Global Manufacturing Economic Update: 121313

 
A Publication of the National Association of Manufacturers
Monday Economic Report

December 13, 2013
Monday Economic Report Graph
Global Economic/Trade Trends

The Organisation for Economic Co-operation and Development (OECD) says that world trade should rebound next year, with growth increasing from its annual pace of 3.7 percent in 2013 to 5.5 percent in 2014. The OECD also forecasts improvements in real GDP for the United States (up from 1.7 percent to 2.9 percent), Europe (up from -0.4 percent to 1.0 percent) and China (up from 7.7 percent to 8.2 percent). Despite such gains, weaknesses persist in emerging markets, and continued political risks could dampen the prospects for better growth.

The prospects for faster global growth should help drive more manufacturing exports in the coming months. The U.S. trade deficit narrowed in October, averaging $40.2 billion through the first 10 months of 2013. That is lower than the $46.4 billion and $44.6 billion deficits in 2011 and 2012, respectively. Yet, growth in U.S.-manufactured goods continues to be frustratingly slow so far this year, up just 1.9 percent year-to-date relative to the same time period last year. Such a sluggish rate will make it hard to meet the President's goal of doubling exports by 2015, as outlined in the National Export Initiative . Yet, we hope export sales will improve in 2014, especially with stabilizing economies in our largest international markets.

The JPMorgan Global Manufacturing Purchasing Managers' Index (PMI) rose to its highest level in more than two years, up from 52.1 in October to 53.2 in November. The key drivers of the increased activity were higher levels for new orders (up from 53.3 to 54.8), exports (up from 51.9 to 52.8) and output (up from 52.9 to 55.3). With the exception of Brazil , all of the other top 10 markets for U.S.-manufactured goods expanded in November. This is an improvement from September, when only six of these economies were growing. The recent progress worldwide has produced notable strides in manufacturing activity for a number of countries, with many reaching PMI levels not seen in several months or even several years. For instance, Japan's manufacturing PMI reported new orders up at their fastest pace since February 2006. Such data are indicative of the recent gains in the global market, which, while not growing robustly, have made progress of late.

Meanwhile, we are often reminded that we live in an ever-increasing global marketplace, with China's influence continuing to grow. Last week, we got another example of this. The Society for Worldwide Interbank Financial Telecommunication reported that the Chinese yuan has overtaken the euro as the second-most used currency for foreign trade transactions. In October, the yuan was used 8.66 percent of the time in such transactions, up from just 1.89 percent in January 2012. This suggests a substantial increase in the use of the yuan in trade in a very short period of time. The U.S. dollar continues to be the dominant currency used in trade finance, with parties using the dollar 81.08 percent of the time. However, it does illustrate the changing nature of international commerce and the rising stature of China on the trade front.

Much of the policy news recently has focused on trade negotiations and global competitiveness. While the World Trade Organization (WTO) reached a Trade Facilitation Agreement in Bali, other negotiations with the Asia-Pacific, with Europe and separately on information technology will continue into 2014. Preparations are also underway for major legislative activity in 2014, including on Trade Promotion Authority (TPA), reauthorization of the Export-Import (Ex-Im) Bank and international tax reform.

Chad Moutray
Chief Economist
National Association of Manufacturers

{Back to top}


Global Economic/Trade Trends
  • Global demand for manufactured goods continues to pick up, growing modestly in November. The JPMorgan Global Manufacturing PMI increased from 52.1 in October to 53.2 in November, its highest level in more than two years. The key drivers of the increased activity were higher levels for new orders (up from 53.3 to 54.8), exports (up from 51.9 to 52.8) and output (up from 52.9 to 55.3). At the same time, employment growth remains somewhat slow, with the hiring index off from 50.8 to 50.7. This suggests a continued hesitance to add new workers, with modest gains worldwide. The good news, however, is that employment has been positive for five straight months.

    In general, the worldwide economy has improved in the past few months; for instance, just six countries expanded in September. In November, only one of the top 10 markets for U.S.-manufactured goods had a PMI value under 50""the threshold for growth. Manufacturing activity in Brazil (down from 50.2 to 49.7) has contracted in four of the past five months with slowing output growth and reduced levels of new orders. Among the other nine countries, some have begun to experience relatively healthy gains in sales and production, including Japan (up from 54.2 to 55.1), the Netherlands (up from 54.4 to 56.8) and the United Kingdom (up from 56.5 to 58.4).


