Manufacturers Will Continue to Expand, but at Slower Pace

(Industry Week)

The U.S. manufacturing sector has held up well during an uneven economic recovery and should continue to expand, but likely at a slower pace, according to the Manufacturers Alliance/MAPI. The group’s September 2010 composite index fell slightly to 77% from a record high 81% in the June 2010 report.

It marks the fourth straight quarter it has reached 50% or above, the benchmark between contraction and expansion. In year-over-year comparisons, the current index is over twice that of the 38% in the September 2009 survey, signaling an impressive turnaround for industry.

“Although some indexes based on year-over-year comparisons fell slightly, all remain at very high levels,” said Donald A. Norman, Ph.D., MAPI Economist.”The forward looking indexes, based on expectations for annual orders, investment, and R&D spending in the coming calendar year, were all at high levels. Especially encouraging is the continued improvement in the capacity utilization index. The pace of expansion may have slowed, but growth is expected to continue.” Read more here.

U.S. Trade Deficit Widens Sharply to $46.3B in August as Gap with China Hits High

(Associated Press via Canadian Business)

The U.S. trade deficit widened sharply in August, reflecting a surge in imports of consumer products as businesses restocked their shelves in hopes of a pickup in consumer demand.

The politically sensitive deficit with China climbed to an all-time high, a development that was certain to increase pressure on the Obama administration to take a tougher line on trade issues including China's tightly controlled currency.

The Commerce Department said Thursday the deficit in August increased 8.8% to US$46.3 billion. Exports edged up a slight 0.2% but this increase was swamped by a 2.1% jump in imports. Read more here.

Retail Container Traffic Up 11% in October

(Logistics Today)

Import cargo volume at the nation’s major retail container ports is expected to be up 11% in October over the same month last year and should continue to see strong year-over-year growth even as seasonal levels wind down through the remainder of 2010, according to the monthly Global Port Tracker report from the National Retail Federation and Hackett Associates.

“Cargo is still coming through but retailers are mostly stocked up for the holiday season,” says Jonathan Gold, NRF’s vice president for supply chain and customs policy. “Retailers aren’t going to say the recession is behind them until their customers tell them it is, but we are hoping to see some sustainable economic growth over the next several weeks. The goal is that inventory levels will match sales as closely as possible.” Read more here.

United States’ ‘Deteriorating Infrastructure’ Causes Drag on Economic Growth

(Business Wire)

The US Chamber of Commerce has released what it calls the first-ever nationwide and state-by-state Transportation Performance Index which shows a significant decline over the last five years in how America’s transportation infrastructure is serving the needs of domestic commerce, international trade, and the overall US economy. The annual index is the first of its kind designed to look over time at how US transportation infrastructure is serving the needs of the US economy and business community.

“The performance of the nation’s transportation system is not keeping pace with the rate of growth of the demands on that system,” said Thomas J. Donohue, president and CEO of the US Chamber of Commerce. “As our economy recovers, the nation’s transportation infrastructure must be prepared to meet the projected growth in freight and population. In fact, a 10-point improvement in the new national transportation index could generate 3% more growth in the nation’s Gross Domestic Product. However, our index shows that from now through 2015 there will be a rapid decline in the performance of the system if we continue business as usual. Right now we’re on an unsustainable path.” Read more here.

U.S. Exits Longest Recession Since World War II

(Industry Week – Andrew Beatty, Agence France-Presse)

According to the National Bureau of Economic Research, the U.S. economy exited recession in June 2009. The announcement was made on Sept. 20. More than eight million jobs were lost in the slump that was triggered by dodgy Wall Street mortgage investments.

President Barack Obama said the end of the “Great Recession” would come as little solace to the millions of people who are still out of work. “Even though economists may say that the recession officially ended last year, obviously for the millions of people who are still out of work, people who have seen their home values decline, people who are struggling to pay the bills day to day, it’s still very real for them.”

The NBER underscored that slow pace of recovery as it issued a statement that confirmed: “The recession lasted 18 months, which makes it the longest of any recession since World War II. Read more here.

Manufacturing Growth Will Continue to Outpace Overall Economy Says Industry Group

(Industry Week)

MAPI predicts 6% growth overall in 2010 and 5% in 2011

While the pace of recovery in the general economy has clearly slowed, the deceleration is less visible in the manufacturing sector, according to the Manufacturers Alliance/MAPI.

