The state of the economy can often dictate how much growth certain industries are experiencing, which can 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.
April’s state of the economy update includes facts and figures captured in March, as well as details about events that have major sway over the economy.
Will April Showers 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.
However, binding structural impediments continue to hold back a stronger recovery, and the balance of risks remains tilted to the downside, especially over the medium term.
With persistent structural problems — such as low productivity growth and high income inequality —
pressures for inward-looking policies are increasing in advanced economies. These threaten global economic integration and the cooperative global economic order that has served the world economy, especially in emerging market and developing economies.
Manufacturing Growth Trends
The strongest manufacturing growth among our top trading partners in March were Germany, the Netherlands, Taiwan, the United Arab Emirates (UAE) and Canada. German activity was the fastest since April 2011, with Taiwan, the UAE and Canada also hitting multiyear highs.
Markit Eurozone Manufacturing PMI expanded at its best growth rate since April 2011, boosted by improved activity across the board. There was notable strength in Germany, with manufacturing activity at a 71-month high, and Italy, which rose to levels not seen in 6 years.
The Caixin China General Manufacturing PMI declined from 51.7 to 51.2, but more importantly, it was the ninth straight month in which the headline number was 50 or greater. Overall, the data continues to suggest the Chinese market has stabilized and begun to trend in the right direction, especially relative to the contracting environment seen 1 year ago.
Manufacturing activity in Canada expanded at levels not seen since October 2013. In March, the pace of expansions for new orders, output and employment accelerated, with exports also continuing to expand at a very modest pace. In addition, manufacturing sales in Canada increased for the third straight month.
The Markit Mexico Manufacturing PMI rose from 50.6 to 51.5. That represents some progress after slowing to a near-halt in December. The higher headline number was boosted by strength in new orders to a six-month high, with output also shifting positive.
With regards to the U.S., consumer sentiment rebounded in April after pulling back somewhat in the prior two months. That message is also being conveyed in the spending data, with retail sales up 5.2 percent over the past 12 months.
Effects of Executive Orders on the Economy
On March 31, President Trump signed two trade executive orders (EO). One EO directed the Office of the U.S. Trade Representative (USTR) and the Commerce Department to issue a report within 90 days on foreign market barriers and trade deficits, focusing on 16 countries with which the United States has a $10 billion or greater deficit.
The report is to detail the major causes of trade deficits by country and product, including the extent to which the deficit is due to:
- Trade cheating or other inappropriate behavior
- Free trade agreements that have not lived up to their forecasted benefits
- Lax U.S. enforcement, currency manipulation or misalignment
- World Trade Organization (WTO) constraints
- Systematic overcapacity, and other issues
The intent is to use the findings of this report to provide the basis for appropriate trade enforcement and action.
The second EO seeks to improve collection of trade remedy duties. This EO directs the Department of Homeland Security (DHS), in collaboration with other agencies, to improve the collection of anti-dumping duty (AD) and countervailing duty (CVD) orders at the border by improving bonding requirements and taking other measures to address risk assessments.
This EO responds to the findings of a July 2016 General Accounting Office (GAO) report that found $2.3 billion in AD and CVD duties went uncollected through May 2015, citing inadequate bonding and risk assessment procedures. These EOs seem to be directed at taking a hard look at current policy and collecting much needed information to improve the U.S. economy overall.
Hiring, Jobs, and General Trends
Total hires edged up from 304,000 in January to 305,000 in February. This represented notable progress from just 268,000 six months ago. Overall, net hiring improved from zero in February to 13,000 in March, its fastest pace in seven months.
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 those in regards to 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 pulled back from a nearly five-year high, down from $48.17 billion in January to $43.56 billion in February. The lower figure stemmed mainly from a drop in goods imports, with goods exports little changed.
The pace for goods exports was its fastest since April 2015. The largest increases included industrial supplies and materials (up $2.08 billion), automotive vehicles and parts (up $1.33 billion) and foods, feeds and beverages (up $594 million).
International markets remain in a state of uncertainty due to expected policy alterations from the U.S. and the expected results of the French election’s impact on the Eurozone, 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 are mixed with some regions of the U.S. struggling in the manufacturing sector compared to last month.
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 manufacturing firms have experienced an increase in labor shortages and skill mismatches in the last two years. This could lead to a renewed focus on human resources or prove to make firms even more cautious in their hiring.
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 see economy information from previous months, check out our updates here.