Global Manufacturing Economic Update
Much of the recent data released in the past few weeks tend to support the notion that the global economy has improved, even as several indicators showed some slippage in sentiment in May. For instance, the J.P. Morgan Global Manufacturing PMI continued to expand at a decent pace, even as the headline number has pulled back slightly from March’s nearly six-year high. The sector essentially stagnated one year ago, illustrating the progress since then. In May, all but two of the top-15 markets for U.S.-manufactured goods exports experienced growth in their manufacturing sectors. As recently as August, seven of those markets contracted, providing further evidence of current progress. With that said, China returned to contraction territory for the first time in 11 months in May, and South Korea—a country that has grappled with major political challenges of late—also saw its manufacturing sector decline once more.
Meanwhile, even before the results of the United Kingdom election are known later today, Europe has continued to dominate the list of the top export markets with strong manufacturing growth, including Germany, the Netherlands and the United Kingdom. Indeed, the IHS Markit Eurozone Manufacturing PMI rose to its best reading since April 2011 with stronger growth across the board. Real GDP in the Eurozone accelerated to 0.6 percent growth in the first quarter, its fastest pace in two years, or 1.9 percent at the annual rate. At the same time, manufacturing production expanded 0.4 percent in April, or 2.6 percent year-over-year. For its part, retail sales rose for the fourth consecutive month, edging up 0.1 percent in April. Over the past 12 months, spending has risen 2.5 percent, continuing an accelerating trend. Those positive economic signs could help explain how the unemployment rate in April fell to 9.3 percent, its lowest level since March 2009.
Similar to what we see in Europe, Canada—our largest trading partner—has also seen notable improvements in its economy. The IHS Markit Canada Manufacturing PMI remained strong in May despite pulling back from a six-year high in April. Real GDP 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 consumer spending as well as business spending boosting the Canadian economy. In addition, manufacturing sales in Canada increased 1.0 percent in March, rebounding from the decline of 0.6 percent in February. Most impressively, sales in the sector have jumped 8.2 percent year-over-year. Similarly, retail spending also bounced back, improving from a decrease of 0.4 percent in February to an increase of 0.7 percent in March, with year-over-year growth of 6.9 percent.
With the global economy trending in the right direction, U.S.-manufactured goods exports have improved so far in 2017—a welcome development after weaker data in each of the past two years. Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $353.09 billion year to date in April, up 3.44 percent from $341.33 billion one year ago. Yet, even with encouraging news, there continue to be lingering headwinds. The U.S. trade deficit rose to a three-month high, and the dollar remains strong, up 21.4 percent since June 2014 against major currencies. (To be fair, the U.S. dollar has depreciated 4.0 percent year to date.) This makes it more difficult for manufacturers in the United States to increase international demand. In addition, as noted above, there are also ongoing uncertainties in the policy environment.
Along those lines, the administration formally notifies Congress of intention to renegotiate the North American Free Trade Agreement (NAFTA), which could start as early as August 16. Manufacturers travel to Cuba to review opportunities and challenges. The U.S. International Trade Commission (USITC) is readying its report on a new Miscellaneous Tariff Bill (MTB), while Congress considers new sanctions legislation. The administration issued results from its 100-day plan with Congress, and the new NAM-led coalition on global institutions expands and issues letters and a new poll on the importance of U.S. leadership.