When considering why manufacturers remain so upbeat in their outlook right now, it is hard to ignore the positive impact of stronger growth internationally. The data continue to suggest that the sector has turned a corner. Indeed, the J.P. Morgan Global Manufacturing PMI rose from 53.3 in September to 53.5 in October, its fastest pace since March 2011. New orders, output, exports and employment are expanding at modest rates, with demand at a seven-month high and hiring at levels not seen since May 2011. Survey respondents are also optimistic for robust growth in production over the next six months. Moreover, all but one of the top-15 markets for U.S.-manufactured goods expanded in October, with Mexico contracting for the first time since July 2013, largely from the September 19 earthquake in Mexico City. It is expected that Mexican activity will expand once again in November.
Europe continued to dominate the list of the top export markets with strong manufacturing growth. The IHS Markit Eurozone Manufacturing PMI increased to its highest level since February 2011, buoyed by the best readings in France, Germany, Italy and the Netherlands in more than six years. Moreover, real GDP in the Eurozone rose 0.6 percent in the third quarter. That translated into 2.5 percent growth year-over-year, the quickest pace since the first quarter of 2011. New industrial production figures will be released on November 14, which it is hoped will build on August’s increase of 1.4 percent. Over the past 12 months, industrial production has jumped 3.8 percent. In a similar way, retail sales bounced back strongly in September, up 0.7 percent for the month and rising 3.7 percent year-over-year. Indeed, consumer confidence continues to move in the right direction, increasing once again in October to 10-year highs. Meanwhile, the unemployment ratein September fell to 8.9 percent, the lowest level since January 2009.
Along with stronger economic growth globally, manufacturers in the United States have also benefited from a “cheaper” dollar year to date, which has helped them better compete in export markets. For instance, the trade-weighted U.S. dollar index against major currencies has fallen 6.2 percent so far in 2017. More recently, the U.S. dollar has appreciated 4.4 percent since September 8, and overall, the dollar continues to be strong, up 17.1 percent since June 30, 2014. Growth in the dollar’s value over the past three years presents a real challenge as firms seek to increase international demand. Nonetheless, that drag has lessened since December.
Indeed, U.S.-manufactured goods exports have risen 3.85 percent through the first three quarters of 2017 relative to the same time period in 2016. This is a welcome development after declining export sales across the past two years. While the U.S. trade deficit edged up in September, goods exports rose to their highest level since December 2014. The increased deficit stemmed from an increase in goods imports that was enough to offset the jump in goods exports. Beyond goods, service-sector exports and imports both rose to new all-time highs.
President Donald Trump travels to major economies in Asia, as the United States, Canada and Mexico prepare to start the fifth round of North American Free Trade Agreement (NAFTA) negotiations in Mexico City next week. Congress holds hearings on a new Miscellaneous Tariff Bill (MTB) and nominations to the U.S. Export-Import (Ex-Im) Bank Board of Directors. The NAM urges concrete action on foreign trade barriers and seeks progress in U.S.–India commercial dialogues. Congressional action is needed to renew the Generalized System of Preferences (GSP) program by year’s end as administration plans major review of country eligibility.
Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers
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