Manufacturing points to challenges for world economy

Tuesday, 2 October 2012 23:30 -     - {{hitsCtrl.values.hits}}

  • US ISM manufacturing index posts surprise rise into growth
  • US factory growth remains tepid, falling export orders hurts
  • Manufa-cturing in euro zone and Asia wilts in Sept
  • Slow growth, uncertainties buffeting global economy

NEW YORK, (Reuters): US manufacturing unexpectedly grew last month for the first time since May but euro zone factories suffered their worst quarter since early 2009 and China lost steam, suggesting the global economy faces hurdles as it tries to outrun recession.

The data showed companies across the world have yet to benefit much from government and central bank efforts to stimulate growth.

In Europe, manufacturing activity fell to levels not seen since early 2009 during the darkest days of the worst recession since World War II. The contraction suggested the 17-country euro zone could struggle to avoid falling back into recession. Factory activity in China also contracted, in a sign the world’s No. 2 economy lost momentum for a seventh consecutive quarter. China has been a crucial engine of global growth.

Growth in the United States has been firmer than elsewhere, though the world’s largest economy remains hobbled by high unemployment. Economists say $600 billion of automatic spending cuts and tax increases due in January unless Congress delays them have made matters worse by leaving firms reluctant to hire.

Now some worry that US manufacturing, a bright spot in 2011, may be acting as a negative influcence on growth. While a jump in new orders nudged the Institute for Supply Management’s (ISM) index of national factory activity up last month, ending three months of contraction, it remained well off levels seen in early 2012.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 46.1 from 45.1 in August, though September marked the 14th month of overall contraction in the sector. Tepid demand in Europe hurt Asian factory output. China’s official manufacturing purchasing managers’ index (PMI) stood at 49.8 last month, showing the sector contracted for a second straight month, though at a slower rate than in August.

A separate index on US manufacturing activity from financial information firm Markit showed activity in September and over the third quarter was the weakest in three years. Weaker demand for US products, the result of recession in many European countries and slower growth in Asia, was the main drag on US factory activity, the data showed.

“We’re still in a low-growth, fits-and-starts type of pattern here,” said Tom Simons, money market economist at Jefferies & Co in New York. “And with Europe and China and other Asian economies slowing, it’s going to be pretty difficult to accelerate exports.”

Paul Dales, senior US economist at Capital Economics, noted that even the better-than-expected ISM reading was “still consistent with annualised GDP growth of no more than 1.5 per cent to 2 per cent” in the United States. Some warn things may get even leaner. The US economy grew 1.3 per cent in the second quarter, and Chris Williamson, chief economist at Markit, said it may have slowed between July and September, adding that manufacturing “is now likely to be acting as a drag on the wider economy”. That could be bad news for other economies in the Americas. Growth in both Canadian and Mexican manufacturing slowed for the third straight month in September. Brazil’s factory sector contracted, though at a slower pace than in August.