The global manufacturing sector has turned a corner, expanding modestly on improving demand and buoyed by stronger economic growth in key export markets and by a weaker U.S. dollar. On that latter point, the U.S. dollar has depreciated 7.6 percent year to date in 2017 against major currencies, but it remained nearly 17 percent higher than it was three years ago. For manufacturers, growth in the dollar’s value over the past three years presents a real challenge as firms seek to increase exports. Yet, that drag was lessened recently, especially with sizable depreciation in the dollar so far this year. Using non-seasonally adjusted data, U.S.-manufactured goods exports have risen 3.9 percent year to date in June relative to the same time period last year—a welcome development after weaker data the past two years. For its part, the International Monetary Fund predicts 3.5 percent and 3.6 percent economic growth globally in 2017 and 2018, respectively, up from 3.2 percent growth in 2016.
Europe continued to dominate the list of the top export markets with strong manufacturing growth. Among the top 15 markets for U.S.-manufactured goods exports, those countries with the highest purchasing managers’ index (PMI) readings in the sector in July included the Netherlands, Germany, the United Arab Emirates, Canada, the United Kingdom and France. Manufacturing activity in the Netherlands once again notched its best reading since April 2011, with Austria and Germany easing in July but at paces not far from their six-year highs. Nonetheless, July showed some slippage in the data among the top-15 markets, especially considering none in that group contracted in June. South Korea returned to negative terrain in July, contracting for the 11th time in the past 12 months on sharp reductions in output and exports. At the same time, Brazil fell back to neutral territory, ending three straight monthly expansions but with still growing—but slower—demand and production.
Real GDP in the Eurozone increased 0.6 percent in the second quarter. That translated into 2.1 percent growth year-over-year, its quickest pace since the first quarter of 2011. We will get new industrial production data for June on August 14. In May, industrial production jumped 1.3 percent, the fastest monthly rate since November and led by strength in energy and consumer goods. On a year-over-year basis, industrial production has risen 4.0 percent, a pace not seen since August 2011. Retail sales rose 0.5 percent in June, a three-month high. Over the past 12 months, retail spending has risen 3.1 percent, continuing an accelerating trend. Meanwhile, the unemployment rate in June dropped to 9.1 percent, its lowest level since February 2009.
We have also seen stronger growth in the Chinese manufacturing sector. The Caixin China General Manufacturing PMI rose for the second straight month to its fastest pace since March. It was the 11th time in the past 13 months the headline index has expanded, illustrating continued progress in the economic outlook after weaknesses in 2015 and early 2016. Overall, the Chinese economy grew 6.9 percent year-over-year in the second quarter, the same pace as in the first quarter. This reflects an acceleration after struggles over much of the past year or so, with 6.7 percent growth in 2016. Along those lines, industrial production rose from 6.5 percent year-over-year in May to 7.6 percent in June, matching the rate in March and definite progress from the 6.2 percent average in 2016. There was a similar trend for retail sales, but fixed-asset investment has cooled since the spring. We will get new data for each of these measures for July on August 14.
Closer to home, the IHS Markit Canada Manufacturing PMI increased from 54.7 in June to 55.5 in July, its best reading since April’s six-year high. The pace of new orders matched the index in March, with both at levels last seen in October 2014. That would seem to indicate that the Canadian manufacturing sector has begun to recover from challenges across the past two years. Real GDP in Canada grew 0.9 percent in the first quarter, picking up from the 0.7 percent gain in the fourth quarter. That translated into 3.7 percent growth at the annual rate in the first quarter, with both consumer and business spending boosting the Canadian economy. In addition, manufacturing sales and retail spending saw healthy gains in May and in year-over-year data. Meanwhile, the unemployment rate declined to 6.3 percent in July, its lowest level since October 2008, and manufacturers added 13,700 workers in July, with year-over-year growth of 53,000 employees.
Negotiations to modernize the North American Free Trade Agreement (NAFTA) will launch on August 16 as the NAM leads business efforts to ensure that core property protection provisions and investment enforcement tools are maintained and upgraded. Business groups across the country also join the NAM in opposing the nomination of Scott Garrett to lead the U.S. Export-Import (Ex-Im) Bank. New legislation imposes sanctions on Russia, Iran and North Korea, while U.S.–China commercial dialogue does not produce concrete results.
Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers
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