  • The Chinese yuan replaced the euro as the second-most used currency in financial markets. According to the Society for Worldwide Interbank Financial Telecommunication, the Chinese currency was used in 8.66 percent of all trade financial transactions in October. As such, it overtook the euro, which was utilized 6.64 percent of the time. According to this press account , "The most active yuan users are Chinese and Hong Kong companies, which account for about 80 percent of the total foreign trade operations in the yuan. The remaining 20 percent is spread among Singapore (12 percent), Germany (2 percent), Australia (2 percent) and other countries (4 percent)."

    This news suggests rapid growth in usage of the yuan. At the beginning of 2012, for instance, the Chinese currency accounted for just 1.89 percent of all transactions. Even with this development, the U.S. dollar remains dominant, accounting for 81.08 percent of all trade transactions in October, down from 84.96 percent in January 2012.


  • North American economies have improved in the past few months, but Mexico is still growing very slowly. The RBC Canadian Manufacturing PMI decreased from 55.6 to 55.3. Even with the slight decline, the data continue to reflect decent growth in manufacturing activity, which has steadily improved since contracting briefly in March. In fact, the output index rose from 56.6 to 57.1, its highest point since March 2011.

    Real GDP expanded 2.7 percent at the annual rate in the third quarter, up from 1.6 percent in the second quarter. At the same time, manufacturing capacity utilization rose to 80.5 percent in the third quarter, which was better than the 79.9 percent rate in the second quarter but still below the 81.7 percent rate one year ago. The unemployment rate remained unchanged at 6.9 percent in November, with manufacturers adding 24,900 workers in the month. However, sector employment remains down by 44,200 year-over-year.

    In the meantime, the HSBC Mexico Manufacturing PMI increased from 50.2 to 51.9. This was the fourth straight monthly expansion, albeit a modest one. New orders (up from 51.3 to 53.4) and exports (up from 50.3 to 51.8) were higher, with output (up from 49.4 to 51.5) and employment (up from 49.1 to 50.8) returning to being positive. The Mexican economy is growing slowly, with real GDP up 1.6 percent in the second quarter and 1.3 percent in the third quarter. Overall industrial production increased just 0.1 percent in October, but manufacturing output grew at a more robust 3.5 percent annual pace.

    Elsewhere in the Americas, Brazil's economy continues to stall. The HSBC Brazil Manufacturing PMI dropped from a very slight expansion (50.2) in October to a very slight contraction (49.7) in November. The underlying PMI data were mixed. Export sales (up from 48.8 to 50.1) stabilized, the pace of output eased somewhat (down from 51.6 to 50.8), and overall new orders declined further (down from 49.9 to 49.3). Hiring (up from 49.0 to 49.2) remained negative for the eighth straight month. In terms of other economic indicators, real GDP fell 0.5 percent in the third quarter, offsetting much of the 1.8 percent gain in the second quarter. Industrial production increased slowly in October, up 0.6 percent for the month or just 0.8 percent year-over-year. On the positive side, retail sales picked up in October, increasing at the annual rate of 5.3 percent.


  • Europe's economy continues to rebound from its recession, but with persistent challenges in some countries. The Markit Eurozone Manufacturing PMI increased slightly from 51.3 to 51.6 and has now grown for five consecutive months. After a deep two-year recession, the recent progress has helped to lift spirits. The data show small gains in new orders (up from 51.9 to 52.3), exports (up from 53.1 to 54.0) and output (up from 52.9 to 53.1) continent-wide. Despite the improvements in manufacturing activity overall in Europe, the sector has not begun to hire yet. In fact, the employment index was unchanged at 48.8 in November and has not been positive since January 2012.

    Several countries experienced levels of manufacturing activity growth not seen since mid-2011, helping to lift the overall PMI data. This included Austria (up from 52.7 to 54.3), Germany (up from 51.7 to 52.7), Italy (up from 50.7 to 51.4), the Netherlands (up from 54.4 to 56.8) and the United Kingdom (up from 56.5 to 58.4). Ireland (down from 54.9 to 52.4) also expanded, but with output, new orders and exports all growing more slowly. Of course, not all European countries have recovered from the recession, with some still dealing with persistent challenges. For instance, France (down from 49.1 to 48.4), Greece (up from 47.3 to 49.2) and Spain (down from 50.9 to 48.6) saw manufacturing activity levels contract. One positive from those three countries: output in Greece expanded for the first time since September 2009.

