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NAM: Global Manufacturing Economic Update

  1. The J.P. Morgan Global Manufacturing PMI™ registered 52.0 in November, unchanged from October and remaining at the slowest growth rate since November 2016. The headline index has decelerated since reaching nearly a seven-year high in December 2017 (54.5), even with a modest expansion overall.

  2. There was also continued slippage in economic growth in November in the largest export destinations. In June, all those markets expanded, but the global economy has softened since then. In November, five economies contracted, up from three in October. Those markets included Hong KongItalyMexicoSouth Korea and Taiwan. It was only the second negative reading for Mexico since July 2013 (with the other, in October 2017, being the result of an earthquake).

  3. The dollar has continued to strengthen, up 8.4 percent since January 25 against major currencies, according to the Federal Reserve. The appreciation in the dollar should make it harder for manufacturers to increase international demand, or at a minimum, it is squeezing the bottom line. Despite that headwind (and others, including trade policy uncertainties), U.S.-manufactured goods exports have risen 6.6 percent through the first 10 months of 2018 relative to the pace at the same time frame in 2017.

  4. Uncertainties surrounding Brexit negotiations and political turmoil in France and Italy have made a lot of headlines of late, but interestingly, manufacturing activity in the United Kingdom improved in November. (Look for more softness in the December data.) For the Eurozone as a whole, however, sentiment dropped to the lowest level since August 2016, with FranceGermany and the Netherlands each decelerating to rates not seen since 2016. Indeed, Eurozone real GDP rose just 1.6 percent year-over-year in the third quarter, down from 2.2 percent in the second quarter and nearly a four-year low.

  5. Chinese manufacturing activity expanded ever so slightly in November, once again foregoing the first contraction since May 2017 despite some expectation that it might do so, according to IHS Markit®. Yet, the official manufacturing PMI data from the National Bureau of Statistics of China dropped from 50.2 in October to 50.0 in November, the lowest level since July 2016.

  6. The IHS Markit Emerging Markets Manufacturing PMI® rose to a three-month high, but activity in these markets has weakened from earlier in the year. The emerging markets have been weighed down by softer global growth and a strong U.S. dollar. If the Federal Reserve opts to raise rates less in 2019 than previously expected, the emerging markets might benefit; otherwise, these economies are likely to continue to be challenged.

  7. The G20 meeting at the beginning of the month provided a push for reform of the multilateral trading system organized through the World Trade Organization (WTO), while also serving as the venue for the signing of the new U.S.-Mexico-Canada Agreement (USMCA). Also on the sidelines, the much-anticipated meeting between President Donald Trump and Chinese President Xi Jinping took place that initiated a 90-day pause in new tariffs between the two largest economies.

  8. Manufacturers weigh in on the importance of market-opening agreements with Japan and the European Union (EU), while also urging quick action to make the U.S. Export-Import (Ex-Im) Bank fully functional. Efforts to secure a deal to open India’s market remain without resolution.

  9. Negotiations by the United Kingdom (UK) to separate the EU resulted in an agreement approved by the European Council, but without sufficient support in the UK Parliament, as the deadline for formal UK withdrawal from the EU is still slated for the end of March 2019.

  10. Worldwide Manufacturing Activity: The J.P. Morgan Global Manufacturing PMI™ registered 52.0 in November, unchanged from October and remaining at the slowest growth rate since November 2016. The headline index has decelerated since reaching nearly a seven-year high in December 2017 (54.5), even with a modest expansion overall. In the latest survey, output improved marginally, but employment and future output eased a bit. Exports contracted for the third consecutive month, but only barely. Encouragingly, the index for raw material prices pulled below 60—a threshold that might indicate robust growth—for the first time since March, but input costs continued to increase strongly globally.

  11. Top 20 Markets for U.S.-Manufactured Goods: There was also continued slippage in economic growth in November in the largest export destinations. In June, all those markets expanded, but the global economy has softened since then. In November, five economies contracted, up from three in October. Those markets included Hong KongItalyMexicoSouth Korea and Taiwan. It was only the second negative reading for Mexico since July 2013 (with the other, in October 2017, being the result of an earthquake), whereas it was the seventh time so far in 2018 that the South Korean manufacturing sector has contracted, ending two months of improvement.

The fastest growth in manufacturing activity in November among the top 20 markets occurred in Switzerland (57.7), the Netherlands (56.1), the United Arab Emirates (55.8), Saudi Arabia (55.2), Canada (54.9), India (54.0) and Singapore (53.8). (There is no manufacturing PMI for comparison purposes for Belgium, which is our 12th-largest trading partner.)

  1. Trade-Weighted U.S. Dollar Index Against Major Currencies: The dollar has continued to strengthen, up 8.4 percent since January 25 against major currencies, according to the Federal Reserve. This index reflects currency rates per U.S. dollar, suggesting the dollar can purchase somewhat more today than it could on January 25. At the same time, manufacturers have noted challenges with a strong dollar for a few years, with the dollar up 21.2 percent since June 30, 2014.

  2. Export Growth: U.S.-manufactured goods exports have risen 6.6 percent through the first 10 months of 2018 relative to the pace at the same time frame in 2017. That suggests that manufacturing exports have continued to build on the rebound in international demand that started last year. With that said, the U.S. trade deficit rose to a 10-year high.

