Global Manufacturing Economic Update - May 10, 2013

A Publication of the National Association of Manufacturers
Monday Economic Report

May 10, 2013
Monday Economic Report Graph
Global Economic/Trade Trends

Last week, we learned that the U.S. trade deficit narrowed in March. While the headline number might seem positive at first glance, the trade gap shrunk on declining levels of both exports and imports. This report was one of the more disappointing ones of late. After slowing to 5.5 percent growth in 2012, manufactured goods exports have eked out only a 1 percent gain in the first three months of 2013 so far. The data suggest that export sales have essentially stalled. The largest weakness is in the European market, but exports to Canada""our largest trading partner""also declined. Asia and South America saw the largest gains, with manufactured goods exports to China up 9.3 percent during the first three months of this year relative to the same time period last year.

There has been considerable weakness in U.S. manufacturing data during the past few months, with the Institute for Supply Management's Purchasing Managers' Index (PMI) decelerating and manufacturing employment unchanged in April. Regional sentiment surveys have also suggested softness in the sector, with slower sales dragging optimism lower. Domestic policies are fueling weakness in the sector, including higher taxes, tighter government spending and regulatory uncertainties. Nonetheless, our largest trading partners continue to see slower sales, with discouraging export numbers highlighting the slowdown.

Economic reports internationally also showed weakness. The JPMorgan Global Manufacturing PMI decreased from 51.1 in March to 50.5 in April, signifying very sluggish growth in production, new orders and hiring worldwide. Four of the top 10 markets for U.S.-manufactured goods have declining manufacturing activity levels, with three of those markets being in Europe. Moreover, the other six markets are growing at a very gradual pace. GDP, industrial production and employment data mirror these findings, with a deepening recession in Europe, slower-than-expected growth in China and notable decelerations in Canada and other major trading partners. The coming week will provide even more insight on the health of the global economy, with key GDP and production reports from Europe, China and the United States.

In other news, the World Trade Organization selected Brazilian Roberto Carvalho de Azevêdo as its new leader on May 8, marking the first time that a Latin American will lead the trade organization. Work continues in the Trans-Pacific Partnership (TPP) talks, with the next round starting on May 15 in Lima, Peru. The U.S. government receives comments on May 10 on negotiating priorities in the trade talks with the European Union that will start this summer. Domestically, the Senate took the first important step toward the confirmation of the head of the Export-Import (Ex-Im) Bank, with action needed by July to ensure that Ex-Im can continue its operations.

Chad Moutray
Chief Economist
National Association of Manufacturers

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Global Economic/Trade Trends
  • Manufactured goods exports have slowed considerably in the early months of 2013. New data from the Commerce Department show that manufactured goods exports rose just 1.0 percent on a seasonally adjusted basis in the first quarter of 2013 relative to the same time period in 2012. Unfortunately, it builds on an already slower pace from last year when manufactured goods exports were up only 5.5 percent. In the first quarter of 2013, the biggest disappointment was Europe, with exports off a whopping 8.3 percent. Outside of Europe, the other surprise was the 0.6 percent decrease in exports to Canada, our largest trading partner. South America and Asia saw the strongest growth. Exports to China, our third-largest trading partner, were up 9.3 percent.


  • The U.S. trade deficit narrowed in March on reduced exports and imports. The trade deficit fell from $43.63 billion in February to $38.83 billion in March. This is the second-lowest level since January 2010, almost equaling the trade deficit of $38.14 billion in December 2012. This was a significant and unexpected narrowing in our trade position, resulting from a sharp drop in goods imports, which exceeded the decline in goods exports. Goods exports decreased from $132.18 billion to $130.35 billion, whereas goods imports fell from $192.93 billion to $186.49 billion.

    Unlike the changes seen in the past few months, the narrowing in March was due mostly to nonpetroleum factors. The petroleum trade balance eased marginally from $21.45 billion to $21.13 billion, with the nonpetroleum trade balance dropping from $38.62 billion to $34.76 billion. Petroleum exports and imports were lower, with cost most likely helping to reduce these values by nearly equal amounts. The average price of West Texas Intermediate crude in March was $92.94 per barrel, down from $95.31 a barrel in February.

    There were declines across-the-board in goods exports categories. Foods, feeds and beverages saw the largest decrease, down $1.05 billion. This was followed by motor vehicles and parts (down $331 million), industrial supplies and materials (down $288 million), nonautomotive capital goods (down $269 million) and consumer goods (down $260 million). The most notable exceptions were civilian aircraft (up $582 million) and pharmaceuticals (up $441 million).


  • The global economy is growing very slowly. The JPMorgan Global Manufacturing PMI declined from 51.1 in March to 50.5 in April. This easing was fairly broad-based, with slower growth for output, new orders and employment. On a positive note, new export orders rose slightly. These developments are a bit of a reversal from improvements in the global economy over the past few months. Yet, this was the fifth consecutive month with a PMI of 50 or greater, following six months of lower levels. While there has been progress so far in 2013, it has been minimal.