“Despite less consumer spending growth in the second quarter, there was nevertheless some employment growth and modest wage increases. Also, the prolonged downturn and sluggish recovery have created pent-up demand for some durable goods, including sales of motor vehicles and appliances,” said Daniel J. Meckstroth, Chief Economist for the MAPI. “The inventory swing is greatest in manufacturing; exports are predominantly manufactured and benefitted from the fast global trade bounce back; and business investment in equipment rebounded much faster than consumer spending, thus making the pace of the industrial recovery stronger than that in the general economy.” Read more here.

U.S. Trade Deficit Rises in Q2

(CBC News – The Associated Press)

Americans’ stronger appetites for imported goods, especially cars and computers, lifted the broadest measure of the U.S. trade deficit in the second quarter to its highest point since late 2008. The Commerce Department said the current account trade deficit grew to $123.3 billion US in the April-to-June period, a 12.9% increase from the first quarter. Read more here.

Obama Calls for Transport Investment, Reform

(American Shipper)

President Barack Obama in a Labor Day speech in Milwaukee outlined an ambitious six-year agenda for investing in transportation infrastructure as a way to help create construction jobs and lay the foundation for long-term economic growth.

He called for rebuilding 150,000 miles of roads, laying or repairing 4,000 miles of rail lines; restoring 150 miles of runways; funding the Next Generation Air Traffic Control System, which will allow more planes to fly in congested airspace while improving safety; investing more in high-speed rail; creating an infrastructure bank to help seed private investment; and consolidating more than 100 different transportation programs into a few that are managed according to performance-based outcomes. Read more here.

Odds Rising For Rate Hike Wednesday

(The Financial Post)

What a difference a week makes in gauging the state of the Canadian economy. At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.

But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.

The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.

The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets. Read more here.

Related: GDP’s Slow Growth Rate Signal Of Weaknesses (Windsor Star)

Manufacturing to Grow 5.7% in 2010, Industry Group Predicts

(Industry Week)

For 2011 MAPI sees 4.7% increase

The U.S. economy has decelerated to a “slow growth mode,” primarily driven by consumers continuing to deleverage and rediscovering the need for thrift, according to a new report from The Manufacturers Alliance/MAPI.

The group predicts that GDP will expand by 2.9% in 2010, followed by 2.6% growth in 2011.

“There is a somewhat bleaker outlook amid weaker economic data and it clearly indicates a slow growth mode,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. “For instance, the numbers for June retail trade, inventories, and foreign trade have all come in weaker than the Bureau of Economic Analysis had estimated in the preliminary estimate of second quarter GDP growth. The homeowners’ tax credit has expired. Consumers are not spending as much. They are saving more and repaying debt, which is good for the long run but not the near term. The inventory swing is over and the benefits of the stimulus have basically run their course.”

There remain, however, positive economic signs, and the manufacturing sector should continue to hold its own. Read more here.

Canada’s Trade Deficit Unexpectedly Widens

(John Morrissy — Financial Post)

Canada’s trade deficit with the world rose to $1.1-billion in June from $695-million in May as the country’s exports dropped 2.5% in the month, Statistics Canada reported Wednesday.

Economists polled by Bloomberg had called for the trade deficit to narrow to $300-million.

Declines in exports of industrial goods and materials accounted for two thirds of the decline in the value of overall exports, followed by energy products and automotive products, the federal agency said.

Imports also declined in June, by 1.2%, as a result of lower imports of energy products.

“Overall, this was a very disappointing report as it suggests that the once buoyant trade sector has lost a significant portion of the positive momentum that has contributed in the past few quarters to the strong performance of the Canadian economy,” Millan Mulraine, senior micro strategist at TD Securities said in a morning commentary. Read more: here.

Related Stories

• US Trade Deficit Unexpectedly Widens to $49.9 Billion in June‎ (Bloomberg)
• China July Trade Surplus Widens On Import Slowdown‎ (Wall Street Journal)
• China Trade Surplus Soars as Domestic Demand Flags‎ (ABC News)

Exporters Between a Rock and a Hard Place

(Troy Media – Todd Hirsch)

As a resource-producing region, Canada has become extraordinarily wealthy on the back of international trade.