  3. China: The Caixin China General Manufacturing PMI™ inched higher in November, expanding ever so slightly (50.2) and once again foregoing the first contraction since May 2017 despite some expectation that it might do so. The underlying data provided mixed results, with new orders leading the improvement but with stagnant output. Exports and employment continued to decline, but with both contracting at a somewhat faster rate. On a promising note, the index for future output ticked higher, with modest growth expected over the next six months.

Meanwhile, the official manufacturing PMI data from the National Bureau of Statistics of China dropped from 50.2 in October to 50.0 in November, the lowest level since July 2016. Small and medium-sized enterprises reported contractions for the month. Overall, real GDP also slowed, declining from 6.7 percent year-over-year in the second quarter to 6.5 percent in the third quarter. New data for industrial production, fixed asset investment and retail sales for November will be released on December 14. The October data found notable decelerations in activity for production and investment (and retail sales relative to earlier in the year).

  1. Eurozone: The IHS Markit Eurozone Manufacturing PMI® dropped to the lowest level since August 2016, with that measure down from 52.0 in October to 51.8 in November. Output and employment both slowed, and new orders and exports contracted for the second straight month, pulling the headline index lower. It was only the second time since November 2014 that new orders had declined on net. Yet, future output ticked marginally higher, providing a bit of optimism for stronger production growth in the months ahead. On a country-by-country basis, the news was highly mixed. Despite some improvements in AustriaGreeceIrelandSpain, Switzerland and the United Kingdom, manufacturing activity in FranceGermany and the Netherlands each eased to the slowest growth rates since 2016 once again. As noted earlier, Italy contracted for the second straight month—also the weakest figures since 2016.

Looking at economic data, real GDP slowed to 1.6 percent growth year-over-year in the third quarter, down from 2.2 percent in the second quarter and nearly a four-year low. Industrial production increased 0.2 percent in October, bouncing back from a decline of 0.6 percent in the prior month. With that said, production in the Eurozone has risen just 1.2 percent since October 2017, a rather disappointing pace. Similarly, retail sales rebounded, up 0.3 percent in October after falling 0.5 percent in September. On a year-over-year basis, spending is up a modest 1.7 percent over the past 12 months. Meanwhile, the unemployment rate remained at 8.1 percent, the lowest level since November 2008.

  1. Emerging Markets: The IHS Markit Emerging Markets Manufacturing PMI® rose to a three-month high, up from 50.5 in October to 50.8 in November, but activity in these markets has weakened from earlier in the year. The emerging markets have been weighed down by softer global growth and a strong U.S. dollar. Nonetheless, new orders, output and future output strengthened a little in November, but employment and exports both declined at faster rates.

The country-by-country data on manufacturing activity provided mixed results. Encouragingly, several emerging markets saw improved business conditions in November, including BrazilIndiaNigeria, the Philippines,RussiaSaudi ArabiaSingapore, the United Arab Emirates and Vietnam. As discussed earlier, Chinese activity also inched up unexpectedly in the month, even as growth clearly has softened in the economy overall, and Myanmarexpanded for the first time since May. At the same time, slower growth occurred in both the Czech Republic and Kenya. In contrast, Poland slipped into contraction territory for the first time in four years, joining a number of emerging markets that have been challenged persistently in recent months. Those economies include EgyptHong KongLebanonMalaysiaSouth KoreaTaiwan and Turkey.

  1. Canada: The IHS Markit Canada Manufacturing PMI® bounced back in November after expanding at the slowest pace since January 2017 in October, with stronger data across the board. Manufacturing activity improved in every region of the country, and respondents felt optimistic about production over the next six months. Meanwhile, new data will be released on December 18, but manufacturing sales also rebounded, up 0.2 percent in September after declining 0.5 percent in August. Retail salesedged up 0.2 percent in September as well. At the same time, the unemployment rate decreased from 5.8 percent in October to 5.6 percent in November, the lowest point since the survey began in 1976. Yet, manufacturing employment inched up by just 600 workers in November, with 53,800 fewer employees over the past 12 months.

  2. Mexico: The IHS Markit Mexico Manufacturing PMI™ contracted for the first time in 13 months, falling from 50.7 in October to 49.7 in November and pulled lower by reduced output. New orders and employment both expanded modestly for the month, and export sales slowed (but continued to grow modestly). On the positive side, the index for future output accelerated somewhat, which would indicate a sturdier outlook than the headline data might suggest. With that said, industrial production fell 1.6 percent when adjusted for inflation in October, with manufacturing output off 2.2 percent. On a year-over-year basis, industrial production slowed from 1.8 percent growth over the past 12 months in September to 1.0 percent in October.

  3. Japan: The Nikkei Japan Manufacturing PMI® expanded at the slowest pace since August 2017 in November, with softer growth in new orders, exports and production but stronger growth in employment. In addition, the index for future output decelerated to the lowest mark since November 2016, but with expectations of still modest growth for the next six months. In the larger economy, real GDP fell 0.6 percent in the third quarter, which was weaker than the earlier estimate of a 0.3 percent decline. A series of natural disasters played into the disappointing data for the quarter, with the Japanese economy up just 0.1 percent on a year-over-year basis. More encouragingly, industrial production jumped 2.9 percent in October after inching down 0.4 percent in September. Production in Japan has risen 4.2 percent over the past 12 months.

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