Global Manufacturing Economic Update: 080913

A Publication of the National Association of Manufacturers
Monday Economic Report

August 9, 2013
Monday Economic Report Graph
Global Economic/Trade Trends

Net exports provided a significant drag on second-quarter real GDP in the United States, subtracting 0.81 percentage points from the total figure. While goods exports grew faster in the second quarter than in the first quarter, this was counterbalanced by even stronger growth in goods imports. As such, the data highlight how softer economic growth overseas has slowed U.S. manufacturing activity and exports. Year-to-date manufactured goods exports have grown a stubbornly slow 1.7 percent in the first six months of 2013 relative to the same time period in 2012. This compares to 5.7 percent growth in manufactured goods exports for all of 2012 and the 15 percent growth rate required for the United States to meet its goal of doubling exports by 2015. This sluggish pace has made it difficult for manufacturers to increase the demand for their goods.

The Census Bureau and the Bureau of Economic Analysis reported that the U.S. trade deficit fell sharply from $44.1 billion in May to $34.2 billion in June. This was the lowest monthly deficit since October 2009, and there were increases in goods exports mostly across-the-board. The largest year-to-date gains were in consumer goods, non-automotive capital goods and automotive vehicles and parts segments. More importantly, the new data give a sense that the export picture might be improving, providing further hope that manufacturing activity will be better in the second half of the year.

The global economy will need to stabilize and pick up if the U.S. export market is to continue to improve in the coming months. Of the top 10 markets for U.S.-manufactured goods, five have Purchasing Managers' Index (PMI) values in July suggesting growth, and the other five are experiencing contractions. As a whole, the JPMorgan Global Manufacturing PMI increased from 50.6 in June to 50.8 in July. The latest data show mixed progress in terms of manufacturing activity. In fact, the Markit Eurozone Manufacturing PMI ended 23 consecutive months of declining activity with slight growth in July, sparking conversations about whether its economic challenges have stabilized or not. In contrast, output and new orders in many emerging markets have decelerated in recent months. Yet, data released this morning on Chinese industrial production suggest that activity might be stabilizing, which could be a positive sign moving forward.

Over the next few weeks, several indicators will give us a better sense of how the world economy is faring. This includes GDP reports for Europe, Japan and Mexico; industrial production data for the United States, Europe, India and Mexico; and retail sales information for the United States, Brazil, Canada and Mexico. In addition, regional Federal Reserve Bank surveys of manufacturers for August will hopefully show continued progress in terms of manufacturing activity in the United States, including progress with new export orders.

Meanwhile, this fall will be busy on the trade policy front. Congress recessed for August without moving major trade legislation, including bills to reauthorize customs and extend the Generalized System of Preferences program that expired on July 31. The coming months may see movement on these bills and a measure to grant the President the Trade Promotion Authority (TPA) necessary to pass trade agreements now under negotiation, including the Trans-Pacific Partnership (TPP). The NAM launched a trade toolkit to coincide with renewed congressional attention to these issues. Over the next few months, we also will continue working to overturn unfair trade practices in India, combat trade secrets theft, advance national export control reform and support a global trade facilitation agreement.

Chad Moutray
Chief Economist
National Association of Manufacturers

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Global Economic/Trade Trends
  • The global economy continues to experience modest growth. The JPMorgan Global Manufacturing PMI edged slightly higher, from 50.6 in June to 50.8 in July. That is the highest point since February, even as it reflects growth that is far from robust. Weaknesses in Asia, southern Europe and Brazil offset improved data in the United States, the United Kingdom and the Eurozone. The Global PMI data, however, reflect progress in exports (up from 48.3 to 50.6) and employment (up from 49.6 to 50.1), with both measures shifting from contraction to small net increases. Capacity utilization also had marginal growth (up from 49.7 to 50.1).

    Looking at the top 10 markets for U.S.-manufactured goods, half grew in July, with a PMI value of 50 or greater. There were several movers in July. Slowing output and new orders in Brazil (down from 50.4 to 48.5) and Mexico (down from 51.3 to 49.7) shifted both countries into contraction territory, whereas improvements in the economies of Germany (up from 48.6 to 50.7) and the Netherlands (up from 48.8 to 50.8) lifted manufacturing activity higher. Export growth played a factor for these four nations. Meanwhile, our largest trading partner, Canada (down from 52.4 to 52.0), experienced a slight easing in activity in July. However, on the positive side, it has expanded four straight months.

