China, U.S. drag on global manufacturing revival

LONDON/NEW YORK Mon Feb 3, 2014 12:55pm EST

Employees work inside a factory manufacturing automobiles in Shenyang, Liaoning province, November 9, 2013. REUTERS/Stringer

Employees work inside a factory manufacturing automobiles in Shenyang, Liaoning province, November 9, 2013.

Credit: Reuters/Stringer

Related Video

LONDON/NEW YORK (Reuters) - Slower growth in the Chinese and U.S. factory sectors raised worries about global growth on Monday, even though European manufacturers enjoyed a solid start to the year.

Data showed growth in China's manufacturing sector slowed to a six-month low, while its service sector grew at its slowest pace in five years.

That could increase worries that weaker growth in Asia's economic powerhouse could spell trouble for markets and the world economy. Worries about Chinese growth were factors behind the recent selloff in emerging market assets, as many countries depend on Chinese demand for exported goods.

U.S. manufacturing grew at a substantially slower pace last month as new order growth plunged the most in 33 years, although some economists said extremely cold winter weather was partly responsible.

"The data was very weak across the board. It's hard to find any good news in there. It looks like a general slowdown, though you don't know how much of this is weather related," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

Markets were weak, with global equity indexes falling, driving investors to safe-haven assets like U.S. government debt. The U.S. stock market hit a low not reached since November.

Euro zone factories had their best month since mid-2011 and increased jobs for the first time in two years - a welcome sign for a region where unemployment remained at record highs.

The fall in the U.S. Institute for Supply Management's index of national factory activity to 51.3 - its lowest since May - was its second straight decline. But most economists continue to see the United States outpacing other developed countries in 2014.

"This, in combination with possible paybacks from sharp inventory and export gains in the fourth quarter might mean that the U.S. economy has temporarily lost some momentum at the turn of the year," said Harm Bandholz, chief U.S. economist at UniCredit Research. "But, if anything, that will only be a brief blip."

A separate report from Markit showed manufacturing grew more slowly in January after hitting an 11-month high in December. Reports on January car sales from U.S. automakers also pointed to a loss in momentum.

Analysts were most encouraged by developments in Europe, where Markit's final Eurozone Manufacturing Purchasing Managers' Index rose to 54.0 last month, comfortably ahead of December's 52.7. The last time it was higher was in May 2011.

"The major area of uncertainty over the last few years has been the euro area, but the latest PMI numbers tend to confirm (it)... is on a gentle recovery path with the periphery gaining encouraging momentum as well," said Philip Shaw at Investec.

The gain was led by a sharp pick-up in Germany and a revival among the states on the region's periphery, though France, the bloc's second-biggest economy, remained a drag on the region.

Factories increased employment to meet demand, providing some cheer to policymakers after data on Friday showed unemployment across the bloc held near a record high of 12 percent for the third straight month in December.

Earlier data from Britain suggested a swift upturn in factory activity there had eased slightly, while the pace of growth in Canada's factory sector cooled in January, with the RBC Canadian Manufacturing Purchasing Managers index hitting its lowest level in nine months.


Recent numbers from China have painted a more subdued picture of developments there.

The Markit/HSBC manufacturing PMI fell to a six-month low of 49.5 in January, suggesting the overall factory sector contracted from December. A similar government measure also fell to a six-month low, although it indicated the sector was still expanding modestly.

A government PMI on the services sector fell to 53.4 in January, firmly in expansion territory but still the index's lowest level since December 2008.

That run of data provided further reminders for markets of the pressures on the world's top emerging market economy as Beijing tries to push major reforms without tamping down growth too much.

China's government wants to reduce a heavy reliance on the investments and exports that have fueled breakneck economic growth in the past three decades in favor of consumption and services, which it thinks will provide lower but more sustainable growth.

Barclays analysts, referring to manufacturing, said they estimated the seasonal impact of Lunar New Year holidays was minimal on China's factory sector.

"In our view, much of the decline reflects (a) downbeat demand outlook and suggests continued softening in growth momentum," Jian Chang and Jerry Peng said in a note.

Other PMIs on Monday showed Indian manufacturing running at its strongest pace since March 2013 and in South Korea the sector was expanding at its fastest in eight months. An Indonesian PMI showed a slight pick-up in factory activity

Last week, a Japanese PMI rose to its highest level in nearly eight years as new orders expanded at their fastest pace on record - a sign of strong domestic demand before prices rise with an increase in a domestic sales tax due in April.

(Additional reporting by Andy Brice in LONDON, Yati Himatsingka in BANGALORE, Rieka Rahadiana in JAKARTA, Se Young Lee in SEOUL and Stanley White in TOKYO; Editing by Alex Richardson, John Stonestreet and Dan Grebler)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (10)
Bakhtin wrote:
Chinese economic growth is largely an accounting trick. Amongst other things, they calculate GDP in a different way to everybody else in the world, and refuse to release the usual figures so economist can make their own calculations.

This means that the real GDP (as in, calculated in the same way as everyone else) is smaller than claimed, and it follows from this that Chinese debt levels are much higher than claimed and so on. Greece tried a similar trick and fell apart. China will follow in due course.

On top of suspect growth rates, the Chinese economy is also hugely unbalanced with far too much reliance on foreign investment. Essentially, a lot of Chinese growth (estimated 30%) is not from Chinese enterprise… it is from foreign owned factories in China. The way they are turning everybody into enemies will come back and bite them in the ass when foreign companies get fed up of it move their factories to some other cheap labour country.

Feb 03, 2014 3:26am EST  --  Report as abuse
Tiu wrote:
Trust France to drop the ball.

Feb 03, 2014 8:25am EST  --  Report as abuse
RK_France wrote:
Both China and France need to re-invent themselves!
China might well change but France will be tougher still!!

With about 60% of French GDP coming from the government and monopolistic interest groups, it would be a tough nut to crack!!

Feb 03, 2014 10:17am EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.