    The signs of progress, however, do not mean robust growth in Europe. Real GDP in the Eurozone was up just 0.1 percent in the third quarter, down from 0.3 percent in the second quarter. Likewise, industrial production fell 0.5 percent in September, even as the year-over-year rate improved to 1.1 percent. Retail sales were also lower, down 0.2 percent in October, suggesting that households continue to struggle despite improvements in the macroeconomic outlook and investor confidence . The unemployment rate declined from 12.2 percent in September to 12.1 percent in October, but it remains highly elevated. The lowest unemployment rate can be found in Austria (4.8 percent) and Germany (5.2 percent), with Spain (26.7 percent) and Greece (27.3 percent) having the highest.


  • The Chinese economy continues to expand, even as the pace remains below where it was in past years. The HSBC China Manufacturing PMI was off marginally from 50.9 in October to 50.8 in November. The pace of growth for new orders (up from 51.5 to 51.7) and output (up from 51.1 to 52.2) increased slightly, but exports (down from 51.3 to 50.2) were essentially stalled. After briefly turning positive in October, hiring returned to being a net negative in November (down from 50.4 to 48.9). Yet, the main headline of note with the Chinese PMI data was the fact that manufacturing activity has now expanded for four straight months, recovering from the slowdown over the summer. Meanwhile, the official government PMI data were unchanged at 51.4, even as they also reflect improvements over the past four months.

    The expansion in manufacturing activity in China corresponded with an acceleration in real GDP , which picked up from 7.5 percent in the second quarter to 7.8 percent in the third quarter. These figures represent a longer-term deceleration in output, with real GDP down from its recent peak of 11.9 percent year-over-year in the first quarter of 2010. Nonetheless, we have seen some stabilization in the Chinese economy of late, with industrial production averaging 10.2 percent at the annual rate over the past four months (August to November). Prior to that, the pace had slowed to an annualized 8.9 percent growth rate in June. Similarly, fixed-asset investment from manufacturers rose by a year-over-year pace of 18.6 percent in November, which was an improvement from the 17.1 percent rate in June and July despite some easing from October's 19.1 percent annual pace. At the same time, Chinese consumers have boosted retail sales to the highest level all year, up an annualized 13.7 percent in November from 13.3 percent in October.

    Elsewhere in Asia, the pace of manufacturing activity in both Japan (up from 54.2 to 55.1) and Taiwan (up from 53.0 to 53.4) increased to recent highs. In Japan's case, its PMI level reached its highest point since 2006, with soaring levels of sales, output and exports. This was true despite a deceleration in industrial production from 1.3 percent growth in September to 0.5 percent in October. Yet, year-over-year production was positive for the second straight month, up 4.7 percent from October 2012. The Japanese economy grew a disappointing 0.3 percent in the third quarter, down from real GDP growth of 0.9 percent in the second quarter.

    Meanwhile, there was modest growth in Hong Kong (up from 50.1 to 52.1) and South Korea (up from 50.2 to 50.4), both of which saw improvements from just a few months ago. India (up from 49.6 to 51.3) experienced its first expansion in manufacturing activity since July due to increased new orders and output, but export sales slowed. At the same time, Indonesia (down from 50.9 to 50.3) and Vietnam (down from 51.5 to 50.3) grew for the third consecutive month, even as their pace of expansion eased in November.

 

  • The economic situation in emerging markets also improved. Stabilization in the global economy has benefited emerging markets, with the HSBC Emerging Markets Index up from 51.7 to 52.1. The manufacturing PMI also extended its progress from last month, up from 51.0 to 51.3. It has now expanded modestly for three straight months. In addition to the countries already mentioned, other emerging markets that saw growth included the Czech Republic (up from 54.5 to 55.4), Poland (up from 53.4 to 54.4), South Africa (up from 51.5 to 51.6) and Turkey (up from 53.3 to 55.0).

    In contrast, manufacturing activity in Russia (down from 51.8 to 49.4) has contracted in four of the past five months, with falling exports pushing the index lower. New orders (down from 54.7 to 50.6) and output (down from 54.9 to 50.9) also eased. Russian real GDP has decelerated from an annualized pace of 4.3 percent in the second quarter of 2012 to 1.2 percent in the second quarter of 2013. In addition, manufacturing production fell 1.9 percent year-over-year in October, declining for the sixth consecutive month.


  • Growth in U.S.-manufactured goods exports remains frustratingly slow. Despite the progress in the monthly trade deficit, we continue to see disappointing growth for manufactured goods exports. Through the first 10 months of 2013, manufactured goods exports were $986.53 billion (using non-seasonally adjusted data). This was up just 1.9 percent from the $968.38 billion over the same time period in 2012. As such, it 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 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 October. The U.S. trade deficit narrowed from $42.64 billion in September to $40.64 billion in October. The drop was mostly attributable to a larger increase in goods exports (up from $132.29 billion to $135.27 billion) than for goods imports (up from $194.71 billion to $195.49 billion). The service sector trade surplus increased marginally, up from $19.45 billion to $19.59 billion.

