While trade issues persist, presenting many uncertainties for manufacturers, the global economy continues to expand modestly overall, even with some softening in many markets. The J.P. Morgan Global Manufacturing PMI edged down from 53.1 in May to 53.0 in June, the lowest level since July 2017. The headline data have trended slightly lower since reaching nearly a seven-year high in December (54.5), but the data remain encouraging overall, reflecting progress over the past few years. In the latest survey, the underlying data provided mixed results, but mostly decreased. This included eased expansions for new orders, output, future output and exports. The future output measure continued to suggest optimism about the next six months, even with some deceleration. Employment was also promising, one of the few indices making progress in June. At the same time, input prices remained a challenge.
Three of the top 20 markets for U.S.-manufactured goods contracted in June, up from two in May. Growth in activity in South Korea was negative for the fourth straight month but improved to near-neutral territory in June. It is hoped this suggests the country is emerging from recent political and economic challenges. At the same time, Hong Kong struggled for the third consecutive month, with its headline index dropping to the weakest point since July 2016. In addition, Brazil slipped back into contraction for the first time since March 2017 due to the truckers’ strike, which has since been resolved but will take some time to recover from.
Among the top 20 markets, the fastest growth in manufacturing activity in June occurred in Switzerland, the Netherlands, Canada, the United Arab Emirates, Singapore and Germany. Canadian manufacturing activity achieved the fastest pace of expansion since the survey started in October 2010. Even with Brexit news in the headlines, especially over the past few days, sentiment in the United Kingdom ticked higher in June, with healthy gains in overall employment. With that in mind, it will be interesting to see how political developments impact these readings in July and beyond.
Europe has been a bright spot in the global economy consistently, but growth has slowed considerably in recent months. The IHS Markit Eurozone Manufacturing PMI has fallen from 60.6 in December—the best reading since the survey began in June 1997—to 54.9 in June, the slowest expansion since December 2016. The underlying data, however, showed mixed results for the month. While new orders and output decreased for the month, employment and exports both strengthened. The index for future output slowed for the fifth straight month, but respondents continued to be optimistic about production moving forward. In addition, the unemployment rate remained at 8.4 percent in May, the lowest level since December 2008.
Meanwhile, U.S.-manufactured goods exports totaled $478.73 billion through the first five months of 2018 using non-seasonally adjusted data, jumping 7.38 percent from the year-to-date total of $445.84 billion in 2017. This suggests that exports for manufacturers have continued to increase at a solid pace so far this year, extending the nice rebound seen last year. At the same time, the U.S. trade deficit fell to $43.05 billion in May, the lowest level since October 2016. More importantly, goods exports rose to a new all-time high ($144.89 billion). This was enough to offset a slight uptick in goods imports, up to $210.68 billion. In addition, the service-sector trade surplus increased to $22.74 billion, the second-highest reading after the $22.77 billion pace in February 2015.
While the U.S. dollar has edged down in the past two weeks, it has trended higher in general since January 25, up 5.8 percent over that time frame. The trade-weighted U.S. dollar index against major currencies from the Federal Reserve Board has risen from 84.6338 on January 25—the lowest level since December 18, 2014—to 89.5756 on July 6. This index reflects currency units per U.S. dollar, suggesting that the dollar can now purchase somewhat more today than it could on January 25. The index registered 75.7513 on June 30, 2014, illustrating the dollar’s continued strength, up 18.3 percent since then. With that said, one of the most significant stories last year was the depreciating U.S. dollar. Since the end of 2016, it has declined 6.4 percent against major currencies. The weaker dollar in 2017 helped to spur more export growth, which benefited manufacturers in the United States.
Trade challenges and uncertainty continue to grow. The Trump administration moved forward with the imposition of tariffs on July 6 on $34 billion in imports from China, and China immediately retaliated on a similar level of U.S. exports. The Trump administration also identified more than $200 billion in additional imports from China on which tariffs may be imposed. The Commerce Department’s Section 232 investigation into automobiles and automotive parts is underway, potentially impacting $340 billion in U.S. imports. The European Union, Canada and Mexico moved forward with retaliation against almost $20 billion in U.S. exports in response to U.S. tariffs placed on steel and aluminum imports. Negotiations to update the North American Free Trade Agreement (NAFTA) have yet to conclude, and there is no time left for Congress to consider a completed deal this year. In addition, the administration officially nominated Kimberly Reed to be head of the U.S. Export-Import (Ex-Im) Bank, and legislation to reform and expand the review of foreign investment into the United States and certain outbound transactions is moving forward as part of a conference on the broader National Defense Authorization Act (NDAA).
Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers
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