Global Manufacturing Economic Update - April 12, 2013

A Publication of the National Association of Manufacturers
Monday Economic Report

April 12, 2013
Monday Economic Report Graph
Global Economic/Trade Trends

The global economy has seen some progress since last fall, but growth remains modest at best. There is also a "two steps forward, one step back" feel to some of the latest data. Six of the top 10 markets for U.S.-manufactured goods expanded in March, according to Markit. This is down from seven last month, but up from four last October. Canada, our largest trading partner, saw its manufacturing activity decline, with weaknesses in new orders, exports and hiring. Softness in the United States and Europe were cited as factors.

The other three markets with contracting sales, output and employment levels were in Europe, with its economic downturn widening. The Markit Eurozone Manufacturing Purchasing Managers' Index (PMI) fell from 47.9 in February to 46.8 in March. This index has now contracted for 20 straight months, with little hope of improving anytime soon. While many of the recent headlines have surrounded the failure of the banks in Cyprus or the inconclusive Italian elections, the challenges are ones that confront the entire continent. The unemployment rate has risen to 12 percent, with more than one-quarter of the working population in Greece and Spain out of work, and real GDP is expected to contract throughout the year. This morning, we should learn even more about the manufacturing sector in Europe when new data on industrial production will be released. The data are expected to show a slight decline.

In Asia, the biggest news of late has been the Bank of Japan's aggressive approach to reverse two decades of deflation and slow growth. Taking a page from the Federal Reserve Board, Japan's central bank will pursue a quantitative easing strategy of purchasing 7.5 trillion yen (or roughly $73 billion) in long-term securities each month. Beginning with the election of ShinzÅ Abe, the yen has depreciated from roughly 87 yen to the U.S. dollar at the beginning of 2013 to almost 100 yen today. Outside of Japan, most of the other Asian economies were growing slowly, showing signs of progress. For instance, the Chinese economy has expanded for five straight months with growth accelerating so far this year. Its neighbors appear to be following suit.

Meanwhile, the U.S. economy has grown perhaps faster than many forecasters might have expected in the early months of 2013. Despite that progress, drags on growth continue, particularly in manufacturing. Persistent uncertainties also remain, especially related to governmental policies and regulations. The Institute for Supply Management's (ISM) closely watched PMI for manufacturing declined unexpectedly from 54.2 in February to 51.3 in March, and manufacturers shed 3,000 workers on net for the month. Hiring remains skittish overall, with just 4 percent of all net new jobs created in the past 12 months coming from manufacturing. On the positive side, the U.S. trade deficit narrowed in February with growth in manufactured goods exports during the first two months of the year. However, we would like to see exports pick up dramatically, and shifts in the petroleum market could explain much of the narrowing of the deficit in February.

Movement continues on trade-liberalizing agreements. The 11 Trans-Pacific Partnership (TPP) negotiating countries completed their 16th round of negotiations in Singapore last month. Japan also formally requested to join the TPP talks. Just this morning, the United States and Japan announced that their bilateral consultations were completed. The United States and European Union (EU) formally announced that they would begin comprehensive trade talks under the name of the Transatlantic Trade and Investment Partnership (TTIP). At the same time, U.S. government reports and manufacturers' own experiences show worrisome growth in barriers to U.S.-manufactured goods overseas.

Chad Moutray
Chief Economist
National Association of Manufacturers

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Global Economic/Trade Trends
  • The global economy continues to improve gradually, even as some weaknesses persist. The JPMorgan Global Manufacturing PMI rose from 50.9 in February to 51.2 in March. While this does not represent rapid growth in activity, it does suggest modest gains among manufacturers worldwide, with the index above 50""the threshold for expansion""each month so far this year. (It had contracted from June to November 2012.) On the positive side, new export orders shifted from being a net drag on sentiment in February to providing a small boost in March. Output and employment edged slightly higher, with capacity utilization just slightly below neutral. Meanwhile, work and inventory backlogs remained negative.

    However, challenges continue to confront our largest trading partners. Canada saw its manufacturing activity decline, with its PMI dropping from 51.7 to 49.3 on falling new orders and output. It was not alone. Of the top 10 markets for U.S.-manufactured goods, four had PMI values less than 50. This is a slight deterioration from last month, which had just three. In addition to Canada, the other contracting nations were the United Kingdom (up from 47.9 to 48.3), Germany (down from 50.3 to 49.0) and the Netherlands (down from 49.0 to 48.0). On the positive side, Japan , which declined last month, grew slightly (up from 48.5 to 50.4).