    Petroleum was mostly a nonfactor in shifting October's deficit, with the petroleum trade deficit narrowing modestly, from $19.88 billion to $19.65 billion. Both petroleum exports and imports were higher for the month, but essentially offsetting one another. This suggests that nonpetroleum trade accounted for the bulk of the change in October's overall trade deficit.

    Looking specifically at goods exports by sector, the data were mostly positive. There were increased exports for industrial supplies and materials (up $1.5 billion), consumer goods (up $1.0 billion), foods, feeds and beverages (up $618 million) and nonautomotive capital goods (up $274 million). Automotive vehicles and parts declined $209 million for the month.

    Similarly, on the goods imports side, automotive vehicles and parts imports were also lower, down by $1.0 billion. All other major sectors were higher, including industrial supplies and materials (up $778 million), consumer goods (up $514 million), foods, feeds and beverages (up $278 million) and nonautomotive capital goods (up $264 million).

{Back to top}

International Trade Policy Trends
  • WTO clinches Trade Facilitation Agreement to cut global red tape. On December 7, in Bali, trade ministers from across the globe approved a package of multilateral trade agreements. In the final hours of the Ninth Ministerial Conference of the WTO, negotiators found consensus on customs, agricultural and development issues. NAM Vice President of International Economic Affairs Linda Dempsey applauded the strong and binding Trade Facilitation Agreement while underscoring manufacturers' frustration with an open-ended "peace clause" for agricultural subsidies and the WTO's failure to secure expansion of the Information Technology Agreement.


  • TPP talks go into 2014; NAM emphasizes need for robust outcomes. Trade ministers from the 12 Trans-Pacific Partnership (TPP) countries announced this week their renewed commitment to an "ambitious, high standard and comprehensive" TPP agreement with continuing negotiations into 2014, as they closed the TPP Ministerial meeting in Singapore. The next negotiating round is being scheduled for January, possibly on the sidelinesof the World Economic Forum meeting in Davos, Switzerland. The NAM welcomed the decision to continue negotiating and to keep focus on achieving outcomes that will spur economic and jobs growth, rather than close a less-than-ambitious deal, emphasizing the outcomes highlighted in the NAM's recent "Trading Up" blog post series . Notably, South Korea has formally announced its intent to join the TPP negotiations and is consulting with each of the 12 TPP countries on process and timing.


  • Manufacturers mobilize to secure TPA . Manufacturers are ramping up advocacy actions in anticipation of the introduction of TPA legislation. According to key aides to Senate Finance Committee Chairman Max Baucus (D-MT), Ranking Member Orrin Hatch (R-UT) and House Ways and Means Committee Chairman Dave Camp (R-MI), a TPA bill is expected to be introduced by early January. The NAM is already laying the groundwork for quick action through meetings and contacts with more than 100 congressional offices and a powerful social media campaign. In recent weeks, we have launched a TPA website highlighting the benefits of trade in every state and showcasing success stories from member companies across the country. Along with our partners in the Trade Benefits America Coalition , we are meeting regularly with top Capitol Hill and U.S. Trade Representative (USTR) officials to coordinate strategy, amplify public messages and magnify impact. All these actions build on a resolution passed by the NAM's Board of Directors in October urging the Administration and Congress to work together expeditiously to renew TPA. Stay tuned to the NAM for the latest on TPA and how you can help ensure manufacturers continue to lead the charge to open new overseas markets and level the global playing field.


  • The NAM pushes forward on 2014 Ex-Im reauthorization, while Ex-Im's approval of new climate guidelines complicates effort. The NAM is laying the groundwork now for efforts to secure the reauthorization of the Ex-Im Bank in 2014, including with an op-ed by NAM President and CEO Jay Timmons and Ex-Im Bank Chairman and President Fred Hochberg in The Hill . In late October, The Hill included the Ex-Im Bank as one of the hot-button issues that conservative groups will continue to target, and the new carbon guidelines the Ex-Im Bank approved on December 12 are expected to further complicate its reauthorization. Only Ex-Im Bank Director Sean Robert Mulvaney opposed the new guidelines. The NAM will be an advocate for a strong Ex-Im Bank that meets exporters' needs. We are meeting with key members of Congress, including those who supported the Export-Import Bank Reauthorization Act of 2012 (H.R. 2072), and cohosted a briefing targeted at staff for freshmen congressmen in early December. On December 11, Chairman Hochberg met with the congressional New Democrat Coalition to help bolster support for the 2014 reauthorization.


