China factories scent hint of spring, Europe still chilly, U.S. improves

SYDNEY, LONDON, NEW YORK (Reuters) - Activity in China’s factory sector grew for the first time in nine months during March to bring a hint of spring to the global economy, although growth remained weak in Europe, and subdued in the U.S.

An employee works inside a steel factory in Kashgar, Xinjiang Uighur Autonomous Region, China, March 10, 2013. REUTERS/Stringer

Headlining in Asia was a rise in the official version of the Chinese Purchasing Managers’ Index (PMI) to 50.2, above the 50-point mark that separates growth from contraction.

The private Caixin/Markit PMI found output, total new orders and output prices all returned to growth also, while a survey of the service sector surprised with its strength.

“It does seem to indicate that the manufacturing sector is warming up a bit,” said Raymond Yeung, senior economist at ANZ in Hong Kong.

“We think there are basically two factors driving the recovery: the first is a possible acceleration in infrastructures pending. The second is a broader pickup in external demand.”

The relatively upbeat Chinese surveys should give some comfort to Federal Reserve Chair Janet Yellen who this week cited the global risks emanating from Asia as one reason to be cautious on raising U.S. interest rates.

Yet, analysts still suspect more government support will be needed for the Chinese economy, especially if it wants to avoid a politically unsettling rise in unemployment.

Credit ratings agency Standard & Poor’s underlined the need for faster reform when it changed China’s credit outlook to negative on Thursday.

The economic pulse across the rest of Asia was more erratic. South Korea’s PMI bounced to within a whisker of 50 in March while stronger shipments of smartphones and steel saw exports decline at the slowest pace in four months.

Indonesia put an end to 17 straight months of contraction as its PMI popped up to 50.6, with output, new orders and employment all improving.

Japan, however, was busy going backwards as the Markit/Nikkei PMI of 49.1 was the lowest since February 2013.

That echoed a gloomy survey of manufacturers from the Bank of Japan which found sentiment at its darkest in nearly three years, a result that lopped 3.0 percent off the Nikkei .N225.

All of which heightened pressure on Prime Minister Shinzo Abe and the central bank to do more to shore up the stuttering economy.

“This data confirmed the very cautious stance of Japanese firms reflecting the market volatility since January. There’s no signs of corporate sentiment bottoming in coming months,” said Mari Iwashita, chief market economist at SMBC Friend Securities.

“There’s more than a 50 percent chance the BOJ will consider easing policy further this month.”


However, while euro zone factories rounded off the first quarter in slightly better shape than initially thought the growth in activity remained weak despite the deepest price-cutting since late 2009.

The euro zone survey suggested manufacturing is still dragging on the wider economy. The report came soon after the European Central Bank unleashed a bold easing package in its latest attempt to spur growth and drive up inflation.

Despite the price-cutting by manufacturers and ECB stimulus, Markit’s PMI for the euro zone only rose to 51.6 from February’s year-low of 51.2.

The bloc’s economy grew just 1.6 percent in 2015 and the first quarter’s PMIs suggest there will be little improvement anytime soon.

“The softening of forward looking components in the past two months is consistent with our scenario of a slower growth inQ2-Q3,” said Apolline Menut at Barclays.

Looking at the country breakdowns, growth remained weak in Germany and activity contracted in France but Spain, Italy, the Netherlands, Austria and in particular Ireland saw robust expansions.

In Britain, outside the currency bloc, manufacturing growth edged up in March from its weakest level in nearly three years, suggesting the sector will contribute little to economic growth in early 2016.


In the U.S, the manufacturing sector improved slightly in March, even though the U.S. Labor Department reported a loss of 29,000 jobs in the sector for the month, the largest number since December 2009, despite signs of stabilization in the factory sector.

Markit’s U.S. manufacturing PMI for March improved slightly to 51.5, up from 51.3 in February. The employment subcomponent also edged up 52.2 from 51.8.

“March data highlighted sustained growth across the U.S. manufacturing sector, but the overall pace of expansion remained subdued,” Markit economist Tim Moore said.

“Subdued client spending patterns within the energy sector, ongoing pressure from the strong dollar, and general uncertainty about the business outlook were cited as factors weighing on new order flows in March.”

An alternative report from the U.S. Institute of Supply Management (ISM) also reported its index of national factory activity rose to 51.8 from 49.5 the month before. However, the employment index fell to 48.1 from 48.5 a month earlier.

Canada’s manufacturing sector grew for the first time in eight months in March as the weaker Canadian dollar gave exports a boost, data showed on Friday. The RBC/Markit manufacturing PMI rose to 51.5 last month from 49.4 in February.

The report will likely add to expectations the economy fared better than anticipated in the first quarter. Canada was in a mild recession last year as the oil-exporter was hit by the drop in crude prices, but recent data has shown the economy got off to a better start in 2016.

Growth in Mexico’s manufacturing sector picked up slightly also last month to its fastest pace in nearly a year, as a weak peso helped export orders but increased costs. Mexico’s HSBC/Markit manufacturing PMI improved to 53.2 from 53.1 in February.

Brazil’s manufacturing crisis eased last month as a weak currency boosted exports, although the improvement was not strong enough to halt job losses. The HSBC/Markit PMI rose to 46.0 in March, up from a three-month low of 44.5 in February.

“There were pockets of solid foreign demand reported, partly offsetting the weakness in the domestic market,” said Markit economist Pollyana de Lima.

Brazil’s currency slumped last year as the economy entered a deep recession and a political crisis led ratings agencies to strip the country of its investment-grade rating.

Additional reporting by Leah Schnurr in Ottawa, Alexandra Alper in Mexico City, Silvio Cascione in Brasilia and Meredith Mazzilli in New York; editing by Jeremy Gaunt and Clive McKeef