  • Canadian and Mexican manufacturing activity has decelerated in recent months. The RBC Canadian Manufacturing PMI declined from 52.4 in June to 52.0 in July. The lower figure was the result of some easing in output and employment. However, this was the fourth straight month of expansion in manufacturing activity. The most recent GDP data by industry suggested modest growth in manufacturing in May of 0.3 percent, led by the machinery, furniture and fabricated metals sectors. Meanwhile, goods exports from Canada increased 1.4 percent in June, narrowing its trade deficit to $469 million. This morning, Statistics Canada announced that the unemployment rate rose from 7.1 percent in June to 7.2 percent in July, but manufacturers added 13,500 net new workers for the month. On a year-over-year basis, however, the sector has shed 59,500 employees.

    At the same time, the HSBC Mexico Manufacturing PMI dropped from 51.3 to 49.7, the first contraction in the data since it began in April 2011. The PMI values have eased gradually from December's recent peak of 57.1, with slower sales, exports and output. Hiring has essentially stalled, after growing modestly in prior months. The unemployment rate in Mexico was 5.0 percent in June, up from 4.9 percent in May. Earlier today, Mexico announced that industrial production fell 2.4 percent in June at the annual rate, with weaker export data (primarily to the United States) hurting demand for manufactured goods.

  • Europe is growing (barely), perhaps suggesting some stabilization. After 23 consecutive months of contraction, the Markit Eurozone Manufacturing PMI rose from 48.8 in June to 50.3 in July, indicating slight growth for the month. Higher levels of output, new orders and exports pushed overall activity into net growth. In fact, several European PMIs reached recent highs for the month, including Austria (up from 48.3 to 49.1), France (up from 48.4 to 49.7), Germany (up from 48.6 to 50.7), Greece (up from 45.4 to 47.0), Ireland (up from 50.3 to 51.0), Italy (up from 49.1 to 50.4) and the Netherlands (up from 48.8 to 50.8). While some of these figures still indicate a contraction in manufacturing activity, these countries' economic environments have improved of late.

    Market analysts have already speculated whether this means that Europe's challenges have begun to stabilize. Even if the worst might be over, growth on the continent will be slow for the foreseeable future. The World Bank forecasts real GDP growth of roughly 1 percent for Europe in 2014. Moreover, the Markit Eurozone data continue to show some weaknesses, even with recent gains. For instance, output prices (up from 47.5 to 48.4) and employment (up from 47.8 to 49.1) remain negative, but the pace of declines has slowed.

    Next week, we will get industrial production data for June that should show if the increase in manufacturing sentiment has begun to have real effects on Eurozone output figures. So far, that has not been the case, but data reports have a slight time lag. Eurostat reported that production fell 0.3 percent in May, with year-over-year output off 1.3 percent. Retail sales were also lower in May, down both 0.5 percent for the month and 0.9 percent over the course of the past year. Meanwhile, the unemployment rate was unchanged in June at 12.1 percent for the fourth month in a row. Still, there are other data that show some progress. For example, overall business and consumer confidence increased in July, a rise that includes manufacturers.

  • Asian economies have had slower growth lately, led by China. The HSBC China Manufacturing PMI fell from 48.2 in June to 47.7 in July, the third month in a row of contracting activity. Reduced new orders, exports, output and employment spurred the decline. HSBC Chief Economist for China and Co-Head of Asian Economic Research Hongbin Qu said that the softness in the market ""¦has prompted Beijing to introduce more fine-tuning measures, from tax breaks for small companies to increased spending on public housing, railway, energy saving and IT infrastructure areas." Meanwhile, the official PMI data from China's National Bureau of Statistics were somewhat more upbeat, with the index up from 50.1 to 50.3. The data show sales and output growing modestly, with net hiring negative but improving.

    On the positive side, industrial production accelerated in July, up from a year-over-year pace of 8.9 percent in June to 9.7 percent in July. This could suggest that China's recent economic weaknesses have begun to stabilize. Fixed investments in manufacturing was unchanged at 17.1 percent at the annual rate, with the largest year-over-year gains in non-ferrous metals, telecommunications equipment, machinery and automobiles. Still, retail sales slipped slightly from 13.3 percent in June at the year-over-year rate to 13.2 percent, with reduced spending on household electronics and automobiles.

