The state of the economy can often dictate the amount of growth a certain industry can experience, which can in turn influence their business decisions and modernization requirements. Consequently, Ultra takes a huge interest in world economic affairs, with special focus on the U.S. Manufacturing and Distribution Industry. The December 2016 manufacturing economy update includes facts and figures captured in November, as well as details about events that have major influence over the economy.
The Grinch Stole the Markets
Because politics have been a destabilizing force for the markets so far this year, the December 2016 manufacturing economy update shows the global economy remains in a low-growth trap. Investment and trade are weak, which negatively affects certain drivers of consumption, like productivity and wages. Policy uncertainties and financial risks are high, but one silver lining is that the resulting low interest rates have created a window of opportunity. The OECD (Organization for Economic Cooperation and Development) states, “collective action enables greater gains at lower political cost” (OECD, 2016).
The December 2016 Manufacturing Economy On a Global Scale
Although recent events have taken their toll on the markets, there are a few global developments to note. First, the Caixin China General Manufacturing PMI increased at its fastest pace in more than two years in achieving better demand and output figures. However, there were some lingering weaknesses, including exports and hiring, with much of the underlying data continuing to reflect decelerating activity in China.
The Markit Eurozone Manufacturing PMI rose to a 22-month high, as the continent continued to brush off post-Brexit worries. The stronger Eurozone data was supported by improvements in both Germany and France, with the latter growing for the first time since February and expanding at a two-and-a-half-year high. Furthermore, although growth in Canada remains soft, the country experienced improvements nationwide, rebounding back from a lag in September.
What’s Going on in the United States
Goods and exports manufactured in the U.S. have fallen 5.2% since this time last year and year-to-date exports were lower in eight of the top ten markets. However, the December 2016 manufacturing economy update stated that U.S. trade deficit fell to its lowest level since February 2015. The reduced headline number stemmed from increased goods exports, fewer goods imports, and a higher service-sector trade surplus, with the latter at its highest point so far this year.
Specifically in the U.S., each region experienced different development in the last month. Texas factory activity increased again in November, due to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a fifth consecutive positive reading and edged up to 8.8.
In the Northeast, the latest Manufacturing Index came in at 7.6, down from last month’s 9.7, but still in positive territory. The 3-month moving average came in at 10.0, up from 8.2 last month. The Six-Month Outlook came in at 29.3, a decrease over the previous month’s 32.6. Additionally, the Northeast region released special questions as part of its survey every year. This month, firms were asked about their thoughts on price increases for the quarters and years to come in several areas:
- Firm prices for their own goods/services sold, as well as compensation and costs
- Prices their employees will contend with in the market
- Prices for the U.S. consumer in general
Firms remained consistent between 2-3% price increases in all categories, with a predicted increase of no more than 2.7% annually over the next ten years for the general U.S. consumer. Business activity stabilized in New York State, according to firms responding to the November 2016 Empire State Manufacturing Survey. The headline general business conditions index climbed out of negative territory for the first time in four months, rising eight points to 1.5.
The Federal Reserve Bank of Kansas City released the November Manufacturing Survey today, which revealed that Tenth District manufacturing activity expanded slightly. Factory activity in the region rose for the third straight month in November, following a year and a half of near constant declines. Additionally, firms also remained optimistic about future activity.
Ultra’s Take on the December 2016 Manufacturing Economy
Even though the OECD maintains that markets can experience more growth with collective action, the rise of populist government over the last year would suggest that such collaboration might be difficult. In any case, worldwide markets are still trending away from U.S. manufactured goods, however, manufacturing activity in the states was generally improving.
Moreover, while growth rates may have slowed, almost every regional index remained positive, so the U.S. is still experiencing a much better situation than it was a month ago. Furthermore, Philadelphia’s special questions section shows that firms expect economic activity to be relatively stable as they predict prices will change by a consistent margin from quarter-to-quarter and from year-to-year.
For Ultra, this may be a positive sign. If firms feel confident and stable, they may feel more comfortable splashing out on technology improvements. The holiday season can often be an important time of year for U.S. markets so we’ll cross our fingers that the holiday spirit extends to our economy as well.
To learn more about our reports on the economy, read Ultra’s November 2016 Manufacturing Economy Update.