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NAM: Global Manufacturing Economic Update

Financial markets have been quite volatile over the past few weeks. Fortunately, the global manufacturing sector continues to be healthy. In February, all of the top-20 markets for U.S.-manufactured goods expanded, illustrating the strength of the international economy once again. In addition, the J.P. Morgan Global Manufacturing PMI edged down from 54.4 in January to 54.2 in February, and it remained just shy of December’s pace, which represented the fastest pace since February 2011. New orders, output and exports were somewhat softer in February but still quite positive. Hiring growth was not far from the December reading, which—like the headline index—was the best since early 2011. Manufacturing leaders remain very upbeat in their global outlook for the next six months, with the measure for future output at a three-year high.

As has been the case for several months, Europe once again dominated the list of top export markets with strong manufacturing growth. However, other regions were also well represented. Those countries with the highest PMI readings in the sector in February included Switzerland, the Netherlands (an all-time high), GermanyItalyTaiwanFrance, Australia, CanadaSingapore, the United Kingdom and the United Arab Emirates. Looking just at Europe, the IHS Markit Eurozone Manufacturing PMI has fallen from 60.6 in December—its best reading since the survey began in June 1997—to 59.6 in January to 58.6 in February. Although that was a four-month low, the data remain consistent with strong growth overall for European manufacturers. Along those lines, the Eurozone index for future output (down from 68.2 to 67.1) eased from January’s reading, which was the highest since the question was added in July 2012. The index remains very promising for production over the next six months.

The U.S. dollar has trended higher over the past few weeks, up 1.9 percent since January 25. The trade-weighted U.S. dollar index against major currencies from the Federal Reserve Board has risen from 84.6338 on January 25—its lowest level since December 18, 2014—to 86.2256 on March 2. This index reflects currency units per U.S. dollar, suggesting that the dollar can now purchase somewhat more than it could before. The index registered 75.7513 on June 30, 2014, illustrating the dollar’s continued strength, up 13.9 percent over that time frame. 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 9.9 percent against major currencies.

The weaker dollar—and a strengthened global economy—in 2017 helped to spur more export growth, which benefited manufacturers in the United States. According to seasonally adjusted data from TradeStats Express, U.S.-manufactured goods exports totaled $1.32 trillion in 2017, up 4.66 percent from 2016. That was much better than the declines of 6.20 percent and 4.04 percent in 2015 and 2016, respectively. More importantly, exports have started 2018 on a positive note, extending the nice rebound seen in 2017. In the most recent non-seasonally adjusted data, U.S.-manufactured goods exports were $86.36 billion in January, up 3.94 percent from $83.09 billion one year ago. In addition, trade volumes have risen significantly over the past year as the international economy has improved.

The Senate confirmed several trade nominees, and the Office of the U.S. Trade Representative (USTR) released its 2018 Trade Policy Agenda. President Donald Trump prepares coming trade actions on steel and aluminum imports, while other investigations are ongoing. Negotiations to update and modify the North American Free Trade Agreement (NAFTA) made progress on noncontroversial issues, but remain stalled on major issues. Manufacturers continue to press for quick action to enact the Miscellaneous Tariff Bill (MTB) and to ensure a fully functioning Export-Import (Ex-Im) Bank. Political changes in China are being watched closely.

Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers

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