in opposite directions. After some recent sluggishness, the RBC Canadian Manufacturing PMI increased from 52.1 to 54.2, its fastest pace since June 2012. U.S. exports to Canada have stagnated so far this year, so to the extent that our largest trading partner's economy has begun to accelerate, that is positive news. At the same time, the Mexican market has begun to stagnate. The HSBC Mexico Manufacturing PMI declined from 50.8 to 50.0, and manufacturing sales and production have slowed considerably since earlier in the year.

On the trade front, last week's NAM Board resolution calling for swift renewal of Trade Promotion Authority (TPA) positions manufacturers well to lead and advance their trade priorities. While the ongoing government shutdown has affected some talks, the stage is set for an ambitious fall agenda. Negotiations to open Asia-Pacific markets and cut global information technology tariffs may reach critical milestones in the next few months. The NAM is advocating manufacturing priorities in these negotiations and others, while addressing overseas trade barriers and keeping members up to speed on the latest export opportunities.

Chad Moutray
Chief Economist
National Association of Manufacturers

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Global Economic/Trade Trends
  • The global economy continues to improve modestly. The JPMorgan Global Manufacturing PMI rose from 51.6 in August to 51.8 in September, the fastest pace since June 2011. Yet, it also indicated only moderate increases in manufacturing activity worldwide. The underlying data were mixed overall. Output (up from 52.3 to 53.1), capacity utilization (up from 50.9 to 51.3) and exports (up from 50.3 to 51.1) improved. In contrast, growth for new orders (down from 53.2 to 52.8) and employment (down from 50.5 to 50.3) slowed. Inventory stockpiles continued to contract, albeit less so than the month before.

Six of the top 10 markets for U.S.-manufactured goods expanded in September. Only two countries contracted slightly, with both experiencing a slower rate of decline in September: Brazil (up from 49.4 to 49.9) and South Korea (up from 47.5 to 49.7). At the same time, two countries saw their economies stagnate: Hong Kong (up from 49.7 to 50.0) and Mexico (down from 50.8 to 50.0). With Mexico being our second-largest trading partner, the economic slowdown has real implications for U.S. exports to that market. Fortunately, five of the top six markets expanded, with faster growth in Canada (up from 52.1 to 54.2), our largest trading partner.

  • Asian markets have made progress, but manufacturing activity remains weak. The HSBC China Manufacturing PMI edged marginally higher, up from 50.1 in August to 50.2 in September, suggesting that activity grew only barely above neutral. Yet, it was an improvement from the contraction from May to July. Export sales (up from 47.2 to 50.7) rose for the first time since March. At the same time, new orders growth was unchanged (50.8), with output slowing (down from 50.9 to 50.2) and hiring continuing to be negative (down from 48.9 to 48.8). Meanwhile, these findings were somewhat similar to the official government PMI data , up from 51.0 to 51.1, with modest growth in new orders and production.

In general, China has seen an uptick in activity. Industrial production accelerated from 8.9 percent year-over-year in June to 10.4 percent in August. Likewise, fixed-asset investments and retail sales were also higher. We will get new data next week for real GDP and each of these variables, and the expectation is that we will continue to see a pickup. It is expected, for instance, that real GDP will grow by 7.8 percent in the third quarter at the year-over-year rate, up from 7.5 percent in the second quarter.

At the same time, the Japanese economy continues to make progress, buoyed by Prime Minister Shinzo Abe's reforms. The Markit/JMMA Japan Manufacturing PMI increased from 52.2 to 52.5, expanding for the seventh consecutive month. New orders, exports and output were higher, even as hiring growth remained essentially flat. Retail sales rose by 1.1 percent in August. However, industrial production unexpectedly fell in August, but manufacturers expect a rebound moving into the fall.

Meanwhile, economies throughout Asia notched some progress in September, even as a few still had issues. The pickup in activity in China, in particular, has had some positive spillover effects on its neighbors. Here are the PMI figures for the continent: Hong Kong (up from 49.7 to 50.0), India (up from 48.5 to 49.6), Indonesia (up from 48.5 to 50.2), South Korea (up from 47.5 to 49.7), Taiwan (up from 50.0 to 52.0) and Vietnam (up from 49.4 to 51.5).