  • Japan's central bank gets aggressive to stimulate growth. The Bank of Japan plans to purchase 7.5 trillion yen (approximately $73 billion) each month in long-term Japanese securities in an effort to grow its still-stagnant economy. Japan has suffered from deflation for much of the past two decades, and these actions have been designed to reverse that long-term trend. As such, it closely mirrors the quantitative easing measures pursued by the Federal Reserve Bank in that it seeks to drive down long-term interest rates to foster increased activity. Specifically, the Bank of Japan has set a two-year target of 2 percent inflation and will continue to make bond purchases until that goal is met.

    Nonetheless, this easing of monetary policy has impacted exchange rates, mostly continuing a trend that we have seen since ShinzÅ Abe assumed the prime minister role in late December. One dollar purchased roughly 87 yen at the beginning of 2013, rising to 94 yen to the dollar by the end of March. Today and after the Bank of Japan's actions, the current exchange rate is approaching 100 yen to the dollar. While that should help improve Japan's competitive landscape, this exchange rate is essentially where it was in 2009, and the yen still remains overvalued from where it was in mid-2007, when one dollar translated into around 120 yen.


  • The economies in Asia have been growing slowly, showing signs of progress. Beyond Japan, the rest of Asia has improved as well. The HSBC China Manufacturing PMI rose from 50.4 in February to 51.6 in March. While this is below January's 52.3 reading, the Chinese economy has picked up a little since November, with the PMI now indicating an expansion for five straight months. March's data reflect a faster pace for new orders and output, but with capacity utilization still slightly contracting. We will be closely watching new data on GDP, industrial production and retail sales, which are scheduled to be released on April 14. The expectation is that real GDP will have grown by 8.1 percent in the first quarter of 2013, up from 7.9 percent in the fourth quarter of 2012. Industrial production should also reflect a faster pace, up from 10.0 percent to 10.6 percent.

    Other highlights for the region include modest gains in manufacturing activity in the following countries: Indonesia (up from 50.5 to 51.3), Taiwan (up from 50.2 to 51.2) and Vietnam (up from 48.3 to 50.8). Each of these nations saw increasing rates for new orders, output and exports. In contrast, both Hong Kong (down from 51.2 to 50.5) and India (down from 54.2 to 52.0) grew more slowly.


  • Europe's challenges go beyond Cyprus and Italy. Much has been made about the failure of the Cypriot banks , and we focused on Italy's still-unsettled election in last month's report. With Pier Luigi Bersani unable to form a coalition government in Italy, new elections could be called later this year. While these stories tend to dominate the headlines, they remind us that Europe's economic challenges have never gone away.

    The Markit Eurozone Manufacturing PMI fell from 47.9 in February to 46.8 in March, a step backward after two months of marginal progress. The index has contracted for 20 straight months. New orders, production and hiring rates all declined. The worsening condition was also fairly broad-based, with weaker data in Germany (down from 50.3 to 49.0), France (up from 43.9 to 44.0) and Spain (down from 46.8 to 44.2). Even Ireland , which had been one of the stronger nations in the Eurozone, experienced its first decline in manufacturing activity in almost a year (down from 51.5 to 48.6). Falling export sales were the main culprit, dragging down the rest of Ireland's index.

    The unemployment rate in the Eurozone in February was 12.0 percent, unchanged from January but up from 10.8 percent the year before. The highest unemployment rates were in Greece and Spain, both of which had more than 26 percent of its working population out of work. Retail sales were also lower in the Eurozone, down 0.3 percent in February. Moreover, the latest industrial production data, which will be released today by Eurostat, should show a slight decline in activity in February, following the 0.4 percent decrease in January .


  • Manufacturing growth slows in the Americas. The RBC Canadian Manufacturing PMI shifted from a slight expansion in February (51.7) to a slight contraction in March (49.3). This reflects lower activity levels, with some weaknesses in the United States and Europe cited as possible factors. The latest employment data tend to show this softness, with 55,000 fewer workers in March, 24,200 of which were from manufacturing. The unemployment rate rose from 7.0 percent to 7.2 percent. This is still an improvement from October's 7.4 percent rate. In addition, manufacturing capacity utilization fell from 82.3 percent in January to 80.2 percent in February.

    Elsewhere in the Americas, the HSBC Mexico Manufacturing PMI weakened from 53.4 in February to 52.2 in March. This is the slowest pace since January 2012, and it was mostly down due to an easing of new orders and output. However, new export sales were up. The most recent data on industrial production indicate a 2.0 percent increase in January, reversing December's 0.9 percent decline. Production has risen 5.2 percent year-over-year in Mexico but has deteriorated some since then. Industrial production should grow around 3.0 percent in 2013. Meanwhile, the unemployment rate fell from 5.4 percent in January to 4.8 percent in February.

