China and US Manufacturing Improves

By: Phillip Inman and Josephine Moulds, The Guardian

Strong manufacturing figures from China and the US fuelled speculation that a long slowdown in global output is rapidly coming to an end. Commodity prices jumped and stock markets lifted after China’s manufacturing sector expanded for the first time in 13 months in November.

The Chinese data, which has shocked analysts over the last year as each month revealed that output tightened further, closely followed a report that showed US manufacturing grew this month at its quickest pace since June.

News that the world’s largest economies are expanding, albeit at historically low levels, was enough to overcome weak figures from Britain and the eurozone where industrial output contracted and the outlook remains increasingly gloomy.

UK manufacturers’ total orders remained largely unchanged from October’s slump, with a particularly poor showing from UK customers, although export orders improved. As a result, expected output dropped to its weakest level since the end of last year, with 9% more manufacturers expecting to cut orders than are expecting to increase them.

Anna Leach, head of economic analysis at the CBI, which carried out the survey, said: “Overseas demand has improved in this month’s survey, but this has not been enough to lift overall demand and support the modest expectations for growth in production levels found in the previous survey.

“Business confidence continues to be undermined by uncertainty over events in Europe and the fast-approaching US fiscal cliff. However, we expect UK growth to pick up somewhat in 2013 as this uncertainty gradually subsides and global growth increases.”

The UK economy grew by 1% in the third quarter but there are concerns that it will shrink again in the fourth quarter, raising the prospect of a triple-dip recession at the beginning of next year.

Germany’s manufacturing sector shrank in November as did that of France, which also saw a sharp drop in employment as factories closed and employers laid off staff.

Germany, which has suffered from the recent decline in demand for goods in China and the US, could see a resurgence as key export destinations recover.

A more positive view of Germany’s prospects and those of other European countries as well as the US and China lifted the FTSE 100 39 points, taking the index of Britain’s top companies to 5791. The rise was led by mining companies that expect a resurgence in output to increase demand for copper and other metals.

Many analysts believe worries over the US fiscal cliff, which would bring forward tax rises and spending cuts, are overstated. They believe Washington will be unwilling to choke off the US recovery.

The US is widely recognised as recovering strongly after several years wrestling with the sub-prime mortgage crisis and a weakened banking sector. Much of the housing sector has recovered, with prices stabilising in most states, while the banks are considered robust and ready to lend to small businesses.

HSBC’s monthly purchasing managers’ index (PMI) for China improved to 50.4 for November on a 100-point scale on which numbers over 50 indicate expansion. That was a moderate improvement from October’s 49.5 and is the first time in 13 months that the reading has been above 50.

The PMI index measures overall manufacturing activity by surveying numerous indicators including orders, employment and actual production.

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