  • The Eurozone's markets continued to stabilize, but with some easing in September. The Markit Eurozone Manufacturing PMI declined slightly from 51.4 to 51.1. The larger story, however, was that activity expanded every month during the third quarter. Prior to that, the continent's PMI readings contracted for 23 consecutive months. Even with some easing in September, new orders, output, capacity utilization and exports grew. However, hiring remained negative for the 20th straight month.

With the exception of France (up from 49.7 to 49.8) and Greece (down from 48.7 to 47.5), Europe's manufacturers reported higher activity levels. New orders in France rose above the threshold of 50 for the first time since June 2011, suggesting that it might also be stabilizing soon. The fastest growth in Europe was in Ireland (up from 52.0 to 52.7), the Netherlands (up from 53.5 to 55.8) and the United Kingdom (down from 57.1 to 56.7). At the same time, Austria (down from 52.0 to 51.1), Germany (down from 51.8 to 51.1) and Italy (down from 51.3 to 50.8) continued to expand even as growth slowed in each. Rising export levels were one consistent finding in each of these countries except for Greece, helping to lift sales and confidence.

The ZEW Indicator of Economic Sentiment reflects the increase in relative optimism, with the balance of those anticipating improving economic expectations for the Eurozone rising from 44.0 percent in August to 58.6 in September. Retail sales were also higher, up 0.7 percent in August and building on July's 0.5 percent gain. The unemployment rate was unchanged between July and August at 12.0 percent, down from 12.1 percent from April to June. The highest unemployment rates in August were in Greece (27.9 percent) and Spain (26.2 percent), with the lowest unemployment found in Austria (4.9 percent), Germany (5.2 percent) and Luxembourg (5.8 percent). Next week, we will get new data on industrial production, economic sentiment and consumer prices. The production data are expected to show a modest rise in August.

  • In North America, our largest trading partners are moving in opposite directions. The RBC Canadian Manufacturing PMI increased from 52.1 to 54.2, the fastest pace since June 2012 and the sixth straight month with expanding manufacturing activity. Escalating sales (up from 52.6 to 56.1) and exports (up from 51.2 to 54.8), along with rising employment and output, fueled September's figure. Manufacturing output was up 1.1 percent in July, led by growth in durable goods production. This is good news despite the slowness over the past year, with manufacturing output up just 0.8 percent since December 2012 and down 2.6 percent over the past 12 months. Meanwhile, retail sales were up 0.6 percent in July and 3.0 percent year-over-year. This morning, Statistics Canada announced that the unemployment rate fell from 7.1 percent in August to 6.9 percent in September. However, manufacturing employment was off by 26,000, suggesting continued weakness on the hiring front.

While Canada's economy has begun to improve, the Mexican economy continues to decelerate. The HSBC Mexico Manufacturing PMI declined from 50.8 to 50.0 for the month. The year-to-date average PMI value through September is 51.8, down from the 55.0 average for all of 2012. As recently as December, the PMI was 57.1, buoyed by stronger new orders and output. Since then, manufacturing activity has stalled, with many PMI subcomponents hovering around the neutral (50) threshold. Real GDP slowed to 0.8 percent and 1.5 percent in the first and second quarters of this year, respectively, down from 4.6 percent and 4.2 percent in the same two quarters in 2012. Industrial production declined 0.7 percent in August and has been negative in six of the eight months so far this year. However, the manufacturing sector fared better than others, with production up 1.6 percent for the month. At the same time, the unemployment rate has moved higher over the past few months, up from 4.5 percent in March to 5.2 percent in August.

  • Manufacturing activity in emerging markets expanded at a minimal pace, after contracting for three straight months. The HSBC Emerging Markets Index edged marginally higher, up from 50.7 to 50.8. The manufacturing PMI shifted from a slight contraction in August (49.8) to a slight expansion in September (50.4). This was the first PMI figure greater than 50 since April, suggesting that emerging economies have begun to stabilize after weakening over much of 2013.

