Plus: Trade Gap Narrows, Eurozone Manufacturing Declines, Jobless Claims Fall and Manufacturers Focus on Innovation.
Trade Gap Narrows in April
The United States trade deficit shrank to $50.1 billion in April, a 4.9 percent decrease from the revised total of $52.6 billion in March, as a slowdown in trade drove declines in imports and exports, according to the U.S. Department of Commerce on Friday. April exports fell 0.8 percent to $182.9 billion, while imports dropped 1.7 percent to $233 billion.
The goods deficit for the month fell to $64.8 billion, a $2.7 billion decrease from March, while the services surplus inched down by $0.1 billion to $14.8 billion. Goods exports decreased $1.5 billion to $130.7 billion, led by declines in capital goods and industrial supplies and materials. Goods imports fell $4.1 billion to $195.5 billion, also led by lower demand for capital goods and industrial supplies and materials.
“The trade deficit has been on a saw-tooth pattern this year, after having hit $52.9 billion in January, the highest since October 2008. Some of the swings may be caused by distortions around the Chinese Lunar Year holiday,” MarketWatch notes. “Economists are concerned that the European debt crisis could reduce demand for U.S. exports in coming months. Europe accounts for one-fifth of U.S. exports.”
U.S. exports to the 27 member states of the European Union fell 11.1 percent in April, as Europe’s escalating debt crisis has brought the region to the brink of a recession. The U.S. goods trade deficit with the E.U. tumbled to $8.7 billion from $9.8 billion in March.
“Growth has also slowed in emerging market countries. Exports to Brazil fell 8.2 percent in April,” the Associated Press reports. “The U.S. deficit with China increased to $24.6 billion in April. This year’s deficit is running 11.9 percent ahead of last year, when the imbalance hit an all-time high of $295.4 billion. That’s the highest ever recorded for a single country.”
Eurozone Suffers Worst PMI Downturn in 3 Years
Research firm Markit’s latest Purchasing Managers Index (PMI) found that manufacturing and services in the Eurozone in May declined at the fastest rate since 2009. The composite PMI for the 17-nation Eurozone fell to 46 points from April’s 46.7; any rating below 50 is a signal of market contraction.
“The final Eurozone PMI … indicates that the economy is contracting at the fastest pace for around three years,” Markit Chief Economist Chris Williamson said. “Based on these numbers, it would not be surprising to see GDP for the region contract by 0.5 percent in the second quarter, though an even steeper decline could be seen if the June data disappoint.”
Last month, manufacturing output continued to decline in Spain (41.2) and France (44.6), while Italy’s decline eased somewhat, reaching a two-month high of 43.5. Meanwhile, Germany saw its first production downturn since November, with the PMI falling to 49.3, a 34-month low.
“There is some convergence among member countries, but unfortunately only in the sense that all of the largest are now experiencing downturns,” Williamson added.
To help alleviate a mounting debt crisis, Spain on Saturday received approval for a $125 billion (100 billion euro) bailout, negotiated with European Union and German officials, to assist the country’s endangered banks.
Engineering Pay Increases Outpace the Average
Although U.S. job growth remains sluggish and many companies are still looking for ways to trim costs, salaries are slowly but steadily increasing, with engineers in particular expected to reap the rewards.
A recent report on nationwide compensation from research firm Compdata Surveys found that budgets for pay increases rose to a 2.7-percent average in 2012, up from 2.4 percent reported in 2011 and 2.2 percent reported in 2010. Pay increase budgets are expected to stay relatively stable through 2013, dipping slightly to 2.6 percent.
By industry, engineering firms reported some of the highest gains in compensation growth, with pay increase budgets reaching 3.1 percent this year, well above the national average and topped only by increases at accounting firms, which saw budgets climb 3.8 percent. Media companies experienced the lowest pay increase budgets, totaling 2 percent.
“For the past few years, pay increase budgets for many industries have stagnated or experienced only lukewarm increases,” Amy Kaminski, director of marketing for Compdata Surveys, said. “This will likely continue to be the trend until employers begin to feel economically comfortable.”
U.S. Jobless Claims Fall
New initial jobless claims fell in the latest week reported, marking the first drop since April and indicating gradual improvement in the labor market. According to the U.S. Department of Labor, seasonally adjusted unemployment claims for the week ending June 2 decreased by 12,000 to total 377,000. However, the four-week moving average increased by 1,750 to 377,750.
“The claims figures may ease concern of further labor market weakness after a report last week showed employers in May added the fewest workers in a year,” Bloomberg News reports. “While sustained demand is encouraging companies to maintain headcounts, stronger sales may be required to prompt a pickup in hiring.”
Prior to the latest report, claims had risen for four consecutive weeks, elevating concerns about sluggish hiring data. The unemployment rate for last month stood at 8.2 percent, well above the long-term historical average. Weekly claims must typically stay below 400,000 to indicate job growth and drive down the national jobless rate.
Manufacturing Execs Focus on Innovation for Growth
Manufacturers are increasing their focus on innovation and collaboration across the value chain to help cope with an unstable global economy, and the majority of firms have an optimistic view of future business prospects as a result.
According to the 2012 Global Manufacturing Outlook from tax advisory firm KPMG, 72 percent of manufacturers worldwide believe transformational innovation is in full swing at their company, or will be so in 12-24 months, with U.S. respondents leading in the view (84 percent) that innovation is, or will be, well under way. Collaboration is also on an upswing, as more than 60 percent of respondents said they plan to work more with customers for customized product development and with suppliers for product design.
“After several years of focusing on cutting costs, many manufacturers realize that they have to invest in expanding their product and service offerings in order to remain competitive,” Jeff Dobbs, KPMG’s global head of diversified industrials, said in an announcement of the findings. “There’s a decisive shift by manufacturers towards collaboration in the earliest stages of product development. This inclusive approach to innovation not only disperses potential risks, costs and rewards across the supply chain, but it also lets manufacturers focus on what they do best by leveraging the expertise of external partners and accelerating speed to market.”
The KPMG report also found that 76 percent of manufacturers globally are optimistic about their business outlook over the next 12 to 24 months, with high expectations for gains in sales and profitability. Forty percent of respondents expect the U.S. to lead in manufacturing growth over the next year, followed by China, India, Brazil and Germany.