Associated Industries of Missouri is the sole official designated partner of the National Association of Manufacturers in Missouri.
In its latest economic outlook, the International Monetary Fund (IMF) projects that world output will grow 3.1 percent and 3.4 percent in 2016 and 2017, respectively, with slower growth in the United States and other advanced economies. It points to a number of factors, ranging from Brexit concerns, to global headwinds, to political uncertainties. The IMF now estimates 1.6 percent and 2.2 percent growth in the United States for this year and next, down from forecasts of 2.2 percent and 2.5 percent in the July report. With global headwinds and a strong dollar, manufacturers in the United States have continued to struggle to increase international demand. Using non-seasonally adjusted data, U.S.-manufactured goods exportshave declined 7.1 percent year-to-date in 2016 through August relative to the same time period in 2015.
Despite ongoing challenges, there were signs of progress to report in September in the worldwide economy. The J.P. Morgan Global Manufacturing PMI inched higher on marginal improvements for new orders and exports, and hiring returned to positive territory, even as it remained quite sluggish. Output continued to grow somewhat modestly despite easing a bit in this report. In addition, nine of those markets experienced growth in their manufacturing sectors in September, up from seven in August. (There is no manufacturing PMI for comparison purposes for Belgium, which was our 10th-largest trading partner in 2015.) This brought it back to the July level. The two countries that shifted into expansion territory for the month were China and Japan, although just barely in both cases. This was the first time that Chinese manufacturing activity has expanded since February 2015, with Japan’s measure above 50 for the first time in seven months.
Another notable development was the strength of sentiment in the United Kingdom, with respondents brushing off Brexit concerns by expanding for two straight months. Nonetheless, British Prime Minister Theresa May said on October 2 that the United Kingdom will trigger Article 50 by the end of March 2017, starting the process of “divorce” from the European Union. That process will take up to two years, meaning that the United Kingdom will no longer be part of the European Union by mid-2019. Financial markets, focused on the uncertainties that will be created by Brexit, reacted by selling the British pound. One British pound sold for nearly $1.49 on June 23, the day of the U.K. referendum, but it sold for roughly $1.22 on October 12, its lowest level since May 1985. That represents an appreciation of 18 percent over that time frame, which should provide a buffer to help the British manufacturing sector and the U.K. economy (but make U.S. exports to Britain more expensive). Looking beyond the United Kingdom, manufacturing activityin the Eurozone picked up somewhat in September, rising to a three-month high.
In contrast to those markets, five of the top 15 markets for U.S.-manufactured goods exports experienced contractions in September, something that each has struggled with for much of the past two years. This included Australia, Brazil, France, Hong Kong and South Korea. In the emerging markets, manufacturing activity was marginally positive in September for the third straight month, rebounding after contracting in 14 of the prior 15 months. Yet, the country-by-country data were highly varied, with some noting stronger growth while others continue to lag behind. In addition, manufacturers in the emerging markets are cautiously upbeat about higher output over the next six months. Meanwhile, closer to home, both Canadaand Mexico are expanding much slower than we might desire, even as activity in the latter rose to a four-month high in September.
The new Miscellaneous Tariff Bill (MTB) process begins this week. Efforts continue to find paths forward for both the Trans-Pacific Partnership (TPP) agreement and the U.S. Export-Import (Ex-Im) Bank’s lack of a quorum during the lame-duck session of Congress. Work is also ongoing to complete negotiations for a tariff-cutting Environmental Goods Agreement (EGA) and to bring into force the Trade Facilitation Agreement (TFA). U.S.–EU talks to create a Transatlantic Trade and Investment Partnership (TTIP) will move to the next administration.
Chad Moutray, Ph.D., CBE Chief Economist National Association of Manufacturers
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