  • Chairman Baucus unveils plan to reform international tax rules . Chairman Baucus released a discussion draft of a revenue-neutral international tax reform plan on November 19. Specific provisions in the plan call for a minimum tax on overseas income and a 20 percent tax on current overseas earnings. According to the discussion draft, the plan would be coupled with an unspecified lower corporate tax rate and some income base "broadeners." The international plan is intended to be part of a larger tax reform package and not as a stand-alone plan. Chairman Baucus is soliciting input from the business community on the draft and other areas of international business tax reform by January 19.

 

  • Transatlantic Trade and Investment Partnership (T-TIP) negotiations head into third round. The NAM continues to work with its members, the broader business community and U.S. and European Union (EU) trade officials on advancing key priorities in the T-TIP negotiations, which are headed to the third round in Washington, D.C., December 16-20. The NAM will be making a stakeholder presentation on key manufacturing priorities in the talks. The USTR has posted additional details on its website .


  • Trade agreements are critical to growing exports. The Council on Foreign Relations released a report last week that shows U.S. exports are increasingly important to our GDP, but that the U.S. share of global exports has dropped by more than 30 percent from 2000 to 2011, falling behind China. It also revealed that in 2000, the United States received 37 percent of the world's foreign direct investment, compared to just 17 percent in 2012. However, the most significant takeaway from the report is that 39 percent of all U.S. trade activity is covered under free trade agreements, and a successful TPP and T-TIP with the EU would increase the number to 64 percent. This report is yet another source that underscores the NAM's message that trade agreements are critical to level the playing field and open markets for U.S. exports and sales, which help grow manufacturing in the United States.

{Back to top}

Exports in Action
  • See information below on upcoming webinars and trade missions that the Commerce Department has developed to promote manufacturing export opportunities overseas.

  • December 2013 Webinar on Opportunities in Japan's Clean Tech Sector
    Date: December 17 at 6:00 p.m. EST/3:00 p.m. PST

    In July 2012, the Government of Japan (GOJ) implemented a feed-in-tariff law for renewable energy sources. In addition, the GOJ laid out a growth strategy whereby Japan is committed for the first time in history to increase electricity generation from renewable energy sources by eight times, reaching 190 terawatt hours (tWh), up from 25 tWh in 2010. This webinar will discuss the GOJ growth strategy as well as World Smart Energy Week 2014 (WSEW), a Commerce Department certified trade fair. WSEW has evolved as Asia's foremost and must-attend annual trade event and conference for the smart/renewable energy sector, including solar, wind, fuel cell, smart grid, battery technology and eco-house/eco-building. WSEW has become an international destination show where U.S. exporters can meet potential partners from around the world, including Europe, the Middle East and the Americas. For more information, contact Nyamusi Igambi at Nyamusi.Igambi@trade.gov or (713) 209-3112. To register, click here.

  • Secretary Pritzker Leads March 2014 Infrastructure Trade Mission to the Middle East
    Date:
    March 8-14, 2014

    U.S. Secretary of Commerce Penny Pritzker will lead an Infrastructure Business Development Mission to Saudi Arabia, the United Arab Emirates and Qatar March 8-14, 2014. In all three countries, the governments and private sector are investing significant money in infrastructure projects, with an emphasis on project management and engineering (including construction, architecture and design), renewable energy (solar, wind and waste-to-energy), smart grid and energy efficiency and environmental technologies (including water/wastewater, air pollution control and waste management). The mission will include government and business-to-business meetings, market briefings and networking events. All parties interested in participating must complete and submit an application package for consideration by the Commerce Department. For more information and to register, click here .

  • May 2014 Medical Technologies Trade Mission to Turkey
    Date: May 4-8, 2014

    The Commerce Department's U.S. Commercial Service is organizing an executive-led Healthcare Trade Mission to Turkey May 4-8, 2014. Turkey is the 17th largest economy. The Turkish medical equipment market is valued at $3 billion with 5-10 percent annual growth since 2002. Imported medical products dominate 90 percent of the market. With the current government's ongoing investments in the health care sector, many see Turkey as an attractive market for advanced and innovative American medical products. The mission will focus on high-potential health care opportunities. Mission participants will be introduced to carefully vetted potential distributors, partners, procurement representatives and end users via prescheduled one-on-one meetings. The three-city mission to Ankara, Istanbul and Izmir will also include tours at public- and private-sector hospitals. To learn more, click here .

{Back to top}


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