Worldwide Factory Activity Picks Up in October

Friday, 01 Nov 2013 07:19 AM

 

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Manufacturing expanded around the world in October, with business surveys on Friday showing U.S. factory output growing at its fastest pace in 2-1/2 years and Asian manufacturers reporting the fastest upturn in months, led by China.

The latest batch of purchasing managers indexes (PMIs), which survey thousands of manufacturers worldwide, showed U.S. factory activity rising more than expected despite a partial U.S. government shutdown during the first 16 days of the month.

Manufacturing activity also picked up in Canada, where growth rose to its strongest level in two and a half years, while Brazilian manufacturers eked out their first gain in four months but Mexico's factories remained stagnant.

The PMIs point to a gradual improvement in global economic activity even though surveys from most major economies in Europe, including those for the euro zone, will be released next week because of a holiday. UK manufacturing sustained a solid rate of expansion.

The Institute for Supply Management (ISM) said its index of U.S. factory activity rose to 56.4 last month — its best showing since April 2011 — from 56.2 in September. Economists polled by Reuters had expected a reading of 55.

October was the fifth consecutive month of quicker growth in the American goods-producing sector since it contracted in May. A reading above 50 indicates expansion.

"The underlying components were a little mixed, but for the most part, this report continued to point to strength in the factory sector," said RBS analysts in a note about the U.S. figures. "It seems like the shutdown did little to dampen the underlying strength in manufacturing in October."

The latest ISM report was far more upbeat than a separate index for U.S. factory activity released on Friday by financial data firm Markit, which hit a one-year low in October.

Demand for exports drove Asian manufacturing, with Chinese factory growth hitting an 18-month high.

"Overall, the data is positive for global demand," said Radhika Rao, an economist with DBS in Singapore. "There are reasons to be optimistic, but cautiously optimistic," she said.

The raft of Asian PMIs pointed to strong export demand.

Taiwan's PMI reached its highest level since March 2012, Indonesia's index hit a four-month high and Japan's PMI rose to its strongest level in well over three years.

The major Asian economies of China, Japan, South Korea and India reported new export orders expanding simultaneously for the first time since May, which economists attributed partly to the gradual improvement in Europe.

Britain, which has been at the forefront of Europe's tentative economic recovery, saw continued growth.

Data company Markit said its October UK manufacturing PMI edged slightly lower to 56.0 from a downwardly revised 56.3 in September. But anything over 50 means expansion and the latest number remains within striking distance of August's two-year peak of 57.1.

"With the domestic economy recovering strongly, all important export markets either growing or at least improving and a broadly stable exchange rate, output in this key sector looks set to contribute its share to the recovery," said Christian Schulz, senior economist at Berenberg.

ASIAN CHEER

China's official PMI rose to 51.4 in October from 51.1 in September, topping expectations for a reading of 51.2.

A similar report from HSBC/Markit increased to 50.9, a seven-month high. It showed a tick up in the pace of new domestic and export orders, as well as the first increase in employment in seven months.

"The PMI data for October shows a continued increase, indicating a preliminary stabilization in the economy," Zhang Liqun, an economist at the cabinet think-tank Development Research Center, said in a statement released with the official PMI.

China's reassuring PMI reading limited losses in Asian stocks, which were under pressure after strong U.S. data added to uncertainty over when the U.S. Federal Reserve might begin to ease back on its current stimulus program.

India was the exception among a group of generally upbeat PMI reports in Asia. Its HSBC/Markit PMI was unchanged at 49.6 in October, indicating the sector was contracting for a third month, despite rising export orders.

The HSBC/Markit PMI for South Korea showed factory activity expanded for the first time in five months in October and a separate report said the value of exports in the month beat expectations to hit a record high of $50.5 billion.

Factory activity in major exporter Taiwan, key to many global tech supply chains, was running at its fastest pace since March 2012, while Japan reported on Thursday that factory activity grew at the fastest pace in more than three years.

© 2014 Thomson/Reuters. All rights reserved.

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