Global Manufacturing Economic Update: 100512

A Publication of the National Association of Manufacturers
Monday Economic Report

October 5, 2012
Monday Economic Report Graph

Welcome to the first edition of the Global Manufacturing Economic Update , which we plan to release the first Friday of every month. This new publication extends our discussion of international economic and policy trends, building on what we already convey for domestic economic activity. The interconnectedness of our markets means that it is hard to have a discussion about the U.S. macroeconomy without mentioning what is happening elsewhere.

Many of you have an ever-increasing presence abroad, making a dialogue about international economics and policy even more relevant. In a worldwide marketplace, the U.S. manufacturing industry would be unwise to ignore the 95 percent of the world living outside our borders. The latest NAM/ IndustryWeek Survey of Manufacturers found that more than 42 percent of respondents cited increasing international sales as one of their primary drivers for growth, and those firms anticipating increased exports over the next year were more positive in their overall outlook. Even with so many uncertainties in the world right now, nearly 36 percent of manufacturers expect to see higher exports over the next 12 months.

However, the world economy has been slowing of late. Six of our top 10 trading partners for manufactured goods had a Purchasing Managers' Index (PMI) of less than 50""the threshold for a contracting manufacturing sector""in September. It should be no surprise then that U.S. manufacturing export growth has eased so far this year. The Eurozone is in a protracted recession, and major countries in Asia and South America have seen a significant slowdown in manufacturing activity in recent months. North America""including our largest trading partners, Canada and Mexico""appears to be the one region in the world where production continues to grow, albeit at a slower pace from earlier in the year.

Next week, the Census Bureau will release the latest international trade data for August. Given the economic global slowdown, I anticipate that we will see more of what we learned from July's numbers. While the overall trade balance remained unchanged, both exports and imports fell. So far this year, the rate of export growth has slowed significantly from what we saw in either 2010 or 2011, as we came out of the recession. Fortunately, despite many economic headwinds, U.S. manufacturing goods exports remain a net positive year-to-date. This is a positive sign, and one that we would like to build on moving forward.

Chad Moutray
Chief Economist
National Association of Manufacturers

{Back to top}

Global Economic/Trade Trends
  • Weak, but Improving, Global Manufacturing Output. The latest purchasing managers' data from Markit suggest sluggish production levels worldwide. Markit and JPMorgan report that their global composite PMI was 48.9 in September, a modest gain from August's 48.1 reading. As with most PMI data, numbers under 50 indicate a contraction.

    Production and new orders have declined for four straight months, with new export sales lower since April. These contractions have been most evident in Europe and Asia. Even the Institute for Supply Management's latest manufacturing data ""which reflected surprising gains in domestic new orders""observed continuing reductions in trade activity, something that will hamper growth for manufacturers in the United States moving forward.
  • Weaker Business Activity in Our Top Trading Markets. Markit reports PMI readings below 50 in six of the 10 largest export markets for U.S.-manufactured goods. The four nations with expanding growth were Canada, Hong Kong, Mexico and (starting with the latest data for September) the Netherlands. The PMI for the Eurozone was 46.1, an improvement from the 45.1 observed in August. Still, this was the seventh consecutive month of declining production in Europe, with new orders, output and employment growth remaining in negative territory. Manufacturing activity continues to be lackluster in many key European markets, with even Germany ""Europe's largest economy""reporting a PMI of 47.4 in September, improving modestly from 44.7 in August.

