Chinese, U.S. factories struggle, Europe still in slump

LONDON/NEW YORK Thu Jun 20, 2013 12:15pm EDT

An investor looks back in front of an electronic board showing stock information filled with green-coloured figures, which indicate falling prices, at a brokerage house in Fuyang, Anhui province June 20, 2013. REUTERS/China Daily

An investor looks back in front of an electronic board showing stock information filled with green-coloured figures, which indicate falling prices, at a brokerage house in Fuyang, Anhui province June 20, 2013.

Credit: Reuters/China Daily

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LONDON/NEW YORK (Reuters) - Factory output in China weakened to a nine-month low in June while U.S. manufacturing closed out its worst quarter in the last four, suggesting the road to recovery for the world economy remained an uneven one.

A day earlier, the Federal Reserve said the U.S. economy was expanding strongly enough for the central bank to begin slowing the pace of its stimulative bond purchases later this year.

Other major economies are lagging America's, however, which could limit the strength of global growth. China, the world's second largest economy, grew at its slowest pace in 13 years in 2012 and incoming data this year has been weaker than expected.

That's evident in the country's large manufacturing sector, which, according to the flash HSBC Purchasing Managers Index, contracted again in June as demand fell.

"A slowdown in the Chinese economy doesn't help the outlook for the U.S. particularly, but American growth isn't entirely dependent on what happens in China," said Philip Shaw, chief economist at Investec.

U.S. growth picked up in the first three months of the year, boosted partly by a recovering housing market, though the pace is expected to drop off in the second quarter.

Manufacturing in particular has struggled. According to information service Markit's latest survey, the second quarter was the worst for the sector in the last four as the pace of hiring and overseas demand weakened.

"Companies are certainly circumspect about any sustained revival of demand," said Markit chief economist Chris Williamson, who added that employment was also being suppressed by "the need to boost productivity, especially with intensifying competition from overseas and in export markets."

Recession in the 17-country euro zone has contributed to that lack of demand. While Markit's Flash Eurozone Composite PMI edged up this month, it remained below the dividing line between growth and contraction.

But economists expect the U.S. economy to rebound in the second half and beyond, an outlook shared by Fed Chairman Ben Bernanke, who said on Wednesday that solid growth and an expected decline in the jobless rate mean the central bank would likely begin winding down its stimulus program before the year is out.

Separate data on Thursday showed factory activity in the U.S. mid-Atlantic region at its highest level in more than two years.


The euro zone PMI was at its highest since March 2012. But the index has been below the 50 mark dividing growth from contraction for 21 of the last 22 months.

A PMI covering services firms, which make up the bulk of the bloc's economy, jumped to 48.6 last month from 47.2, its highest since January but its 17th straight month below 50.

Markit said the latest PMI data suggested the economy would contract 0.2 percent in the current quarter.

The European Central Bank has come under growing heat to take more action to help bring a quicker end to the bloc's longest recession, but economists polled by Reuters last month did not predict any easing of policy in coming months.

China's central bank may also come under pressure to ease policy as weak demand hurts its big exporters. But while the pace of growth is slowing, few expect a hard landing.

"The chance of economic growth slipping below 7 percent is quite low, because existing measures are still effective in helping stabilize the economy," said Wang Jin, analyst at Guotai Junan Securities in Shanghai.

(Additional reporting by Kevin Yao in Beijing; Editing by Chizu Nomiyama)

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Comments (8)
Pat_Rich wrote:
You realize, of course, the US is not well on the way to recovery. The economy is stalled, true unemployment is between 15% and 20%, the stock market is an aneurism pumped up on printed cash, deficits are staggering and continue to grow, the administration has no plan other than spend-spend-spend, Bernanke is cornered, and he is literally chartered to lie in order to continue conveying positive “news” rather than dismal reality. Quoting him as a factual source is a mistake. Look at the hard data. Or don’t, if you have a weak stomach.

Jun 20, 2013 7:22am EDT  --  Report as abuse
Ananke wrote:
Pat, metrics show the US economy stabilized. However, what happened is FED succeeded in re-inflating the housing bubble, this time involving investors, instead of sub-prime borrowers; second – huge money flew into “cloud” and mobile technology, which is nothing different than the dotcom boom, and it will end as the dotcom bubble ended.
Consumer goods market keeps contracting, food and energy prices are solidly elevated related to the population income, i.e. which is generally a sign of stagflation.
So, FED managed to switch bad investments from households to investors, which is the goal, I guess. FED probably hopes the economy to sustain this way and inflation slowly to reduce the bubble, a vision that I don’t share. Most likely investors will eat 30-40% losses very soon, and then the assets will stabilize.

Jun 20, 2013 2:35pm EDT  --  Report as abuse
landof8 wrote:
What is Happening or is going to happen in the U.S. should have nothing to do whit what is happening in China. That is the problem.

Is it any shock that Chinese factory output is down? Of course it is, record numbers of Americans are still out of work, the workforce participation rate is at the lowest point since the great depression and getting lower.

NEWS FLASH, Americans can’t buy all the crap that American Companies are manufacturing in China because they don’t have jobs here. And why don’t they have jobs here? Because everything is made in China.

The big corporations and people with the money in this country, the 1%, are the reason we are in this big mess. They don’t care, the fortune 500 companies made record profits last year, and the stock market is at all time highs. While 70+% of the jobs that have been added to the economy the last 6 years or so are low-end, low paying part time jobs.

If the majority of the people in this country are not making a middle class living then this country will fail. the people at the top and the people at the bottom do not put enough capital into the economy to drive it.

This is basically the end of the game of monopoly, you have a couple people who were able to get good properties, and build on them and they are collecting money from the other players.. The ones without good properties with hotels or houses are trying to make it around the board as many times as they can without landing on the other properties to prolong the game but with no substantial income it is only a matter of time before they are out and bankrupt, leaving normally 2 or 3 people with all the properties to battle it out. money then moves back and forth between the players that are left until one of them is unfortunate enough to have to pay several large rents in a row and boom game over. The moral is the less people in the game with, less money slows the whole thing down.

Jun 20, 2013 3:21pm EDT  --  Report as abuse
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