    Of the top 10 markets for U.S.-manufactured goods, four had PMI values less than 50 in April, suggesting that manufacturing activity in those nations was contracting. The good news is that Canada's PMI returned to positive territory, albeit just barely, rising from 49.3 in March to 50.1 in April on a modest gain in sales. As our largest trading partner, Canada's progress is notable. At the same time, several European nations continue to show weakness. These were Germany (down from 49.0 to 48.1), the Netherlands (up from 48.0 to 48.2) and the United Kingdom (up from 48.6 to 49.8). The other nation with marginally contracting activity levels was Hong Kong (down from 50.5 to 49.9).


  • Europe's problems deepen. The political challenges that made headlines in February and March have mostly ceded, with Italy selecting Enrico Letta as its new prime minister""ending a few months of uncertainty""and the Cypriot financial crisis over. Yet, the economic challenges on the continent have not gone away, as we continue to see in the latest data.

    The Markit Eurozone Manufacturing PMI declined from 46.8 to 46.7, contracting for 21 straight months. The rates of decline picked up in several nations on weaker production, orders and hiring levels. In addition to the nations listed above, other countries with sub-50 levels of manufacturing activity in April included France (up from 44.0 to 44.4), Greece (up from 42.1 to 45.0), Ireland (down from 48.6 to 48.0), Italy (up from 44.5 to 45.5) and Spain (up from 44.2 to 44.7). Several markets had modest gains, but these were not enough to keep them from contracting. Many of these reports showed an easing of pricing pressures, with raw material costs lower and finished goods prices falling.

    Next week, we will get the first reading of real GDP for 2013, with the Eurozone's output expected to have modest declines. This would build on the 0.6 percent decline in the fourth quarter of 2012. In addition, Eurostat is expected to announce a slight reduction in industrial production for March, which would reverse February's 0.4 percent gain. Retail sales fell 0.1 percent in March and 2.4 percent year-over-year in the Eurozone. Meanwhile, the unemployment rate in the Eurozone rose to 12.1 percent in March, up from 12.0 percent in February, with the highest rates in Greece (27.2 percent), Spain (26.7 percent) and Portugal (17.5 percent). Not surprisingly, consumer sentiment has also been weak, falling in April.


  • Canada's weaker economy has impacted exports. As noted above, manufactured goods exports to Canada in the first three months of 2013 were down 0.6 percent relative to the same period in 2012. Growth appears to have slowed north of the border, negatively impacting our largest trading partner. Real GDP was up just 0.7 percent and 0.6 percent in the last two quarters of 2012, respectively. First-quarter data, scheduled to be released later this month, are expected to reflect continued weaknesses. The forecast for 2013 is for only 1.3 percent growth.

    The unemployment rate remained unchanged at 7.2 percent between March and April, up from 7.0 percent in both January and February. Although manufacturers added 20,600 net new workers in April, the sector has lost 51,800 workers over the past 12 months. Meanwhile, while the RBC Canadian Manufacturing PMI has suggested that manufacturing activity "stagnated" in April, official data on manufacturing shipments in February reported a 2.6 percent increase due to stronger transportation equipment, energy and food shipments. March's data will be out next Wednesday.

    Elsewhere in the Americas, manufacturing activity continues to pull back in Brazil and Mexico. The HSBC Brazil Manufacturing PMI fell from 51.8 in March to 50.8 in April, with slower production growth and falling exports dragging the measure lower. Brazilian industrial production rose 0.7 percent in March, rebounding from February's 2.4 percent loss. Still, the data suggest softness in the market overall. Similarly, the HSBC Mexico Manufacturing PMI declined from 52.2 to 51.7. Mexico""our second-largest trading partner""saw new domestic orders ease significantly, even as its export sales grew very slowly. Industrial production in March fell at the annual rate of 4.9 percent, building on the 1.2 percent decline in February.


  • Growth in Asia has slowed, but continues to expand modestly. Economies in Asia have shown some signs of easing in April. For instance, the HSBC China Manufacturing PMI fell from 51.6 in March to 50.4 in April. While this figure indicates growth for the sixth consecutive month, the pace of new orders pushed overall activity lower. Much of the slower sales figures stemmed from softness to export markets, including to the United States and Europe. Real GDP in the first quarter of 2013 was weaker than expected, up 7.7 percent year-over-year instead of the anticipated 8.0 percent growth rate. Industrial production also decelerated from 10.3 percent annual growth in December to 8.9 percent in March.

