Consequently, Ultra takes a huge interest in world economic affairs, especially focusing on the United States Manufacturing and Distribution industries. January’s state of the economy update includes facts and figures captured in December, as well as details about certain political and economical events that have had major sway over the economy.
New Year, New Economy?
As you know, the United States just inaugurated its new president on January 20, 2017. Since then, there has been consequential uncertainty surrounding global trade agreements that has caused the worldwide economy to remain in a low-growth trap. Investments are weak, which negatively effects drivers of consumption such as productivity and wages.
Policy uncertainties and financial risks are high, but the resulting low interest rates are creating small windows of opportunity. The National Association of Manufacturers predicts a 2.6 percent growth in world economies, with 1.5 percent predicted growth in the manufacturing and distribution industries alone.
Trends Among America’s Top Trading Partners
Our state of the economy sources report the strongest manufacturing growth among the top trading partners of the United States occurred in the Netherlands, Taiwan, the United Kingdom, Germany and Australia.
Of those markets, Taiwan experienced its fastest growth in manufacturing activity since April 2011, and the United Kingdom continued to brush off Brexit uncertainties, with their Purchasing Managers’ Index (PMI) rising to its highest point since June 2014.
Chinese manufacturers also ended 2016 on a high note – the Caixin China General Manufacturing PMI increased at its fastest pace since January 2011. New orders and output increased, with production growth at its highest level in nearly six years.
The Election’s Effect on Trade with Canada and Mexico
Although trade agreements, including NAFTA, are under discussion in the United States as a result of the election, Canada and Mexico will still remain important to the U.S. economy in 2017. Canadian manufacturing continued to rebound from autumn softness, with activity at a five-month high. Canadian manufacturing activity has now expanded for nine consecutive months, and the pace of new orders recorded this month was the fastest it has been in two years.
However, at the same time, the state of the economy reflects Mexican manufacturing activity slowed to a crawl in December, expanding at its slowest rate since October 2013. More positively, exports picked up slightly in last month, likely benefiting from a significantly weaker Mexican peso.
The Current State of the Economy in the United States
More specific to the United States, each region experienced different developments last month.
Texas factory activity increased for the sixth consecutive month in December. The production index, a key measure of state manufacturing conditions, rose five points to 13.8, which suggests faster output growth this month.
In the Northeast, the latest Manufacturing Index came in at 21.5, significantly up from last month’s 7.6. The three-month moving average also increased, clocking in at 12.9, in comparison to the 10.0 recorded last month. Since this is a diffusion index, negative readings indicate contraction, and positive ones indicate expansion. The Six-Month Outlook came in at 52.6, an increase over the previous month’s 29.3.
One unique factor about the Northeast region is that they release special questions as part of their survey every month. This month’s report asked firms what they thought about cost increases in the coming quarters and years in regards to demand for their manufactured goods. Over 60% of firms expect a modest to significant increase in this area. This shows firms are feeling much more optimistic about future manufacturing growth.
In the New York region, business activity continued to grow modestly according to firms responding to the January 2017 Empire State Manufacturing Survey. The headline general business conditions index remained fairly unchanged since the previous month, hovering around 6.5.
The Midwest region’s manufacturing activity improved considerably over the last month. As a matter of fact, the region is experiencing its highest growth rate in over two years, which has in turn increased future expectations of producers in the area. Price indexes continued to post moderate increases in December. Activity in non-durable goods plants increased markedly. This positively impacted the activity for food and plastics manufacturing significantly. This also encompassed growth in the durable goods industry, but at a slightly slower pace.
Ultra’s Take on the January 2017 State of the Economy
International markets are still apprehensive due to the political events of 2016, but growth in the United States seems to be stable. Every regional index experienced growth in December, and it appears the sentiment around Trump’s effect on the economy is positive. Furthermore, Philadelphia’s special questions section shows firms expect higher demand for their goods in the coming quarters, showing that they expect higher profit and may be ready to invest in new resources in the future.
For Ultra, the U.S. market seems primed right now. Many companies feel positive about the future and with the New Year, firms are looking to make improvements. However, it is too early to tell if firms will invest their expected revenue on improving resources they already use rather than splashing out on new technology. We will see what the New Year brings.
To learn more about what happened last month, read our blog post on our December 2016 Manufacturing Economy Update.