Much like what we are seeing in the United States, global manufacturing activity appears to have turned a corner, stabilizing from softness over much of the past two years. Indeed, the J.P. Morgan Global Manufacturing PMI grew in November at its fastest pace since August 2014, representing notable progress after essentially stagnating as recently as May. Along those lines, 11 of the top 15 markets for U.S.-manufactured goods exports experienced growth in their manufacturing sectors in November, matching the level in October and up from just seven in August. The strongest manufacturing growth among our top trading partners was in the Netherlands, Taiwan, Germany, Australia and the United Kingdom. With that said, ongoing challenges continue to keep growth less than desired, and there were three nations in the top 15 that remain frustratingly mired in contraction: Brazil, Hong Kong and South Korea.
The boost in the headline global manufacturing number described above was buoyed by stronger data in both China and Europe. Accelerating new orders and exports helped to lift the Markit Eurozone Manufacturing PMI to its highest level since January 2014. In fact, Eurozone manufacturing activity has trended higher over the past nine months, and consumers in Europe appear to be in a better mood for spending, with retail sales up 2.4 percent year-over-year in October. In addition, real GDP grew 0.3 percent in the third quarter, mirroring the pace in the second quarter, and increased 1.7 percent over the past 12 months. The unemployment rate was also encouraging, dropping from 9.9 percent in September to 9.8 percent in October, its lowest level since July 2009.
Looking toward the forthcoming surveys, it will be interesting to see how the referendum loss in Italy and Prime Minister Matteo Renzi’s subsequent resignation impact sentiment for that country and for the Eurozone, especially with a number of key elections slated for 2017. Along those lines, French President François Hollande, whose country has continued to struggle economically, opted not to seek re-electionnext year. In light of better figures but also lingering challenges, the European Central Bank voted today to extend its quantitative easing program through December 2017, but it also reduced the amount of its monthly purchases from €80 billion to €60 billion.
Meanwhile, the official manufacturing PMI data from the National Bureau of Statistics of China rose to its fastest pace since July 2014. To put that in perspective, this measure was contracting as recently as July. The Caixin China General Manufacturing PMI was also quite favorable despite easing a bit in November, off only slightly from its highest level in more than two years. The Caixin measure has now expanded for three consecutive months, which is reassuring after contracting for 16 straight months from March 2015 to June 2016. Despite such good news, it is important to keep in mind that growth will continue to decelerate in China. Real GDP grew 6.7 percent year-over-year in the third quarter, the same as the second quarter. We expect 6.6 percent growth in the fourth quarter. With better data in China and elsewhere, manufacturing activity in the emerging markets was higher for the fifth straight month.
Such positive developments in the global economy should help boost international demand down the line, but for now, U.S.-manufactured goods exports continue to struggle. Using non-seasonally adjusted data, U.S.-manufactured goods exports have fallen 6.5 percent year to date through October. They are also on pace to decline for the second consecutive year, with exports lower so far in 2016 to the top-six markets. Beyond economic weaknesses abroad, the strong dollar has also dampened our ability to grow exports. The trade-weighted index of the U.S. dollar relative to other major currencies has increased nearly 25 percent since the end of June 2014. Of particular note, we have seen some dramatic shifts in currencies since the U.S. presidential election, with the trade-weighted index up 2.6 percent since November 8.
Beyond foreign exchange shifts, financial markets have responded with cautious optimism since the election, with equity markets hitting a number of all-time highs. Year to date, the Dow Jones Industrial Average has risen 12.2 percent, or 6.6 percent since November 8. Business leaders are mostly upbeat about the prospects for tax and regulatory reform and for major infrastructure spending in the new year. At the same time, markets are also assuming that increased spending will translate into more debt, and as a result, the bond market has weakened significantly, pushing up interest rates. To illustrate this, the average yield of a 10-year Treasury bond has grown from 1.88 percent on November 8 to 2.39 percent on December 6, its highest level since July 2015.
Trade policy focus is largely directed at the incoming Trump administration, which has specific plans to withdraw from the Trans-Pacific Partnership (TPP), withdraw from or renegotiate the North American Free Trade Agreement (NAFTA) and address foreign market-distorting activities, with China oftentimes topping the list. In addition, the NAM has been working on restoring the U.S. Export-Import (Ex-Im) Bank to full functionality, Transatlantic Trade and Investment Partnership (TTIP) negotiations with Europe and talks to reach an Environmental Goods Agreement (EGA), as well as a Miscellaneous Tariff Bill (MTB) process, customs, standards and other issues.
Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers