ARTICLE
Global Manufacturing Economic Update Global financial markets have been highly volatile over the past week, starting with U.S. equities following last Friday’s strong job numbers. The data showed manufacturers adding 15,000 workers on net in January, with 15,750 employees per month on average in 2017. The tight labor market conditions were further illustrated by solid wage growth, including 2.8 percent gains in the manufacturing sector over the past 12 months. In addition, as expected, the Federal Open Market Committee (FOMC) chose not to increase short-term rates at its January meeting, but it did suggest that “measures of inflation compensation have increased in recent months but remain low.” The FOMC is expected to hike the federal funds rate at its March 20–21 meeting. Strong economic growth, including job gains and wage pressures, combined to send a signal to financial markets that the Federal Reserve might be more hawkish on rates than some might have predicted, and that was enough to send equity markets sharply lower. For instance, the Dow Jones Industrial Average is down 4.8 percent so far in February (as of yesterday’s close), although, to be fair, it remains 36.3 percent higher than it was on Election Day in 2016. One could easily make the case that a correction was overdue. Fortunately, the financial market has—at least for now—shown signs of stabilizing after the freefall earlier in the week, but analysts suggest that we might be in for more volatility. Despite the stock market fluctuations of the past week, the fundamentals of the worldwide economy remain quite healthy, and more importantly, the outlook continues to be strong. The J.P. Morgan Global Manufacturing PMI pulled back slightly from December’s pace, which was the fastest since February 2011, but the good news is that exports strengthened in the latest figures to the best reading in nearly seven years—a sign that trade volumes have picked up as the international economy has continued to improve. Output and employment remained at the best rates since early 2011, with new orders slipping a little from a seven-year high but continuing to expand at a decent clip. Looking ahead six months, manufacturing leaders remained very upbeat in their global outlook, with that measure at an 11-month high. In January, all of the top-15 markets for U.S.-manufactured goods expanded. (There is no manufacturing PMI for comparison purposes for Belgium, which is our 10th-largest trading partner.) South Korea, which contracted ever so slightly in December, returned to positive growth again in January. As has been the case for several months, Europe once again dominated the list of top export markets with strong manufacturing growth, but other regions were also well represented. Those countries with the highest PMI readings in the sector in January included the Netherlands (a new all-time high), Germany, France, Taiwan, the United Arab Emirates, Canada, the United Kingdom and Japan. U.S.-manufactured goods exports rebounded strongly in 2017—a nice turnaround after global economic weaknesses in both 2015 and 2016.Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $1,094.73 billion in 2017, up 4.34 percent from $1,049.24 billion in 2016. This reflects better year-to-date figures to the top-six markets for U.S.-manufactured goods. The U.S. dollar has fallen 2.6 percent so far in 2018 against major currencies, according to the Federal Reserve, or 11.0 percent since the end of 2016, helping to improve international demand for U.S.-manufactured goods. Yet, despite the positive news for manufacturers, the U.S. trade deficit rose in December to the highest level since October 2008. Beyond that headline, however, goods exports, petroleum exports, service-sector exports and goods imports rose to all-time highs, highlighting the increase in global trade of late. As the NAM explained in public comments submitted to the Trump administration in May 2017, there are many factors that impact and cause changes in the U.S. trade deficit over time, including overall domestic conditions and standards of living, domestic consumption and purchasing compared with savings rates and the price of goods in the market, which is, in turn, impacted by exchange rates, domestic structural issues (e.g., taxation, regulation) and openness to international trade. Furthermore, when the U.S. economy has grown, the trade deficit has typically expanded as U.S. economic activity and consumption grow, while the trade deficit has shrunk when the U.S. economy has showed slower growth. Talks to modernize and update the North American Free Trade Agreement (NAFTA) and address issues in the U.S.–Korea Free Trade Agreement (KORUS FTA) continued in January, as the Trump administration started to make trade enforcement decisions. The NAM continues to push forward on a fully functioning Export-Import (Ex-Im) Bank and to improve the operation of global institutions. The NAM also joined a new trade initiative—Trade for America. Source: Chad Moutray, Ph.D., CBE, Chief Economist, NAM Upcoming Event Sponsorship Opportunities Wednesday, Feb. 7 Springfield, MO May 2-3 Springfield, MO Friday, May 4 Springfield, MO Register Now Early Bird Registration Early Bird Registration
Global financial markets have been highly volatile over the past week, starting with U.S. equities following last Friday’s strong job numbers. The data showed manufacturers adding 15,000 workers on net in January, with 15,750 employees per month on average in 2017. The tight labor market conditions were further illustrated by solid wage growth, including 2.8 percent gains in the manufacturing sector over the past 12 months. In addition, as expected, the Federal Open Market Committee (FOMC) chose not to increase short-term rates at its January meeting, but it did suggest that “measures of inflation compensation have increased in recent months but remain low.” The FOMC is expected to hike the federal funds rate at its March 20–21 meeting.
Strong economic growth, including job gains and wage pressures, combined to send a signal to financial markets that the Federal Reserve might be more hawkish on rates than some might have predicted, and that was enough to send equity markets sharply lower. For instance, the Dow Jones Industrial Average is down 4.8 percent so far in February (as of yesterday’s close), although, to be fair, it remains 36.3 percent higher than it was on Election Day in 2016. One could easily make the case that a correction was overdue. Fortunately, the financial market has—at least for now—shown signs of stabilizing after the freefall earlier in the week, but analysts suggest that we might be in for more volatility.
Despite the stock market fluctuations of the past week, the fundamentals of the worldwide economy remain quite healthy, and more importantly, the outlook continues to be strong. The J.P. Morgan Global Manufacturing PMI pulled back slightly from December’s pace, which was the fastest since February 2011, but the good news is that exports strengthened in the latest figures to the best reading in nearly seven years—a sign that trade volumes have picked up as the international economy has continued to improve. Output and employment remained at the best rates since early 2011, with new orders slipping a little from a seven-year high but continuing to expand at a decent clip. Looking ahead six months, manufacturing leaders remained very upbeat in their global outlook, with that measure at an 11-month high.
In January, all of the top-15 markets for U.S.-manufactured goods expanded. (There is no manufacturing PMI for comparison purposes for Belgium, which is our 10th-largest trading partner.) South Korea, which contracted ever so slightly in December, returned to positive growth again in January. As has been the case for several months, Europe once again dominated the list of top export markets with strong manufacturing growth, but other regions were also well represented. Those countries with the highest PMI readings in the sector in January included the Netherlands (a new all-time high), Germany, France, Taiwan, the United Arab Emirates, Canada, the United Kingdom and Japan.
U.S.-manufactured goods exports rebounded strongly in 2017—a nice turnaround after global economic weaknesses in both 2015 and 2016.Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $1,094.73 billion in 2017, up 4.34 percent from $1,049.24 billion in 2016. This reflects better year-to-date figures to the top-six markets for U.S.-manufactured goods. The U.S. dollar has fallen 2.6 percent so far in 2018 against major currencies, according to the Federal Reserve, or 11.0 percent since the end of 2016, helping to improve international demand for U.S.-manufactured goods. Yet, despite the positive news for manufacturers, the U.S. trade deficit rose in December to the highest level since October 2008. Beyond that headline, however, goods exports, petroleum exports, service-sector exports and goods imports rose to all-time highs, highlighting the increase in global trade of late.
As the NAM explained in public comments submitted to the Trump administration in May 2017, there are many factors that impact and cause changes in the U.S. trade deficit over time, including overall domestic conditions and standards of living, domestic consumption and purchasing compared with savings rates and the price of goods in the market, which is, in turn, impacted by exchange rates, domestic structural issues (e.g., taxation, regulation) and openness to international trade. Furthermore, when the U.S. economy has grown, the trade deficit has typically expanded as U.S. economic activity and consumption grow, while the trade deficit has shrunk when the U.S. economy has showed slower growth.
Talks to modernize and update the North American Free Trade Agreement (NAFTA) and address issues in the U.S.–Korea Free Trade Agreement (KORUS FTA) continued in January, as the Trump administration started to make trade enforcement decisions. The NAM continues to push forward on a fully functioning Export-Import (Ex-Im) Bank and to improve the operation of global institutions. The NAM also joined a new trade initiative—Trade for America.
Source: Chad Moutray, Ph.D., CBE, Chief Economist, NAM
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