With slowing growth in China and the implosion of stock prices there, the dramatic fall in the price of oil, and recent volatility in U.S. equity markets, January is coming in like a lion. Repeating the pattern observed in recent years, the first quarter will be challenging for U.S.
The U.S. trade deficit in manufactures soared by 16% in 2015, resulting in a loss of 600,000 American manufacturing jobs. Sixty percent of the global deficit was with China, with U.S. manufactured imports from China 5.8 times larger than U.S. exports to China.
Global Economy, Competitiveness, Government Policy, Economic Environment, Labor, Operations, Continuous Improvement, Productivity
Productivity growth in the computer and electronic products subsector, once the principal driver of productivity performance in the manufacturing sector, has experienced significant waning in recent years. Consequently, the U.S. manufacturing productivity outlook has become murky. This is a challenging trend for our society, because increased productivity growth helps lift living standards. The good news is that empirical evidence put forth in this paper shows that innovation and capital investment play a key role in accelerating multifactor productivity growth (i.e., output per unit of a combined set of inputs including labor, materials, and capital) in a wide range of manufacturing industries.
We lower the forecast for this year and next because of the persistent shocks to manufacturing demand and we now see more downside than upside risks. Manufacturing production will decelerate rather than accelerate this year. Production increased 2% last year and we forecast growth of only 1.1% in 2016, 2.4% in 2017, and 2.5% in 2018.
The rules-based multilateral trade and financial system created at Bretton Woods in 1944 has been crumbling over the past decade. The WTO trading system to reduce trade barriers on a reciprocal, most-favored-nation basis has been replaced by a spreading network of bilateral and regional preferential trade agreements. And far more threatening, the IMF financial system, centered on convertible, non-manipulated exchange rates, has been undermined by rampant exchange rate mercantilism, principally by China and other Asian nations.
In the first quarter, the U.S. trade deficit in manufactures rose by 4%, or $7 billion, compared with 2015. This is a big improvement from the 14% increase for calendar 2015, but still resulted in a trade-related loss of 50,000 American manufacturing jobs.
We are lowering the forecast for this year because of the persistence of the shocks to manufacturing demand, lack of progress in cutting excessive inventories, and the downward revision by the Federal Reserve of reported growth over the previous three years. Manufacturing production increased 0.8% last year and we forecast only 0.4% growth in 2016. We do, however, expect 2.5% growth in 2017 and a 2.8% increase in 2018.
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