Just prior to the Great Recession of 2008-09, Canada sold a record $483.6 billion worth of goods to international buyers. (In 2009, that number had tumbled to $360 billion). According to the Export Development Corporation, Canada’s exports are forecast to rise by 13% this year, and an additional seven per cent in 2011. But even with that growth, total forecasts will remain below the level reached prior to the 2008 downturn.

Why are exports stalling? And what, if anything, can Canadian companies do about it?

The main reason why exports will not be the roaring engine of growth going forward is that our main customer – the United States – is in no mood to shop. Despite having climbed out of recession last year, the recovery south of the boarder is looking very shaky. The housing market is still D.O.A., and the unemployment rate is still hovering around 10%. Adding to that is a huge swath of under-employed Americans – those who are technically working, but in jobs that are lower-paying than their skills would warrant, or working part-time. All together, about 1 in 6 American households are not in a position to be spending much on discretionary items. Read more here.

Imports Slow Second-Quarter Growth in U.S.

(Reuters – Lucia Mutikani)

Economic growth slowed in the second quarter as companies invested heavily in equipment from abroad and the pace of consumer spending eased, raising concerns about the recovery in the rest of 2010. Gross domestic product expanded at a 2.4% annual rate, the Commerce Department said in its first estimate on Friday, after an upwardly revised 3.7% growth pace in the January-March quarter. Financial markets had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 2.5% rate in the second quarter from a previously estimated a 2.7% rate for the first three months of this year.

"The anticipated slowdown in the economy is happening. Will business investment fall off a cliff next quarter if domestic consumer spending continues to flag?" said Lee Olver, managing director of financial strategies at Madison Williams & Co. in Houston.

A second report showed business activity in the nation's Midwest region expanded more than expected this month on strong orders. The Institute for Supply Management-Chicago business barometer rose to 62.3 from 59.1 in June and above market forecasts for reading of 56.5.

Separately, consumer sentiment dropped this month to a nine-month low, according to Thomson Reuters/University of Michigan's Surveys of Consumers. Read more here.

Rays of Recovery – U.S. Container Imports Hit Record High in June

(SteelGuru)

According to preliminary U.S. Customs figures, U.S. container imports from the Far East were the highest on record for June, even exceeding the standing June 2007 record of 1.2 million TEUs.

China led the volume surge, hitting 840,000 TEUs for the month. These shipments were mostly loaded in May, when Chinese ports were again recording their highest YoY monthly figures. Total Far East US trade growth for 2010 is expected to exceed the Transpacific Stabilization Agreement forecast of 6% to 8% cargo growth made in March, following the 15% decline in 2009.

Volume growth in the six months of 2010 has already reached 19% and second quarter growth surged by 23%, following the first quarter’s 14% increase. Read more here.

U.S. Double Dip Recession Would Have Negative Impact on Canada

(Journal of Commerce – John Clinkard, CanaData)

A number of recent developments in the U.S. and globally have raised the spectre that after expanding for three consecutive quarters, the American economy may have a relapse and experience a second period of economic contraction. If the U.S. were to experience a double-dip recession, it would doubtless have a significant, negative impact on Canada, given the strong trade links between the two countries.

Recent indicators of consumer spending in the U.S., including employment and retail sales, have been disappointing, as have mortgage applications for new homes, which have dropped by 40% since the end of April.

From an international perspective, the Baltic Dry Index – which measures the global demand for global shipping capacity versus the supply of dry bulk shipping – exhibited a significant decline late in May, suggesting that the global recovery may be losing steam. Read more here.

U.S. Import Boom Will Slow, Warning

(International Freighting Weekly – Mike King)

Economic indicators look bleak as retailers become cautious

The U.S. container import surge will slow as the spate of recent poor economic forecasts prompt more caution among retailers, according to market analyst Ben Hackett. “The latest economic indicators are starting to look bleak, including consumer confidence, industrial production and employment numbers,” said the founder of Hackett Associates. “Sales will be slower in July and August, that much is certain. Inventories will rise, resulting in some sharp seasonal volume reductions.”

According to the latest Global Port Tracker report, from the National Retail Federation (NRF) and Hackett Associates, double-digit year-on-year import volume growth at U.S. ports will “taper off” in the autumn as “retailers cautiously manage their inventories”. Read more here.

U.S. Auto Sales on Hold?