    Other nations with contracting activity in September included China, Japan, South Korea and the United Kingdom. In China , the PMI reading was 47.9 in September, up slightly from 47.6 in August. This was the 11th consecutive month of contraction in Chinese manufacturing, led by lower sales volumes. Exports continue to fall sharply. Reduced new orders primarily contributed to contractions in the other three nations, as well.
  • North American Industrial Production Exceeds Other Regions. Industrial production in Canada and Mexico is doing better than other regions. Year-over-year growth in production in the two countries was up 3.4 percent and 4.8 percent, respectively, in the most recent data. U.S. manufacturing production was also higher, up 4.0 percent between August 2011 and August 2012. Meanwhile, over the course of the past year, many of our top trading partners experienced a decline in production activity. Recent data for Brazil, Germany, Hong Kong, the Netherlands and the United Kingdom have reflected some improvements.
  • U.S. Trade Deficit Unchanged, but Exports and Imports Fall. While the U.S. trade deficit was mostly unchanged at $42.0 billion in July, both goods exports and imports fell for the month, essentially offsetting one another. Manufactured goods exports declined significantly from $89.4 billion to $80.9 billion (not seasonally adjusted). These declines were seen across-the-board among all of our major trading partners, except for China and Mexico, which were unchanged. Exports to Europe, the Pacific Rim and South America were all lower. Clearly, slowing global growth and economic uncertainties about the future are taking a toll.
  • The Petroleum Trade Balance Has Narrowed Significantly This Year. It is down from a $30.0 billion deficit in January to $20.9 billion in July. This decrease has stemmed almost entirely from a drop in imports. Lower costs could explain part of this narrowing, but slowing economic growth is also most likely the main factor. Petroleum exports and imports both declined in July, down from $10.4 billion to $9.8 billion and from $32.9 billion to $30.8 billion, respectively.
  • Manufactured Goods Exports Remain a Net Positive in 2012. Even with this month's decline, year-to-date manufactured goods exports were $594.3 billion, still $40.4 billion more than at this point in 2011. Looking at major sectors, the largest year-to-date gains in goods exports are in capital goods (up $23.9 billion), motor vehicles and parts (up $10.1 billion), industrial supplies and materials (up $10.1 billion) and consumer goods (up $4.6 billion). Civilian aircraft recorded the greatest year-to-date gain of any one category, up $7.0 billion.

{Back to top}

International Trade Policy Trends
  • Russia Joins World Trade Organization (WTO). After 18 years of negotiations, Russia formally joined the WTO on August 22, bringing it fully into the multilateral trading system. In joining the WTO, Russia agreed to reduce tariffs and non-tariff trade barriers, provide protections for intellectual property and abide by other basic WTO rules, all subject to a binding dispute settlement. Full implementation of these commitments will increase opportunities for manufacturers in the United States to export and sell into the Russian market""the world's ninth largest economy and Europe's largest consumer market. However, our nation will only fully benefit from Russia's WTO membership when the United States enacts Permanent Normal Trade Relations (PNTR) with Russia, which would open Russia's export market to manufacturers in the United States. Russia imported nearly $300 billion in goods in 2011, yet the United States accounted for less than 5 percent of those imports. Cleary, there is room for growth.
  • Trans-Pacific Partnership (TPP) Talks Continue; Canada and Mexico Joining Negotiations This Month. Negotiators from the nine TPP countries (Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam) met in Virginia in early September to move forward on negotiations to eliminate tariff and non-tariff barriers and set forth other key rules, including those related to investment, intellectual property and competitiveness. Also in early September, TPP leaders reaffirmed their commitment to conclude as expeditiously as possible a "comprehensive, next-generation regional agreement that liberalizes and promotes trade and investment and addresses new and traditional trade issues and 21st-century challenges." Canada and Mexico will formally join the negotiations in October and participate fully in the 15th round of TPP talks in Auckland, New Zealand, in December.
  • Brazil Raises Tariffs on Product Imports. In late September, Brazil increased tariffs on about 100 different product imports, including certain capital goods, chemicals, medical equipment and steel products. These increases, combined with other measures by the Brazilian government to close its market, are increasingly impeding Brazil's business partnerships with the United States and other major trading nations. Brazil also announced it is contemplating a second set of tariff increases in October. While Brazil boasts a large consumer market and significant natural resources, tariff increases and other market restrictions and distortions are undermining these advantages and will only exacerbate slow growth and decrease investor confidence.
  • Argentina Continues to Implement Trade-Distorting Measures. In August 2012, the United States and Japan filed a WTO complaint against Argentina's discriminatory trade practices affecting imported goods, similar to a prior complaint by the European Union. Argentinian measures at issue include non-automatic import licenses and export offsets that are highly trade-restrictive and are limiting trade and commercial opportunities in Argentina.

{Back to top}

Questions or comments? Please contact Chad Moutray at

Facebook Icon Twitter Icon NAM Icon You Tube Icon Flikr Icon LinkedIn Icon RSS Icon