    In Brazil, slower growth for new orders weakened the HSBC Brazil Manufacturing PMI, down from 52.5 in February to 51.8 in March. Manufacturing exports and employment did pick up. However, the most recent industrial production data for the manufacturing sector indicate there continues to be some weaknesses, with February's 2.7 percent decline partially offsetting January's 3.1 percent gain. On a year-over-year basis, production has declined 0.3 percent. However, production should grow 4.6 percent in 2013.


  • The manufacturing sector has shown some softness, both in terms of production and hiring. The ISM's PMI fell unexpectedly from 54.2 in February to 51.3 in March, with new orders and production declining. While some progress has been made from last year, the economy is still not as strong as it was at the beginning of 2012. Governmental policies have not helped, with across-the-board spending cuts, slowing medical reimbursements from Medicare and continuing regulatory uncertainties hindering economic growth.

    Looking specifically at the subcomponents of the ISM report, the index for new orders dropped from 57.8 to 51.8, showing a significant easing for March. At the same time, sales have risen for three straight months. There was also good news on the trade front, with the new export orders index rising from 53.5 to 56.0. This suggests that improving economies worldwide""outside of Europe""have helped increase manufacturers' sales overseas.

    According to the Bureau of Labor Statistics, manufacturing employment declined by 3,000 in March, its first decrease since September. Manufacturing employment has been soft over much of the past year, with a few exceptions. The sector has added 77,000 net new workers over the past 12 months. Over that time frame, there were 1.9 million nonfarm payroll workers hired, implying that manufacturers created just 4 percent of all net new jobs since March 2012. That illustrates how uncertainty and weak global demand have impacted a sector that had before last year been providing outsized growth for output and employment. Since the end of the recession, manufacturers have hired an additional 510,000 workers, or roughly 9 percent of all new jobs.

    Real GDP in the United States grew just 0.4 percent during the fourth quarter of 2012, pushed lower by reduced spending on inventories and lower defense spending figures. On April 26, we will get the initial estimate for real GDP for the first quarter of 2013, which should be around 2.3 percent. Other estimates have put this growth rate at 3.0 percent or higher. Beyond that, we anticipate growth in the second quarter to be around 1.8 percent (impacted by across-the-board spending cuts and federal budget discussions), with 2.4 percent real GDP growth for 2013 overall.


  • The U.S. trade deficit narrowed in February on improvements in the petroleum market. The U.S. trade deficit shrank from $44.46 billion in January to $42.96 billion in February. The lower deficit was due to increased goods exports, up from $130.85 billion to $132.19 billion. February's goods exports figure was the second-highest level ever""second only to December 2012's $132.82 billion. At the same time, goods imports were marginally lower in February, down from $192.55 billion to $192.41 billion. The service sector trade balance remained largely unchanged, with the surplus up from $17.24 billion to $17.26 billion.

    The petroleum trade balance explains much of the change in the goods market. The petroleum trade deficit narrowed from $24.33 billion in January to $21.21 billion in February. Unlike December's decline in the trade deficit, this narrowing did not correspond with a decrease in petroleum prices. The price of West Texas intermediate crude was $88.25 a barrel in December and $95.32 in February. However, the February crude oil price grew slightly from January's $94.69 a barrel. This implies that the increase in petroleum exports and corresponding decrease in petroleum imports might be due to other factors, such as changes in global demand or seasonal data adjustments.

    The non-petroleum goods trade balance widened from $36.97 billion to $38.30 billion. Looking specifically at the goods export market, the largest gains were in industrial supplies and materials (up $1.83 billion), other goods (up $463 billion) and automotive vehicles (up $169 million). An additional $1.08 billion in fuel oil and other petroleum products exports boosted the industrial supplies and materials figure. Decreases of non-automotive capital goods (down $758 million), consumer goods (down $312 million) and foods, feeds and beverages (down $101 million) counteracted these gains.

    The fact that the U.S. trade balance narrowed is good news, but much of the shift in the data stemmed from petroleum flows. Outside of petroleum, exports grew less dramatically. Manufactured goods exports, on a non-seasonally adjusted basis, totaled $183.78 billion in the first two months of 2013, or 2.45 percent higher than the $179.38 billion in January and February 2012. That suggests very slow growth in manufactured goods exports and increases well below the 15 percent required to double exports by 2015. In 2012, manufactured goods exports rose 5.5 percent using seasonally adjusted data, below the 15.9 percent growth rate in 2011.