(Export Development Canada – Peter G. Hall)

America’s obsession with vehicles was shaken by the onset of recession. Firms that were the icons of US auto production for multiple generations were suddenly on the brink of extinction. Hotly contested government bailouts bought them time, and sales rebounded handily – a great relief for Canadian auto sector exporters. But in June, U.S. vehicle sales dipped again. Is this cause for concern?

When it hit, the correction in this sector was overdue. Vehicle sales, boosted by rock-bottom interest rates and overdone incentives, averaged 17 million units annually from 1999 to 2007. In the latter stages of this binge, there were roughly 5% more vehicles on U.S. roads than there were people of eligible driving age. The sobering reality-check when sales tumbled to 9M units in the first quarter of 2009 was that insiders knew the oversold market could stay at these new, low levels for a long time. Fortunately, there was a partial rebound, but sales have remained stuck at a sub-par 11 million units in recent months. The drop in June sales kept it in this range, a disappointment for recovery hopefuls.

Some might pre-conclude that this is the new reality for the U.S. market – that consumer indebtedness, ageing of the population, fiscal rebalancing and such will keep sales suppressed for a long time. The arguments all make sense, but sustainable sales levels are still thought to be in the 15-16-million-unit range. Even a recovery that doesn’t quite hit that mark still has a long way to grow from today’s pace.

So why are sales still stuck in the mud? Read more or watch the video here.

CEO Survey Shows Cautious Optimism as Sales, Hiring Increases Expected

(Industry Week – Steve Minter)

Business Roundtable second quarter survey shows less enthusiasm for capital expenditures

Some 79% of the United States’ top CEOs expect their company’s sales to increase in the next six months, according to the second quarter CEO Economic Outlook Survey released by the Business Roundtable June 23. The group also indicated an increase in employment, with the number expecting to hire in the coming months increasing from 29% last quarter to 39% this quarter.

But the new survey showed a slight pullback on capital spending, with 43% compared to 47% last quarter saying they will increase their capital spending in the United States and 50% expecting no change over the next six months. An independent study of the index showed that is has predictive power for forecasting GDP growth in both the quarter in which it is released and the next two quarters. Read more here.

Truckers Say Market’s Wrong, Economy Grows

(Forbes.com – Daniel Fisher)

A little-noticed indicator that taps directly into the movement of freight offers a hopeful contrast to the dismal performance of the stock market lately. The Ceridian-UCLA Pulse of Commerce Index jumped 3.1% in May, the largest monthly increase since February 1999. The index tracks credit-card purchases of diesel fuel at truckstops across the country and provides a real-time indication of how much freight is moving from ports and factories to consumers.

The jump in the PCI index joins positive signals from other indexes including manufacturing, manufacturing shipments and retail sales, all of which have been rising steadily from mid-2009 lows.

The only indices that remain stubbornly low are employment and retail inventories. Even those are arguably good signs for future profits, as manufacturers and retailers tuck in extra earnings for at least a while before adding employees and inventory to their overhead.

Stock markets have been forecasting an entirely different scenario lately, with the Standard & Poor’s 500 Index falling 16% since April. Economist Edward Leamer of UCLA says the stock market’s got it wrong. “The market is still dealing with the fear effects of 2008 – investors are worried it will happen again,” says Leamer. “This is actual transactions. This is truckers buying fuel.” Read more here.

Related: More Evidence of Booming U.S. Demand: Traffic at LA Ports Surged in May (Business Insider)

China Says Yuan Rise Can’t Solve Sino-U.S. Trade Gap

(Business Week/Bloomberg)

Appreciation of China’s currency won’t resolve the Sino-U.S. trade imbalance or the consumer debt, low savings rate and unemployment in the world’s largest economy, Qin Gang, spokesman for the Chinese foreign ministry said today.

China will reform its exchange-rate mechanism based on developments in the global economy and its own economic performance, Qin said in a statement on the foreign ministry website.

U.S. lawmakers said this month they will go ahead with legislation targeting the yuan just as leaders of both countries prepare to meet this month at a Group of 20 nations summit in Toronto. The Senate will vote “soon” on a measure aimed at getting China to raise the value of its currency, Senator Charles Schumer of New York told Treasury Secretary Timothy F. Geithner at a hearing on June 11. Read more here.