Finally, A Global Tailwind for U.S. Manufacturing Growth MAPI Foundation Webinar December 12, 217 Cliff Waldman Chief Economist cwaldman@mapi.net
Key Takeaways The global economic recovery is both strengthening and widening but remains historically moderate. The falling dollar has reached a temporary trough, creating an uncertainty for manufacturing. The MAPI Foundation baseline forecast is for an average of 1.5% U.S. manufacturing growth from 217-221. Simulations were conducted assuming a modest fiscal boost from tax reform legislation. U.S. political/policy shocks, the change of leadership at the Federal Reserve, and the potential confrontation with North Korea are the principle risks to the U.S. manufacturing outlook. Aerospace, chemicals, machinery, and computers will lead U.S. manufacturing growth over the next few years.
Percent Forecast of Modestly Stronger Global Growth 6 World GDP Growth 5 4 3 2 1-1 26 27 28 29 21 211 212 213 214 215 216 217 (F) 218 (F) F=Forecast Source(s): International Monetary Fund
Percent An Acceleration of Global Goods Export Growth 7 Global Growth of Goods Exports 6 5 4 3 2 1 211 212 213 214 215 216 217 (F) 218 (F) F=Forecast Source(s): International Monetary Fund
Percent An Improving Picture for Global Manufacturing Growth Select Economies, Forecast of Manufacturing/Industrial Production Growth 1 2 3 4 5 6 7 World United Kingdom Eurozone Japan China Asia, ex Japan Brazil Mexico 217 218 Source(s): Consensus Forecasts and MAPI Foundation, November 217
214 Q1 214 Q2 214 Q3 214 Q4 215 Q1 215 Q2 215 Q3 215 Q4 216 Q1 216 Q2 216 Q3 216 Q4 217 Q1 217 Q2 217 Q3 Annual Percent Change U.S. Growth Appears to Be Accelerating in Sync with an Improving Global Economy 6 5 U.S. GDP Growth, Inflation-Adjusted, Seasonally Adjusted 4 3 2 1-1 -2 Source(s): U.S. Commerce Department, Bureau of Economic Analysis
Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Index: January 1997=1 For Manufacturers, a Frustrating Trough in a Helpful Dollar Decline U.S. Broad Nominal Dollar and Dollar Versus Major Currencies 13 12 125 12 115 11 15 1 95 9 115 11 15 1 95 9 85 8 75 7 Index March 1973=1 85 65 Broad nominal dollar Dollar vs. major currencies Source(s): Federal Reserve Board
211 Q3 211 Q4 212 Q1 212 Q2 212 Q3 212 Q4 213 Q1 213 Q2 213 Q3 213 Q4 214 Q1 214 Q2 214 Q3 214 Q4 215 Q1 215 Q2 215 Q3 215 Q4 216 Q1 216 Q2 216 Q3 216 Q4 217 Q1 217 Q2 217 Q3 Percent As Brexit Looms, Improving Growth in the Eurozone, Slowing Growth in the U.K. 5 Eurozone and UK Real GDP Growth, Year-Over-Year 4 3 2 1-1 -2 United Kingdom Eurozone Source(s): Eurostat and United Kingdom Central Statistical Office
Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Percent Change Improvement for Eurozone Manufacturing 8 Eurozone Manufacturing Production, Year-Over-Year Growth 6 4 2-2 Source(s): Eurostat
21 Q4 211 Q3 212 Q2 213 Q1 213 Q4 214 Q3 215 Q2 216 Q1 216 Q4 217 Q3 Percent Japan Finds Consistent Growth 4 Japan, Real GDP Growth, Year-Over-Year 3 2 1-1 -2 Source(s): Economic and Social Research Institute
Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Percent Japanese Manufacturing Growth on the Upswing 1 Japan, Manufacturing Output Growth, Year-Over-Year Percent Change 5-5 -1 Source(s): Bank of Japan
23 25 27 29 211 213 215 Percent China s Slowdown: It s Over! China s Annual GDP Growth 16 14 12 1 8 6 4 2 Source(s): National Bureau of Statistics of China
Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Percent (Year/Year) Positive Growth in China Trade Resumes 1 8 6 China s Total Export and Total Import Growth 4 2-2 -4-6 Exports Imports Source(s): China Statistical Information and Consultancy Service Center
Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Year to Date Percent Change (Year/Year) A Mixed Picture on Capital Spending in China China s Fixed Asset Investment, Purchase of Equipment and Tools 25 2 15 1 5 Source(s): National Bureau of Statistics of China
Oct-9 Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Percent (Year/Year) A Steady Picture for Chinese Manufacturing Growth 3 China s Growth of Industrial Value-Added 25 2 15 1 5-5 Source(s): National Bureau of Statistics of China
212 Q4 213 Q3 214 Q2 215 Q1 215 Q4 216 Q3 217 Q2 Percent (Year/Year) Emerging Markets: Brazil s Tailspin Appears to Have Ended 1 Brazil s Real GDP Growth 5-5 -1 Source(s): IHS Global Insight
212 Q4 213 Q3 214 Q2 215 Q1 215 Q4 216 Q3 217 Q2 Percent The Russian Recession Comes to an End 4 Russia s Real GDP Growth, Year-Over-Year 3 2 1-1 -2-3 -4 Source(s): IHS Global Insight
212 Q4 213 Q3 214 Q2 215 Q1 215 Q4 216 Q3 217 Q2 Percent Indian Economy Shows Tentative Signs of Emerging from Its Slowdown 9 8 7 6 India, Real GDP Growth, Year-Over-Year 5 4 3 2 1 Source(s): IHS Global Insight
Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Percent (Year/Year) Significant Export Improvement in Mexico, A Good Sign for North America 2 Mexico, Growth of Total Export Demand 1-1 -2 Source(s): National Institute of Statistics and IHS Global Insight
212 Q4 213 Q3 214 Q2 215 Q1 215 Q4 216 Q3 217 Q2 Percent The Domestic Mexican Economy is Slowing 4.5 4. 3.5 3. Mexico, Real GDP Growth, Year-Over-Year 2.5 2. 1.5 1..5. Source(s): IHS Global Insight
Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Percent Stronger Manufacturing Growth Could Lead to Stronger Economic Growth in Mexico 1 Mexico Manufacturing Production Growth, Year-Over-Year 8 6 4 2-2 -4 Source(s): National Institute of Statistics and IHS Global Insight
212 Q1 212 Q4 213 Q3 214 Q2 215 Q1 215 Q4 216 Q3 217 Q2 Percent After a Commodities-Led Surge, Canadian Economic Growth Slows 8 Canada Real GDP Growth, Seasonally Adjusted at Annual Rate 6 4 2-2 -4-6 Source(s): Statistics Canada
214 Q1 214 Q2 214 Q3 214 Q4 215 Q1 215 Q2 215 Q3 215 Q4 216 Q1 216 Q2 216 Q3 216 Q4 217 Q1 217 Q2 217 Q3 Percent Apart From Hurricanes, Clear Signals of Stronger U.S. Manufacturing Growth U.S. Manufacturing Production Growth, Annual Percent Change, Seasonally Adjusted 5 4 3 2 1-1 -2-3 Source(s): Federal Reserve Board
Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Percent The Purchasing Managers Index Transmits Optimistic Signals Purchasing Managers Index for U.S. Manufacturing 65 6 55 5 45 4 35 3 25 2 Source(s): Institute for Supply Management
215 Q1 215 Q2 215 Q3 215 Q4 216 Q1 216 Q2 216 Q3 216 Q4 217 Q1 217 Q2 217 Q3 Percent Mixed Picture on Manufacturing Demand Drivers 1 8 6 4 U.S. Total Export Growth, Annual Rate, Seasonally Adjusted 2-2 -4-6 Source(s): U.S. Bureau of Economic Analysis
215 Q1 215 Q2 215 Q3 215 Q4 216 Q1 216 Q2 216 Q3 216 Q4 217 Q1 217 Q2 217 Q3 Percent U.S. Equipment Investment Growth Strengthening as Global Risks Abate U.S. Equipment Expenditure Growth, Annual Rate, Seasonally Adjusted 15 1 5-5 -1-15 Source(s): U.S. Bureau of Economic Analysis