    As might be expected, exports to Europe remain challenged. Year-to-date (January and February only, not seasonally adjusted) exports to Europe have fallen from $54.49 billion in 2012 to $50.19 billion in 2013. Japan, struggling to revive its economy, has also experienced some weaknesses (down from $11.09 billion to $10.18 billion). Elsewhere, the export picture was better, with increased exports so far this year to Canada (up from $45.35 billion to $46.28 billion), Mexico (up from $34.15 billion to $35.61 billion) and China (up from $17.13 billion to $18.69 billion). Those countries are the three largest markets for U.S.-manufactured goods exports.

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International Trade Policy Trends
  • Manufacturers focus on business priorities in the TTIP. Following President Obama's announcement last month on the launch of U.S.-EU negotiations, NAM President and CEO Jay Timmons sent a letter to President Obama, outlining manufacturers' goals for the TTIP negotiations, which will officially be launched this summer. The letter urges the Administration to focus on achieving outcomes that will tear down barriers to transatlantic trade, cut costs and promote economic and job growth. It is critical that the TTIP creates new commercial opportunities for manufacturers in the United States, not new regulations or barriers. With concerns about EU regulatory systems and standards, from privacy to precautionary principles, the NAM will be working in all areas to ensure these outcomes.

    As part of this effort, the NAM also joined a broader business community group this week in launching the Business Coalition for Transatlantic Trade (BCTT), whose mission is to seek a comprehensive and ambitious TTIP between the United States and the EU. The NAM is co-leading a number of working groups within the BCTT, including on intellectual property, regulatory cooperation, investment and supply chain and trade facilitation.

    The NAM's U.S.-EU Task Force and Conformity Assessment and Standards Task Force are also ramping up efforts to help the Office of the U.S. Trade Representative (USTR) shape its negotiating goals and objectives for the talks. The USTR has issued a Federal Register Notice seeking comment on the TTIP. Feedback is due to the USTR on May 10, and we encourage all interested companies to submit comments. The NAM will also submit comments on behalf of our members. Please contact Jessica Lemos or Lauren Airey to join in these efforts.


  • TPP negotiations headed into the 17th round; Japan and United States complete consultations on Japan's entry. The TPP negotiations concluded the 16th negotiating round last month in Singapore. The 17th round will kick off in mid-May in Lima, Peru. Progress was reported in a number of areas, including customs, telecom, investment, technical barriers to trade and regulatory coherence. Significant differences remain in a number of areas, including intellectual property, investment dispute settlement and environmental issues. Following the end of the 16th round, Japan announced its intention to join the TPP talks and is engaged in discussions with the current TPP countries, which are seeking assurances that Japan would enter the negotiations with the same level of ambition, high standards and commitment to proceed quickly toward a comprehensive and robust outcome. Following intensive consultations, Acting United States Trade Representative Demetrios Marantis announced today that the United States and Japan had completed bilateral talks, and the United States was welcoming Japan into the negotiations. The United States will shortly notify Congress to provide a 90-day consultation period before Japan can join the negotiations. As part of the bilateral consultations, Japan committed to a number of market-opening measures on automobiles and insurance and also agreed to engage in side discussions on these and other issues that would be completed at the same time as the TPP negotiations.


  • Trade barriers continue to expand, and manufacturers call for a more robust negotiating approach. On April 1, the Office of the USTR released its 2013 National Trade Estimate report on trade barriers to U.S. exports in virtually every country around the world. In addition, the USTR issued its fourth annual reports on two specific types of barriers"" sanitary and phytosanitary measures to our food and agricultural exports and technical barriers to trade that impose non-tariff barrier standards, testing requirements and technical specifications. A fourth report""on telecommunications barriers ""was released on April 3, and a fifth report""on threats to intellectual property protection globally""will be released at month's end. The NAM blogged about the sobering reality that these reports present to efforts to achieve our national goal of doubling exports between 2009 and 2014. For manufacturers, these reports reinforce the importance of a robust trade agenda that is focused on opening new markets and setting in place strong disciplines on a host of unfair trade and investment barriers.


