The International Monetary Fund (IMF) lowered its estimates for global growth for 2015, down from 3.3 percent in July to 3.1 percent in its latest World Economic Outlook release. This forecast mainly reflects slower growth in the emerging economies, from 4.6 percent growth last year to 4.0 percent this year. Indeed, the Markit Emerging Markets Manufacturing Index fell to its lowest level in September since March 2009, with a number of countries experiencing contracting activity for much of this year. The Chinese economy, in particular, has decelerated significantly, creating anxieties in worldwide financial markets. The IMF sees China’s real GDP weakening from 7.3 percent in 2014, to 6.8 percent in 2015, to 6.3 percent in 2016. With that in mind, the Caixin China General Manufacturing PMI edged down from 47.3 to 47.2, its lowest level in six and a half years and with activity contracting in nine of the past 10 months.
The IMF predicts growth of 2.6 percent and 2.8 percent for 2015 and 2016, respectively, for the United States. (My forecasts for both years are slightly lower at 2.4 percent and 2.5 percent.) Nonetheless, manufacturers in the United States are expected to continue facing global headwinds, including a strong dollar, moving into next year. Recent macroeconomic data, for instance, show how the sector has struggled of late, with the Institute for Supply Management’s Manufacturing PMI reflecting stagnant growth and zero net new hiring over the past eight months. Sluggish sales abroad help to explain much of this softness. The U.S. trade deficit widened again in September, and manufactured goods exports have declined 5.6 percent year-to-date relative to the same time period last year, using non-seasonally adjusted data.
It is not difficult to see why the exports numbers are so weak. Half of the top 10 markets for U.S.-manufactured goods experienced contracting levels of manufacturing activity in September, the same number as in August. Two of the five countries with contracting levels of manufacturing activity experienced some deterioration in conditions in September: Canada and China, our largest and third-largest trading partners, respectively. The Canadian indicator fell to the lowest level in the survey’s five-year history, primarily on weaknesses stemming from lower crude oil prices. The other nations with decreasing growth in the manufacturing sectors included Brazil, Hong Kong and South Korea, even as each saw some easing in the pace of decline for the month. Moreover, all five of the countries continuing to experience expansions witnessed slower growth in the latest month, including Germany, Japan, Mexico, the Netherlands and the United Kingdom.
In contrast to other regions, Europe has been trending in the right direction in recent months. The Markit Eurozone Manufacturing PMI was off marginally, down from 52.3 to 52.0, but the underlying data point to notable progress since the sector was essentially stagnant in November (50.1). On a year-over-year basis, the Eurozone economy expanded 1.5 percent in the second quarter, up from 1.2 percent in the prior quarter. However, Europe has not been immune to the current global economic headwinds. Retails sales were flat in August, and industrial production, which will be released on October 14, will likely show some easing. Meanwhile, the unemployment rate ticked back up to 11.0 percent after falling to 10.9 percent in July, the lowest rate since February 2012. Moreover, deflation has been a concern in recent months, spurring quantitative easing moves by the European Central Bank. The annual inflation rate returned to negative territory, down 0.1 percent in September, ending four straight months of positive growth.
In terms of trade policy, after years of negotiations, the United States and 11 of its Asia-Pacific trading partners announced the conclusion of the Trans-Pacific Partnership (TPP) agreement. Transatlantic Trade and Investment Partnership (TTIP) talks between the United States and European Union (EU) will take place midmonth. Trade legislation, including the reauthorization of the U.S. Export-Import (Ex-Im) Bank and a repeal of the crude oil export ban, may see action in the coming weeks. The United States hosted meetings with India and China this past month, which resulted in promises to work on key issues.
Chad Moutray
Chief Economist
National Association of Manufacturers
Associated Industries of Missouri is the sole official designated partner of the National Association of Manufacturers in Missouri.