Global manufacturing expanded in November at the fastest rate since August 2014, according to PMI survey data. Growth was led by the developed world, with rising domestic demand benefitting the US and eurozone exporters helped by the weak euro. However, emerging markets also continued to show renewed signs of life. The surveys also found producers’ costs to be rising at the fastest rate for over five years.
Global manufacturing output
The upturn means the survey data are roughly consistent with global manufacturing output rising at a 4% annual pace.
Output growth slowed slightly, but inflows of new orders showed the largest rise for 27 months, buoyed by the joint-highest growth of exports for just over two years (albeit still running at a subdued pace of expansion compared to rates seen prior to the global financial crisis).
The expansion continued to be led by the developed world, where the manufacturing PMI edged up to 53.2, its highest for just over two years. The emerging market PMI nudged lower to 50.7, but that was still the second-best reading in the past 21 months.
Developed v emerging markets
Only seven of the 28 countries covered by the Markit-compiled PMI surveys reported a deterioration of manufacturing conditions in November (down from eight in October). Once again, all except Greece were emerging markets, with Brazil continuing to suffer the steepest downturn.
Growth slowed in the manufacturing sectors of both China and India, but the former continued to enjoy its strongest growth spell for over two years. Russia meanwhile saw the fastest rate of expansion since March 2011, as rising domestic demand offset a further steep drop in exports.
Recent PMI surveys revealed some interesting trends:
- Japan and Europe are seeing an obvious boost from their depreciating currency as manufacturing production and new orders are driven by rising export demand.
- China has not seen much uptrend in its exports.
- U.S. exporters are suffering from the strong dollar (equivalent to two rate hikes) but U.S. domestic demand is strong enough to more than offset weak exports.
(…) “Companies are not going to leave the U.S. anymore without consequences,” Mr. Trump said at a Carrier Corp. furnace plant in Indianapolis. “Leaving the country is going to be very, very difficult.”
After receiving a phone call from Mr. Trump and a package of $7 million in state tax breaks, Carrier’s parent, United Technologies Corp., agreed to keep open the furnace factory it had planned to move to Mexico and retain another 300 research and management workers in the state. (…)
Mr. Trump used the Carrier announcement to repeat his criticism of the North American Free Trade Agreement and his promise to revise the agreement.
He offered a carrot-and-stick approach to enticing companies to remain—a plan to lower the corporate tax rate to 15% from the current 35%; a drastic cutback in regulations; and steep penalties such as import tariffs for companies that move jobs out of the U.S. (…)
Sen. Bernie Sanders said Mr. Trump “has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives.”
Government and union officials say Carrier has previously said it expected to save about $65 million a year by shifting the Indianapolis plant’s operations to Monterrey, in the state of Nuevo Leon, where wages average about $11 a day. The average wage of the Indiana jobs that will be retained is more than $30 an hour, according to a document reviewed by the Journal. (…)
Mr. Trump said decisions like this would be plentiful during his presidency. (…)
“If this is what the Trump team thinks macroeconomic policy is, then they don’t understand the scale of the economy,” said Justin Wolfers, a professor of economics and public policy at the University of Michigan.
The economy currently loses nearly 7 million jobs a quarter through the churn of companies failing, closing or leaving the U.S., Mr. Wolfers said, citing data from the Bureau of Labor Statistics. “Firms contracting or leaving a market is the natural state of business.” (…)
A study published by the Peterson Institute for International Economics estimated that imports from Mexico have displaced 203,000 jobs a year, but the two-way trade has also supported 188,000 jobs due to U.S. exports headed to Mexico. That’s a net 15,000 jobs lost annually—a tiny fraction of U.S. employment, according to the 2014 study. (…)
During his speech, he stuck to many of his campaign promises. He said a wall would be built along the U.S.-Mexico border. He said his administration would “repeal and replace” the Affordable Care Act. He said the Trump administration would seek plans and deals that benefited Americans first and not get duped into deals with other countries.
“There is no global anthem, no global currency,” he said. “We pledge allegiance to one flag, and that flag is the American flag.” (…)
The chart below shows that around half of US imports are intermediate goods. It means that American jobs depend on turning these imports into finished product. If companies have to pay higher tariffs or are unable to offset the cost of these imports against their income for tax purposes, the outcome could be messy. (The Daily Shot)
Bond Market Slide Intensifies The rise in yields since July, with the 10-year Treasury note up by more than 1 percentage point in that time, has hammered debt issued in emerging markets and many U.S. states and cities.
Estimates are that the bond rout has wiped $1.7T in value in the world’s sovereign bond market while equity markets appreciated $635B in November.