    Elsewhere in Asia, manufacturing activity was largely mixed, even as most of the Asian economies had PMI values above 50, indicating modest expansion. Countries with improvements in production and new orders in April included Indonesia (up from 51.3 to 51.7), Japan (up from 50.4 to 51.1), South Korea (up from 52.0 to 52.6) and Vietnam (up from 50.8 to 51.0). This contrasts with slower growth in India (down from 52.0 to 51.0) and Taiwan (down from 51.2 to 50.7) and with marginally contracting activity in Hong Kong (down from 50.5 to 49.9).

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International Trade Policy Trends
  • The WTO names new director general. On May 7, members of the Geneva-based WTO selected Brazilian Roberto Carvalho de Azevêdo as the agency's new director general, succeeding Pascal Lamy. He takes office on September 1. The announcement wrapped up a nearly six-month selection process that ultimately pitted candidates from Latin America's two largest economies in a race to become that region's first-ever head of the global trade body. Azevêdo, who currently serves as Brazil's ambassador to the WTO, edged out former Mexican Trade Minister and NAFTA Chief Negotiator Herminio Blanco. A career diplomat from a country recently criticized for raising tariffs to protect local industry, Azevêdo will face the challenge of restoring credibility to the international trading system and rallying political leaders for further liberalization, including at December's critical Ministerial Conference in Bali.


  • Senate Banking Committee holds Ex-Im Bank confirmation hearing. The Senate Banking Committee held its confirmation hearing on May 7 to examine Fred Hochberg's nomination to serve a second term leading the Ex-Im Bank. As the official export credit agency for the United States, the Bank plays a vital role in helping to grow U.S. exports and increase American jobs. In his testimony, Hochberg noted that he would ensure the Bank "continues its prudent oversight and due diligence standards to protect taxpayers." Last year, the Bank supported more than 255,000 American jobs at 3,400 companies""85 percent of which were small businesses. The Bank authorized $35 billion in financing that supported $50 billion in exports in fiscal year 2012. In addition, the Bank offset its costs and contributed more than $1 billion to the Treasury. Hochberg's current term expired in January, and the extension of that term will expire in July. The NAM has urged the Senate to act quickly on his nomination. Without an operating quorum for the Board, export sales for thousands of manufacturers in the United States would be threatened.


  • Manufacturers provide input on priorities in the Transatlantic Trade and Investment Partnership (TTIP). As the United States and European Union prepare to launch TTIP negotiations, NAM members have been collaborating to shape the negotiating objectives of manufacturers in the United States. Ultimately, the NAM is urging U.S. negotiators to seek a final agreement that tears down barriers to trade and investment, cuts the costs of doing business across the Atlantic and produces economic and job growth. The NAM's submission to the U.S. Trade Representative's Office can be found here .


  • TPP negotiations head to Peru. The 17th round of the TPP negotiations will kick off May 15 in Lima, Peru. While work has continued to reach agreement on many technical issues, significant differences remain on such topics as intellectual property rights, market access, investment, state-owned enterprises and procurement. Although Japan completed its bilateral talks with all the TPP countries and has officially been invited to join the negotiations, Japan will not be at the table until the next round, likely to be scheduled in July. The U.S. government has requested input on priorities with respect to Japan's participation in the TPP. Those comments are due on June 9.


  • The NAM's challenge to conflict minerals regulation moves to D.C. District Court. On April 29, the Court of Appeals for the D.C. Circuit canceled oral arguments scheduled in our challenge to the Securities and Exchange Commission (SEC) rule requiring an extensive inquiry and disclosure of information relating to a company's use of certain minerals mined in the Republic of the Congo and surrounding countries. In a similar case last month, the D.C. Circuit held that it lacked jurisdiction over a petition to review an SEC rule, and that a federal district court should hear the case first instead. In light of this development, we moved to transfer our case to the D.C. District Court, and the D.C. Circuit granted our motion on May 2. As a result of this transfer, there will be some delay in the final resolution of the issue, as a trial judge will now have to hear the case, and it could then be appealed back to the D.C. Circuit after the D.C. District Court issues its decision. The rule burdens manufacturers in the United States, many of which are subject to its requirements this year.

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Exports in Action
  • Minnesota District Export Council will hold Gateway to Europe Conference June 4-5 in Minneapolis. The Minnesota District Export Council, in cooperation with the U.S. Commercial Service, will hold its Gateway to Europe International Trade Conference June 4-5 at the Radisson Plaza Hotel in Minneapolis. The conference will bring together more than 25 senior commercial officers from U.S. embassies and U.S. international trade officials covering the European, Russian and Turkish markets. Participants will identify new export opportunities and ways to increase market share and develop strategic relationships with those on the forefront of business and exporting in these markets. To download the conference flyer, click here . To learn more about the conference itself, click here . To speak to the conference organizer, call Jennifer Kocs at the Minnesota Trade Office at (651) 259-7036 or contact Steve Morrison, NAM commerce liaison, at (202) 637-3407 or .

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Questions or comments? Please contact Chad Moutray at

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