CHICAGO -- Manufacturers from several countries including the United States produced some upbeat news on Tuesday, indicating that a recovery from the deepest global downturn since World War Two is slowly gaining traction.
The national reports were validated by a survey showing global factory activity on the rise for the first time since May 2008, led by the United States and Japan.
Some fretted, though, that the recovery leans too heavily on expensive government efforts -- from the popular U.S. "cash for clunkers" auto program to a pre-election propping up of Germany's labor markets.
Ways to gracefully wind down that support without reversing the nascent recovery were on the mind of officials preparing for a G-20 finance minister's meeting in London this weekend.
The U.S. factory sector expanded in August for the first time since January 2008, according to a key purchasing managers survey.
The return to growth was more robust than expected, spearheaded by the more than 690,000 older vehicles scrapped in the United States in return for $3 billion in taxpayer-funded credits to buy more fuel-efficient vehicles.
The Institute for Supply Management (ISM)'s closely watched barometer of U.S. factory activity jumped to 52.9 from 48.9, the highest level since June 2007.
A reading above 50 shows growth in the nation's factory sector. New orders and production levels soared.
The biggest winners from the popular "clunkers" program were major Asian brands and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz), which benefited from a stronger lineup of small cars and crossover vehicles. Ford reported a 17 percent sales gain last month from August 2008.
General Motors Co. GM.UL said August sales fell 20 percent from a year earlier but sales of its core brands (GMC, Chevrolet, Buick and Cadillac) rose 21 percent from July.
On the annualized basis tracked by investors, industry-wide U.S. sales appeared to have topped 14 million units in August, the highest sales rate of the year so far.
Still, strategists fear August's rush mostly cannibalized future sales, leaving automakers with both depleted inventories and uncertain demand in the months ahead.
FLICKER OF HOPE ON U.S. JOBS
Also on Tuesday, pending U.S. home sales, or sales of previously owned houses, hit a two-year high in July, suggesting drastic price cuts and a more stable economy have started to tempt buyers back into the market.
Some recovery from the three-year old U.S. housing slump is seen as essential to any economic turnaround.
"Both (ISM and housing) reports are encouraging readings. I'm particularly encouraged by new orders and the spread between new orders and shipments" in the ISM report, said Jonathan Basile, economist at Credit Suisse in New York.
The ISM's employment component also offered a flicker of hope for the anemic U.S. jobs market, rising to its highest level since August 2008.
Still, Norbert Ore, chair of the manufacturing business survey committee at ISM, warned the factory sector's recovery might not create many new jobs for now.
Getting the U.S. unemployment rate down substantially from its current 9.4 percent is seen as key to a sustained economic recovery -- especially once huge government stimulus spending finally runs its course.
The day's news failed to boost U.S. share prices .SPX .DJI, with major indices tumbling about 1.8 percent, on worries that the rising markets have run ahead of economic reality. World stocks, as measured by MSCI slumped by 1.7 percent.
STEADY CHINESE IMPROVEMENT
China's sprawling manufacturing sector kept up its steady recovery in August, hitting a 16-month high according to the China Federation of Logistics and Purchasing. New orders, output, imports and employment all rose.
But despite the positive signs from China, which some observers hope will power a recovery by maintaining its appetite for imports, global performance remains patchy in what seem to be the early stages of recovery.
In India, for example, manufacturers endured their slowest growth in five months.
Overall Euro zone factory activity shrank less than expected in August. The Markit Eurozone Manufacturing Purchasing Managers Index rose to 48.2 from 46.3 in July, creeping toward the 50 mark that divides growth from contraction.
Still, activity shrank unexpectedly in Britain, and the rates of contraction actually accelerated in Spain and Italy.
In eastern Europe, manufacturing in Poland and the Czech Republic reached the recovery threshold but industrial sentiment in Hungary slumped.
Economists say euro zone growth could be hampered by high unemployment, which puts a damper on retail demand, and any winding up of the trillions of dollars governments have injected into the economy to spur the recovery.
"Unemployment still seems likely to rise markedly higher, thereby posing a serious threat to growth prospects over both the near and medium term," said Howard Archer, an analyst at IHS Global Insight.
With recovery apparently under way, German Chancellor Angela Merkel said in a radio interview that lending conditions will have to tighten once the crisis is over.
"The money supply will have to be reduced," she said.
In an interview with the Financial Times before the G-20 meeting, British Prime Minister Gordon Brown called for greater international coordination in ending the stimulus.
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