Data were up marginally across-the-board, with modest gains in new orders, exports and output. Hiring also improved, but it remained below 50. Looking ahead, manufacturers in emerging markets were cautiously optimistic, with the future output up from 63.2 in July to 64.2 in August to 64.4 in September. Still, this figure remains below the high point of the year, or February's reading of 69.6.

China's improvement across the past few months was a large factor in September's PMI gains. The stabilization in both China and the Eurozone has helped neighboring emerging market economies. For instance, we saw notable progress in Indonesia (up from 48.5 to 50.2), Poland (up from 52.6 to 53.1), Taiwan (up from 50.0 to 52.0), Turkey (up from 50.9 to 54.0) and Vietnam (up from 49.4 to 51.5). In addition, there has been progress in the following countries in the past few months, even as they remain in contraction territory: Brazil (up from 49.4 to 49.9), India (up from 48.5 to 49.6), Russia (unchanged at 49.4) and South Korea (up from 47.5 to 49.7). Meanwhile, Czech Republic (down from 53.9 to 53.4) and Mexico (down from 50.8 to 50.0) had some easing in growth in September.

  • The IMF downgraded its global growth estimates for 2013 and 2014. Slower growth in emerging economies was largely to blame for the reduced global GDP figures from the IMF. In its latest World Economic Outlook , world output is expected to increase by 2.9 percent this year, down from 3.2 percent in its July estimate . The IMF forecasts global GDP growth of 3.6 percent for 2014, below the 3.8 percent prediction a few months ago. Emerging economies should grow by 4.5 percent this year and 5.1 percent next year, with both figures off from the 5.0 percent and 5.5 percent prior estimates. Decelerating growth in Asia, Russia, Latin America and the Middle East were responsible for the reduced figures.

The IMF forecasts U.S. growth of 1.6 percent and 2.6 percent in 2013 and 2014, respectively. In other key advanced economies, there should be a pickup in activity next year, most notably in Europe, which continues to recover from its severe recession. Eurozone growth should decline 0.4 percent this year, but grow 1.0 percent next year. Germany should experience a 1.4 percent increase in its real GDP in 2014.

  • U.S. trade data were postponed due to the federal government shutdown. We would have received August export and import data on Tuesday, October 8, but this was delayed because of the impasse in Washington. For an update on the data released beforehand, click here .

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International Trade Policy Trends
  • NAM Board calls for quick renewal of TPA. Last week, the NAM Board of Directors unanimously endorsed a resolution calling on Congress and the Administration to work together expeditiously to renew TPA. The fact that this was the only resolution adopted at the Board meeting is testament to the priority manufacturers place on a robust U.S. trade policy that opens overseas markets and levels the playing field. Last year, the 20 countries with which the United States has concluded trade agreements under TPA purchased nearly half of all U.S.-manufactured goods exports. The NAM will continue to work closely with the Administration, Congress and our partners in the Trade Benefits America coalition to support swift renewal of TPA. To read more about the NAM's TPA priorities, click here .

  • NAM advocates for manufacturers at the Asia-Pacific Economic Cooperation (APEC) CEO Summit. This week, NAM President and CEO Jay Timmons and Vice President of International Economic Affairs Linda Dempsey traveled to Bali, Indonesia, for the APEC CEO Summit that takes place in tandem with the APEC Leaders meeting. At the summit, they engaged top U.S. and overseas trade and economic officials on manufacturing priorities and met with global business leaders. The NAM partnered with the National Center for APEC and the APEC Business Advisory Council to release a report highlighting opportunities for significant growth in infrastructure investment in the Asia-Pacific. In the run-up to the Summit, Timmons also joined Business New Zealand Chief Executive Phil O'Reilly on an op-ed calling for an ambitious agreement in the Trans-Pacific Partnership (TPP) negotiations.

  • TPP leaders highlight progress. On the sidelines of the APEC Summit, Leaders from the 12 TPP partner countries insisted that negotiations are on track to conclude by the end of the year. In a joint statement , they noted that "significant progress" has been made in recent months and called on negotiators to "resolve all outstanding issues with the objective of completing this year a comprehensive and balanced, regional agreement." Additional negotiating rounds have not yet been scheduled, but the intellectual property (IP) group is likely to meet in late October or early November. Meetings also may be held on the margins of the December World Trade Organization (WTO) Ministerial Conference in Bali. The NAM continues to advocate for an ambitious and comprehensive deal that opens markets for U.S. goods and services exports and includes strong investment and IP protections.