    The overall recent slowness in China appears to be softening economic activity elsewhere in Asia. With contracting levels of sales and output, the following countries all experienced sub-50 PMI values: Hong Kong (up from 48.7 to 49.7), South Korea (down from 49.4 to 47.2), Taiwan (down from 49.5 to 48.6) and Vietnam (up from 46.4 to 48.5). Moreover, India (down from 50.3 to 50.1) and Indonesia (down from 51.0 to 50.7) grew only slightly.

    Meanwhile, Japan should continue to grow modestly, with second-quarter real GDP, which will be released on August 11, expected to closely match the 1 percent growth rate experienced in the first quarter . Industrial production , due out later this month, is also forecast to show a rebound in July after June's unexpected 3.3 percent decline. The Markit/JMMA Japan Manufacturing PMI has been greater than 50""the threshold for expansion""for five straight months, even as growth slowed somewhat in July. The PMI declined from 52.3 in June to 50.7 in July.

  • Brazil's economy appears to be slowing, after recovering from softness last year. The HSBC Brazil Manufacturing PMI shifted from very slow growth in June (50.4) to modest declines in July (48.5). This is the first contraction since September 2012, when the Brazilian PMI figures were below 50 for six straight months midyear last year. Since then, new orders and output had picked up, but both have decelerated since peaking in January. July's data suggest lower levels of exports, employment and inventories as well, with new export orders off for four straight months. Nonetheless, even with declining sentiment, the most recent production data were higher, with industrial output up 1.9 percent in June, offsetting May's 1.8 percent decrease. Year-over-year production was up 4.3 percent.

    Given the weaknesses in Brazil and China, the HSBC Emerging Markets Index declined from 50.6 in June to 49.4 in July. Of the BRIC nations, only India (down from 50.3 to 50.1) had a manufacturing PMI reading suggesting expansion. India's service sector, meanwhile, shrank for the first time since April 2009. The HSBC Russia Manufacturing PMI decreased from 51.7 to 49.2, weighed down by reduced output and sales. In other emerging markets, such as the Czech Republic (up from 51.0 to 52.0) and Poland (up from 49.3 to 51.1), the economic news was more positive, with accelerating activity levels and modest growth.

  • The U.S. trade deficit plummeted in June. The Census Bureau and the Bureau of Economic Analysis reported a sharp drop in the U.S. trade deficit , down from $44.1 billion in May to $34.2 billion in June. This was the lowest monthly deficit since October 2009. June's lower deficit was the result of increased goods exports (up from $130.3 billion to $134.3 billion) and fewer goods imports (down from $193.2 billion to $187.4 billion). This was welcome news, particularly with goods exports hitting an all-time high. At the same time, the service-sector surplus was virtually unchanged, up from $18.8 billion to $18.9 billion.

    The lower trade deficit stemmed from a narrowing of the deficits for both petroleum and non-petroleum goods, another positive sign. The petroleum trade deficit fell from $20.8 billion to $17.4 billion, and the non-petroleum deficit declined from $41.3 billion to $34.4 billion.

    Looking more closely at the goods export categories, the largest increases were in industrial supplies and materials (up $1.5 billion), non-automotive capital goods (up $1.5 billion), consumer goods (up $1.0 billion) and foods, feeds and beverages (up $343 million). The automotive vehicles sector had the only decline for the month, down $439 million. On a year-to-date basis, consumer goods (up $4.6 billion), non-automotive capital goods (up $2.8 billion) and automotive vehicles and parts (up $1.6 billion) had the greatest gains in the first six months of 2013 relative to the same time period in 2012.

  • Despite better numbers in June, growth in manufactured goods exports remains stubbornly slow so far this year. Year-to-date manufactured goods exports totaled $686.0 billion through June 2013, or just 1.7 percent more than the $674.6 billion in 2012. This continues to be a disappointing figure, representing a slowdown from the 5.7 percent growth seen in 2012 and the 15 percent growth rate needed for the United States to meet its goal of doubling exports by 2015.

    Reduced exports to Europe help to explain the slower pace of trade in 2013. Year-to-date exports to Europe have fallen 3.4 percent. Exports to Canada, our largest trading partner, were also lower, down 0.6 percent year-to-date. On the positive side, manufactured goods exports to our second- and third-largest trading partners, Mexico and China, were up 5.3 percent and 13.6 percent, respectively, year-to-date. In general, the bright spots were in Asia (up 5.0 percent) and South America (up 1.8 percent), with some notable exceptions. For instance, year-to-date exports were lower to Japan (down 6.1 percent) and Brazil (down 0.8 percent).

