Consequently, Ultra takes a huge interest in world economic affairs, with special focus on the U.S. Manufacturing and Distribution Industry. March’s state of the economy update includes facts and figures captured in February, as well as details about events that have major sway over the economy.
Springing Into New Growth
Global GDP growth is projected to increase, rising from just under 3% in 2016 – the slowest pace since 2009 – to 3.3% in 2017 and around 3.5% in 2018. This would still leave global GDP growth below the historical average of around 4% in the two decades prior to the crisis.
The modest pick-up in global growth in 2017-18 reflects the effect of ongoing and projected fiscal initiatives, notably in China and the United States, together with an easier stance in the euro area and initiatives in other economies such as Canada. These are expected to catalyze private economic activity and push up global demand.
While global trade growth was exceptionally weak in 2016 at around 2%, recent data suggests some improvement, particularly in Asia. However, trade growth is likely to remain below pre-crisis growth rates, in part reflecting a slowdown or reversal of the expansion of global value chains.
Headline inflation is rising in most countries as the result of higher energy prices, following the OPEC agreement in November to cut oil production. However, underlying inflation in advanced economies is still subdued and will pick up only slowly as the expansion gains traction, including to support more robust wage growth across the income distribution.
The strongest manufacturing growth among our top trading partners occurred in the Netherlands, Germany, the United Arab Emirates, Canada, the United Kingdom and Taiwan. Germany and the -Netherlands experienced multi=year highs in February. In contrast to those markets, Brazil, Hong Kong and South Korea continued to contract.
The Eurozone reported their best growth rates since April 2011. Eurozone real GDP grew 1.7 percent year-over-year, and the unemployment rate remained at its lowest level since May 2009. The Caixin China General Manufacturing PMI increased from 51.0 to 51.7—its fastest pace since January 2011. It was also the sixth straight monthly expansion following a few years of slower growth. illustrating just how much the market has stabilized recently.
In North America, The Markit Canada Manufacturing PMI increased at its quickest clip since November 2014, boosted by improvements in Alberta, British Columbia and Ontario. Real GDP in Canada grew 2.6 percent in the fourth quarter, led by strength in consumer spending but slowed down by drags from business investment and net exports. However, the Markit Mexico Manufacturing PMI edged down from 50.8 to 50.6.
Over the past three months, the headline index has averaged 50.5, slowing considerably from 53.2 at this point last year. Furthermore, as the United States continues the transition to the new Trump administration, trade continues to be one of the key issues under discussion.
The White House released its 2017 Trade Policy Agenda, NAFTA renegotiations are being scheduled, and the U.S.’s removal from the Trans Pacific Partnership has all but dissolved it, leaving the door wide open for China to engineer their own Pacific agreement.
More specific to the U.S., as the labor market continues to expand, manufacturers added 28,000 workers. It was the third straight monthly gain for the sector, and over the past three months, manufacturing employment has increased by 57,000. These numbers are consistent with increased demand, production and sentiment in the past few months in the sector.
Manufacturers are more optimistic in their economic outlook and significantly less cautious about hiring than this time last year. Manufacturing labor productivity rose faster than originally estimated in the fourth quarter. Output per worker in the sector increased 2.0 percent in the fourth quarter, which was better than the 0.7 percent preliminary figure. It was the highest growth rate since the third quarter of 2015.
However, the U.S. trade deficit rose to its highest level since March 2012, increasing from $44.26 billion in December to $48.49 billion in January. The higher figure stemmed largely from a jump in goods imports, which rose to levels not seen since March 2015.
Both goods exports and imports rose in the latest data. This might suggest a pickup in total trade, which has lagged in the past few years. Moreover, U.S.-manufactured goods exports also improved, with January exports up 4.9 percent from January 2016 levels.
International markets remain in a state of uncertainty due to expected policy alterations from world powers, but most indicators of future growth seem to be stable and positive. Markets have not changed dramatically from last month’s update; however, U.S. regional indexes have backed off on growth with future outlooks being more conservative overall.
The U.S. still specializes in traditional industries with other countries outstripping us in new technologies and markets. Furthermore, the new administration has put the U.S.’s relationship with many countries in flux, and trade could be at risk.
U.S. exports still struggle internationally, while our top trading partners are experiencing multi-year highs in their production industries. Philadelphia’s special questions section shows that manufacturing firms expect prices to increase at a modest two to three percent which shows that firms expect stable growth in the economy.
The uncertainty of trade policies appears to have little effect on actual production numbers so far, but when politics settles down, perhaps the figures will begin to paint a clearer picture.
To learn more about past economic updates, read a prior blog post here.