The global economy continues to expand modestly—especially relative to the headwinds seen a couple of years ago—but the recent trends also reflect some softening in overall growth. The J.P. Morgan Global Manufacturing PMI edged down to 52.5 in August, its slowest pace since November 2016. The headline data have trended slightly lower since reaching a nearly seven-year high in December (54.5). In the August survey, new orders, future output and employment each eased somewhat, with export growth remining marginally positive. Beyond those measures, input prices grew strongly in August despite some continued lessening in cost pressures. The index for raw material prices has exceeded 60—indicating robust gains—in 11 of the past 12 months, averaging 61.2 over that timeframe. More importantly, all but two of the top 20 markets for U.S.-manufactured goods had expanding levels of manufacturing activity in August, with the exceptions being South Korea and Hong Kong. (There is no manufacturing PMI for comparison purposes for Belgium, which is our 12th-largest trading partner.)
Encouragingly, exports have increased strongly year to date in 2018, extending the nice rebound in 2017. U.S.-manufactured goods exports totaled $671.87 billion through the first seven months of 2018 using non-seasonally adjusted data, jumping 6.9 percent from the year-to-date total of $628.51 billion in 2017. In addition, U.S.-manufactured goods to our top-six trading partners also improved year to date this year relative to last year. Nonetheless, the U.S. trade deficit rose to $50.08 billion in July, a five-month high. On the positive side, petroleum exports grew to $15.77 billion, the highest level on record. Interestingly, the robust export growth so far this year has occurred in conjunction with a strengthening U.S. dollar, which has risen 7.0 percent since January 25 against major currencies.
The fastest growth in manufacturing activity in August in those major markets occurred in Switzerland, the Netherlands, Canada, Germany, Saudi Arabia and the United Arab Emirates, even as many of those economies slowed in the latest figures. Canadian manufacturing sentiment was not far from June’s reading, which was the best since the survey started in October 2010. The softening of growth in many major markets is notable, including for the Eurozone (a 21-month low), China (a 14-month low), the emerging markets (a 13-month low), Japan (an 11-month low) and Mexico (a 10-month low). Still, it is important to remind ourselves that manufacturing growth remains largely positive internationally, and in each of these markets business leaders continue to be optimistic about future production in their outlook. Yet, trade uncertainties and the strong U.S. dollar remain top-of-mind.
Along those lines, the United States reached a deal in principle with Mexico in August on an updated North American Free Trade Agreement (NAFTA) and talks with Canada are ongoing, with a trilateral deal expected to be announced as early this month. The United States and China imposed additional tariffs and the president indicated that further tariffs would be examined. Congress passed the Miscellaneous Tariff Bill (MTB), which is awaiting the president’ signature. The Senate has yet to move forward, however, on the full slate of Export-Import (Ex-Im) Bank nominees. Congress is also considering various Russia sanctions legislation. The administration released text of updates to the Korea-U.S. (KORUS) Free Trade Agreement and held discussions with the European Union (EU). The administration also issued changes to the processes for exclusions from Section 232 steel and aluminum tariffs and quotas.
Chad Moutray, Ph.D., CBE
Chief Economist
National Association of Manufacturers