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International Trade Policy Trends
  • USTR Froman to travel to Brunei for TPP talks. U.S. Trade Representative (USTR) Michael Froman will travel to Brunei August 20-23 for ministerial meetings on the margins of the 19th round of TPP negotiations . The 18th round concluded at the end of July in Malaysia, with continued progress reported by government officials and stakeholders. Negotiators are working to reach an agreement by year-end. In Malaysia, Japan entered the negotiations for the first time and is working to get up to speed on provisions already negotiated by the other 11 parties. Work remains on a number of key chapters, including environment, e-commerce, investment, intellectual property, state-owned enterprises and market access.

  • Congress calls for investigation of India's unfair trade practices. The chairmen and ranking members of the Senate Finance and House Ways and Means committees wrote to the U.S. International Trade Commission on August 2 requesting an investigation of India's discriminatory industrial policies. The NAM and its partners in the Alliance for Fair Trade with India welcomed the investigation, which follows Vice President Biden's visit to India in late July. The NAM and more than 40 other national and state business associations sent a letter to the Vice President on July 22 urging him to deliver a tough message against policies that harm American manufacturing and jobs. The NAM will continue to seek concrete progress in advance of Indian Prime Minister Singh's trip to the United States at the end of September.

  • NAM launches trade toolkit . The NAM launched a new trade toolkit as the first step in a broader trade education effort. This web-based toolkit showcases business success stories and highlights key facts and other information on the benefits of trade to help manufacturers communicate internally and with their communities about the importance of opening overseas markets and leveling the playing field for businesses and workers. If your company would like to participate by telling the story of how trade has helped grow your business, please contact NAM Vice President of International Economic Affairs Linda Dempsey . The NAM will be adding new information to the website and will expand this effort through state-focused activities throughout the year.

  • President talks TPA in Tennessee. During a July 30 speech in Chattanooga, Tenn., President Obama called for expanding U.S. exports and asked "Congress for the authority to negotiate the best trade deals possible for our workers." In a statement released the same day, Senate Finance Committee Chairman Max Baucus (D-MT) welcomed the President's request for TPA. "[B]oosting our exports creates new opportunities for America's farmers, ranchers, businesses and workers," the statement read. Chairman Baucus and others may introduce legislation granting the President TPA in the fall. The NAM will be working to ensure any legislation reflects manufacturing priorities circulated in July.

  • Industry stakeholders support WTO Trade Facilitation Agreement. The NAM and 16 other business associations sent a letter to the World Trade Organization (WTO) on July 31 calling for conclusion of a binding Trade Facilitation Agreement this year that lowers barriers and cuts the cost of shipping goods across borders. New research is demonstrating the value of trade facilitation policies, and U.S. Ambassador to the WTO Michael Punke recently highlighted trade facilitation as the "big-ticket item" for the WTO's December ministerial in Bali, Indonesia.

  • Senators consider legislation to combat trade secrets theft. Responding to the growing global challenge of trade secrets theft, Sens. Sheldon Whitehouse (D-RI) and Lindsey Graham (R-SC) released a discussion draft of possible new legislation designed to ensure criminal laws are adequate to prosecute and deter economic espionage. In a statement issued on July 29, Sen. Graham said the legislation would "give law enforcement the tools to go after state-sponsored foreign hackers and organized cyber-thieves that are stealing our intellectual property." The legislation follows a strategy on mitigating the theft of U.S. trade secrets the White House issued in February. The Senate Judiciary Subcommittee on Crime and Terrorism may hold a hearing on trade secrets in the fall.

  • Commerce Department highlights Export Control Reform Initiative. The NAM recently sponsored an ad campaign at Reagan National Airport urging Washington officials to finish the job on export control reform. The campaign coincided with the annual Update Conference on Export Controls and Policy hosted by the Commerce Department's Bureau of Industry and Security (BIS). During the conference, USTR Froman , Commerce Secretary Penny Pritzker and BIS Under Secretary Eric Hirschhorn all emphasized the national security imperatives for export control reform and the President's commitment to ensuring the reform initiative is completed successfully. The Administration continues to implement the Export Control Reform Initiative. Read more here.

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Questions or comments? Please contact Chad Moutray at

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