Consequently, Ultra takes a huge interest in world economic affairs, with special focus on the U.S. Manufacturing and Distribution Industry.
May’s state of the economy update includes facts and figures captured in April, as well as details about events that have major sway over the economy.
April Showers Did Not Bring May Flowers
With buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade, world growth is projected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018.
Additionally, emerging market and developing economies have become increasingly important in the global economy in recent years. They now account for more than 75 percent of global growth in output and consumption, almost double the share of just two decades ago.
Technological progress, reflected in the steep decline in the relative price of investment goods, along with varying exposure to routine-based occupations, explains about half the overall decline in advanced economies, with a larger negative impact on the earnings of middle-skilled workers.
Growth Around the World
The strongest manufacturing growth among our top trading partners in April included Germany, the Netherlands, the United Kingdom, the United Arab Emirates, Canada, and France.
The United Kingdom’s measure was the highest since April 2014, a sign that manufacturing respondents were brushing off Brexit concerns, even with a called election slated for June 8.
In addition, several nations had manufacturing activity levels not seen in six years, including Canada, France and Germany.
The Markit Eurozone Manufacturing PMI edged up from 56.2 in March to 56.7 in April—a 72-month high. This included strong growth for new orders, output, exports, and employment, each of which achieved multi-year highs.
The Caixin China General Manufacturing PMI declined from 51.2 in March to 50.3 in April, but more importantly, it was the 10th straight month in which the headline number was 50 or greater.
It is clear the Chinese economy does not present the risk that it did at this time last year, even with weaker than desired figures in this latest report.
The Markit Canada Manufacturing PMI increased from 55.5 in March to 55.9 in April. That represents continued progress after activity nearly stalled in September (50.3). In April, the pace of expansions for new orders, exports, and hiring each accelerated, with output continuing to grow at a decent pace.
The Markit Mexico Manufacturing PMI dropped from 51.5 in March—its best reading since October—to 50.7 in April. That is close to the average over the past six months (50.8) and a continued sign that manufacturing activity in Mexico remains subpar with very modest expansions in demand and production.
Additionally, Trump issued two Executive Orders concerning trade. The first is called The Trade Agreement Violations and Abuses Executive Order and it initiates a performance review of all bilateral, plurilateral and multilateral trade agreements and investment agreements to which the United States is a party, including World Trade Organization (WTO) agreements.
The second executive order establishes the new White House Office of Trade and Manufacturing Policy to advise President Trump on strategies and promote trade policies consistent with his goals.
With regards to the U.S., retail sales have risen 4.5 percent over the past 12 months, up from 2.8 percent year-over-year in April 2016. Yet, consumers have been more cautious so far in 2017 than we might prefer, with weak retail spending in February and March, helping to drag down real GDP growth in the first quarter.
Furthermore, there were 394,000 job openings in the manufacturing sector in March, up from 364,000 in February – the fastest rate since April 2006. This suggests that manufacturing leaders are accelerating their hiring intentions in light of recent improvements in the economic outlook, including better figures for demand and production.
GDP growth is projected to pick up to 2.4% in 2017 and 2.8% in 2018, supported by an anticipated fiscal expansion, especially in 2018, despite higher long-term interest rates and continued headwinds from the stronger US dollar.
Policy choices, including on the composition of fiscal spending, taxation, regulation and trade, are likely to have a significant impact on growth outcomes. Meanwhile, the U.S. trade deficit declined from $43.76 billion in February to $43.71 billion in March.
In the first quarter of 2017, the trade deficit averaged $45.21 billion, buoyed by January’s $48.17 billion figure, which had been the highest level in nearly five years.
Exports increased in March for capital goods, except automotive (up $696 million) and foods, feeds and beverages (up $290 million).
However, declines in exports for industrial supplies and materials (down $1.78 billion), automotive vehicles, parts and engines (down $851 million) and consumer goods (down $588 million) counterbalanced those gains.
International markets remain in a state of uncertainty due to expected policy alterations from the U.S. However, the results of the French presidential election have added some much-needed stability to the Eurozone, and China continues to demonstrate its economic strength, month-over-month.
Markets have not changed dramatically from last month’s update. However, U.S. regional indexes mostly declined this past month with companies experiencing much slower rates of growth. The U.S. still specializes in traditional industries with other countries outstripping us in new technologies and markets.
Furthermore, the new administration has released four executive orders in the last two months concerning trade and we have yet to experience the potential effects of these new developments.
U.S. actually improved this month but our top trading partners are still experiencing multi-year highs in their production industries, and their exports consistently outstrip our own.
Philadelphia’s special questions section shows that manufacturers expect stable price growth with regards to prices received and prices paid in the coming quarter. This shows manufacturers expect stable growth in their industries and the regional outlook indexes also show positive sentiment for the impending months.
The uncertainty of trade policies appears to have little effect on actual production numbers so far, but it is still too early into 2017 to see if it will be dramatically different from the previous year.
To learn more about past Ultra economic updates, click here.