  • Manufacturers' concerns over India rising. In the past year and a half, India has taken a number of actions that undermine business confidence and increase the risks of doing business in the country. The USTR's 2013 National Trade Estimate report identified a number of wide-ranging barriers in India. Other USTR reports identified other barriers, including technical barriers to trade , telecommunications and sanitary and phytosanitary measures . The NAM's recent statement for the House Ways and Means Subcommittee on Trade hearing summarized some of the key barriers as follows: "Manufacturers face persistent challenges in India, including tax and market access issues, localization barriers to trade, lack of or inadequate protections for intellectual property rights and other investment or trade-restrictive policies." Since those reports and the NAM statement were prepared, challenges to intellectual property protection in India are mounting, with compulsory licenses being issued in flagrant disregard of international rules. Furthermore, India has taken an increasingly resistant posture in Geneva as the United States and other countries seek trade-liberalizing agreements on customs and trade facilitation, information technology and services. On issues such as investment treaty negotiations, it appears that India is no longer interested in a serious or ambitious negotiation. The NAM is looking closely at the broad range of Indian actions and asks interested NAM members to share concerns and other key issues by contacting Jessica Lemos .


  • The WTO continues negotiations to improve customs processing worldwide. The U.S. government is actively involved in the World Trade Organization (WTO) Negotiating Group on Trade Facilitation that is working on a new multilateral agreement to enhance existing WTO commitments on customs procedures. The Negotiating Group on Trade Facilitation met in March to advance negotiations, and a new draft text""the 15th revision""was released on March 27. In the negotiations, the United States has submitted proposals on advance administrative ruling on specified customs matters, Internet publication of customs procedures and documents, procedures for expedited shipments, elimination of burdensome consular requirements and transition provisions for developing country members. The Organisation for Economic Co-operation and Development (OECD) recently released a study on the potential impact of trade facilitation on developing countries, which can be found here . The OECD has more background information about trade facilitation here .


  • The WTO considers expanding ITA to include more high-tech items. Expansion of the WTO Information Technology Agreement (ITA) continues to gain momentum, with negotiators aiming to finalize a list of new items to include in the ITA by July. Three additional rounds of talks have been scheduled for April 22, June and July. The proposed product expansion list includes 439 product descriptions, which cover 130 product codes of the international Harmonized System. The U.S. International Trade Commission has prepared a report detailing the proposed expansion, and a list of the current ITA-covered products is here . The ITA requires participating countries to eliminate duties on IT products covered by the agreement. Since its inception in 1996, two-way trade in products covered by the ITA has grown from $1.2 trillion to $4.0 trillion""a 233 percent increase. Expansion of the products covered by the ITA would have enormous benefit to the U.S. and global economies, with estimates that U.S. exports of high-tech products would increase by $2.8 billion. That export jump would result in approximately 60,000 new U.S. jobs, and global GDP could increase by $190 billion annually.


  • Export credit crunch hits small businesses hard. During the Great Recession, export financing options dwindled due to credit tightening. This unusually large decline impacted small business exporters disproportionately, according to a new report from the Small Business Administration's (SBA) Office of Advocacy. Credit is especially important for exporters because they need to finance their working capital to compensate for the riskiness of cross-border transactions and for longer transportation times compared with domestic customers. The report recommends policymakers increase U.S. Export Assistance Centers' SBA, Commerce Department and Export-Import Bank assistance to small businesses.

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Exports in Action
  • Learn how to utilize free trade agreements and increase your sales. Please join the NAM, DHL Express and the Department of Commerce on May 3 at 11:00 a.m. for a complimentary one-hour webinar examining potential export opportunities in two diverse markets: Mexico and Jordan. The United States has FTAs with 20 countries, and our panel of experts will provide you with the tools you need to take advantage of those markets. Learn more about the webinar, including our lineup of expert speakers, here . Registration is limited, so sign up today!


  • ACCESS 2013 International Trade Forum will focus on doing business in Africa, the Middle East and South Asia (India). The Commercial Service of the U.S. Department of Commerce, in partnership with San Diego State University, is hosting the ACCESS 2013 International Trade Forum. Regional experts from Africa, the Middle East and South Asia will convene in San Diego May 1-2 for this two-day event at the San Diego Marriott La Jolla. ACCESS 2013 is a unique opportunity to hear directly from U.S. commercial service (U.S. Embassy commercial) officers serving in some of the world's fastest-growing economies. ACCESS 2013 can help your company identify new export markets and opportunities in Africa, the Middle East and South Asia, obtain the resources necessary to succeed in these markets and develop market-entry strategies. This year's forum includes sessions on market-entry strategies, financing and mitigating risk; sessions covering country- and industry-specific information and opportunities; and pre-scheduled one-on-one meetings with senior commercial service officers and commercial specialists. For more information and to register, click here . If you have any questions, please contact NAM Commerce Liaison Steve Morrison at (202) 637-3407 or , or Larry Tabash, senior international trade specialist at the Commerce Department, at (512) 936-0039 or .

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Questions or comments? Please contact Chad Moutray at

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