  • Transatlantic Trade and Investment Partnership (T-TIP) round canceled. The second round of T-TIP negotiations previously scheduled for this week was cancelled due to the ongoing government shutdown. On October 4, U.S. Trade Representative Michael Froman contacted European Union Trade Commissioner Karel de Gucht notifying him that the United States would not be able to send a full team of negotiators to Brussels for the negotiations. Ambassador Froman expressed the U.S. commitment to rescheduling the round and crafting an alternative work plan to begin once the government reopens. In a separate statement, Commissioner de Gucht called the cancellation "unfortunate," but stressed that "it in no way distracts us from the overall aim of achieving an ambitious trade and investment deal between Europe and the U.S. which will bring real economic benefit to people on both sides of the Atlantic."

  • Negotiations resume to expand Information Technology Agreement (ITA). When China effectively suspended negotiations to expand the WTO ITA in July by calling for removal of more than 100 products, the NAM and a diverse coalition of business associations and firms renewed their call for a meaningful expansion of the ITA. Now, ITA expansion negotiations are back on track. At the APEC meetings in Bali earlier this week, China said it would re-engage with the negotiations. At the conclusion of the Summit, the 21 APEC Leaders called for a "swift conclusion of negotiations" before the WTO Ministerial Conference in December. Negotiators are expected to meet in Geneva the week of October 21, putting the ITA expansion on track for a possible conclusion this year.

  • President Obama raises manufacturing concerns with Indian Prime Minister Singh. Responding to calls by state governors and businesses, President Obama pressed Indian Prime Minister Manmohan Singh to reverse India's discriminatory trade practices during their meeting in Washington on September 27. As co-chair of the Alliance for Fair Trade with India , the NAM spearheaded a September 26 letter signed by 18 business organizations urging the President to address India's discriminatory trade barriers and weak IP protection. The letter added to a growing chorus of bipartisan calls for action. Also last month, a group of 14 governors sent a letter to President Obama highlighting the impact of India's discriminatory trade practices on states across the country. The NAM sponsored digital and print ads highlighting manufacturing concerns in the run-up to the meeting.

  • Industry prepares for export control reform milestone . Next week will mark a critical milestone in the NAM's longstanding efforts to reform the U.S. export control system. The Export Control Reform Initiative President Obama launched in 2009 takes effect on October 15. Some items from the State Department's U.S. Munitions List (USML) Categories VIII (Aircraft and Related Equipment) and XIX (Gas Turbine Engines) will shift to the Commerce Department's Commerce Control List (CCL), making it easier to export those items abroad. The State Department and Commerce Department published final rules in April, with a delayed effective date to allow for a transition period. Changes to the remaining USML Categories (and the corresponding CCL entries) are outlined here . The NAM will host a special forum for manufacturers affected by the changes on November 19.

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Exports in Action
  • Learn how to grow your business through exports. Please join the NAM on October 23 at 1:00 p.m. for an informative, complimentary webinar on "Exporting Basics." As international trade becomes increasingly important for business growth, understanding export basics is vital. The NAM, DHL Express and the Department of Commerce have collaborated on this webinar to provide manufacturers with the necessary tools to actively pursue export opportunities. The webinar will help manufacturers find new customers, distributors or agents in fast-growing markets around the world and provide an overview of the laws and regulations that cover U.S. exports. The session will also address the effective use of logistics and the legal aspects of doing business globally. Registration is limited, so sign up today!

  • Join the North American Competitiveness and Innovation Conference. The Commerce Department invites manufacturers to join the North American Competitiveness and Innovation Conference, scheduled for October 27-30 in San Diego, Calif. Commerce Secretary Penny Pritzker will be joined by her Mexican and Canadian counterparts. More than 400 business, government and academic leaders will participate to address a wide array of industry sector, workforce and supply chain topics. The agenda is available online here , and you can RSVP at www.northamericanconf.com .

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Questions or comments? Please contact Chad Moutray at cmoutray@nam.org

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