216 217 (F) 218 (F) 219 (F) 22 (F) 221(F) Annual Percent Change The Era of Moderate U.S. Economic Growth Will Continue 3 November 217 Forecast: Annual GDP Growth 2 1 F=Forecast Source(s): MAPI Foundation, November 217
216 217 (F) 218 (F) 219 (F) 22 (F) 221(F) Annual Percent Change Moderate Growth in Consumer Spending and Capital Spending Annual Growth of U.S. Consumer Spending and U.S. Equipment Investment Growth 5 4 3 2 1-1 -2-3 -4 Consumer Spending Capital Spending F=Forecast Source(s): MAPI Foundation, November 217
216 217 (F) 218 (F) 219 (F) 22 (F) 221(F) Annual Percent Change Modest Growth in Exports Even as Trade Pressures Continue Annual Growth of U.S. Total Exports and U.S. Total Imports 5 4 3 2 1-1 Exports Imports F=Forecast Source(s): MAPI Foundation, November 217
1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 (F) 218 (F) 219 (F) 22 (F) 221 (F) Annual Percent Change Modest Acceleration in U.S. Manufacturing Growth U.utSt Slow Forecast of U.S. Manufacturing Growth 1 5-5 -1-15 F=Forecast Source(s): Federal Reserve Board and MAPI Foundation, November 217
Percent Plausible Range for U.S. Manufacturing Growth Is from 1.2% to 1.8% Annual Forecast, Alternative Global Growth Scenarios, Average Growth Rate for 217-221 4. 3.5 3. 2.5 2. 1.5 1..5. Baseline Pessimistic Optimistic Non-U.S. Advanced Country GDP Developing Country GDP U.S. Manufacturing Growth Source(s): MAPI Foundation
Machinery Food Nonmetallic Mineral Products Wood Products Petroleum & Coal Products Computers & Electronic Products Fabricated Metal Products Primary Metals Manufacturing - SIC Basis Elec. Eq., Appliances, & Components Rubber & Plastics Products Chemicals Furniture & Related Products Printing Support Activities Textile Product Mills Paper & Products Motor Vehicles & Parts Textile Mills Miscellaneous Aerospace Products & Parts Apparel Annual Percent Change Machinery Subsector Growth Dominates in 217 1 MAPI Forecast of Output Growth in Manufacturing Subsectors, 217 5-5 -1 Source(s): MAPI Foundation, November 217
Aerospace Products & Parts Rubber & Plastics Products Chemicals Motor Vehicles & Parts Computers & Electronic Products Food Manufacturing - SIC Basis Elec. Eq., Appliances, & Components Miscellaneous Machinery Nonmetallic Mineral Products Fabricated Metal Products Paper & Products Furniture & Related Products Primary Metals Wood Products Petroleum & Coal Products Printing Support Activities Textile Mills Textile Product Mills Apparel Annual Percent Change Aerospace Expected to Dominate U.S. Manufacturing Growth by 221 1 MAPI Forecast of Output Growth in Manufacturing Subsectors, 221 5-5 -1 Source(s): MAPI Foundation, November 217
Conclusions The global economic recovery is both strengthening and widening but remains historically moderate. The falling dollar has reached a temporary trough, creating an uncertainty for manufacturing. The MAPI Foundation baseline forecast is for an average of 1.5% U.S. manufacturing growth from 217-221. Simulations were conducted assuming a modest fiscal boost from tax reform legislation. U.S. political/policy shocks, the change of leadership at the Federal Reserve, and the confrontation with North Korea are the principle risks to the U.S. manufacturing outlook. Aerospace, chemicals, machinery, and computers will lead U.S. manufacturing growth over the next few years.
Questions?