May 2, 2011 / 7:55 AM / 8 years ago

U.S., China factories slow; Europe, India boom

WASHINGTON/LONDON (Reuters) - Manufacturing growth in the world’s two biggest economies softened in March but firmed in Europe and India, according to reports highlighting the fractured nature of the global economic recovery.

The United States and China both saw a tempering of factory production in April, with the pace of U.S. manufacturing expansion easing for a second straight month.

Still, U.S. activity remained firm and input prices rose to their highest in nearly three years, according to data from the Institute for Supply Management released on Monday.

ISM said its factory index fell to 60.4 in April from 61.2 the previous month, slightly above forecasts for a reading of 60. It has held above the 50-threshold that separates growth from contraction since August 2009 and peaked in February 2011.

Despite the decline, analysts were reassured there was not greater spillover into U.S. industry from Japan’s earthquake.

“We have had hits domestically from production and supply constraints from the Japanese disruptions and we are still over 60 on the manufacturing index so it is a very good report given the developments over the last six weeks,” said Kurt Karl, chief U.S. economist at Swiss Re in New York.

The contrast with Europe, where factories continued to hum, suggested a divergent monetary policy outlook will continue, with overseas central banks expected to continue to stay ahead of the U.S. Federal Reserve in hiking borrowing costs. The ECB raised rates in April for the first time since mid-2008, ramping up pressure on the U.S. dollar as investors opted to put their money on higher-yielding currencies.

The ISM’s U.S. measure of prices paid rose to 85.5 from 85, the highest since July 2008. Federal Reserve policymakers have argued that price pressures facing U.S. consumers remain tame.

Financial markets had a positive initial reaction to the ISM numbers, but then returned to worrying about the nation’s overall growth prospects, which appear to have slowed in recent weeks. The S&P 500 was struggling to hold in positive territory, while the dollar was trading near a three-year low.

China’s official purchasing managers’ index dipped to 52.9 in April from 53.4 in March, well shy of market forecasts for an increase to 54.0.

The data sent worrying signals on the global economy, which has grown reliant on Chinese demand as a source of growth with the United States, Europe and Japan struggling to recover from the financial crisis.

With inflation running at its fastest in nearly three years, China has taken a series of policy actions to rein in prices, raising interest rates and banks’ required reserves multiple times, ordering banks to lend less and speeding up the pace of currency appreciation.

GERMAN BOOST

The Markit Eurozone Manufacturing Purchasing Managers’ Index, which records manufacturing activity across all the major euro area economies, rose to 58.0 last month from March’s 57.5. The index hit a near-11-year high of 59.0 in February.

Frustratingly for policymakers, the bounce was once again driven by Germany, Europe’s largest economy, and France, whose growth overshadowed a continued slide to stagnation in Spain and persistent contraction in Greece.

“Manufacturing activity was once again robust in April in the core northern euro zone economies, led by Germany. Elsewhere the situation was not so bright,” said Howard Archer at IHS Global Insight.

Separate figures showed India’s factories expanded in April for the 25th consecutive month and at their strongest pace since November, with the PMI rising to 58.0 from 57.9 in March, well above the 50 mark that divides growth from expansion.

Data on Sunday showed China’s official PMI fell to 52.9 in April from 53.4 in March, falling short of market forecasts for a rise to 54 as growth in new orders weakened to an eight-month low.

“Overall, the PMI shows there is still a possibility that the Chinese economy may slow down, especially as falling demand growth leads to adjustments in inventories, increasing the possibility of slowing economic growth,” said Zhang Liqun, a government researcher.

South Korea’s HSBC Markit manufacturing PMI fell to its lowest level since November last year at 51.69 in April, from 52.84 in March.

PRICE PRESSURES

The increase in output is coming at a cost. The euro zone PMI output price index stayed high at 61.0, down only slightly from March’s survey peak of 61.5, which was revised up from a flash reading of 60.7.

Official flash data released on Friday showed consumer prices in the bloc rose 2.8 percent in April, up from March’s 2.7 percent and above expectations for an unchanged reading.

The figures will bolster those policymakers at the European Central Bank who believe the strong recovery in Europe’s core economies calls for more monetary tightening before price rises become entrenched, even while weaker euro zone states remain engulfed in the debt crisis.

The ECB was the first of the world’s big four central banks to raise rates when it upped them by 25 basis points from a record low of 1.0 percent earlier this month. It is not seen making its next tightening move until July.

“By showing ongoing robust euro zone manufacturing activity and rising price pressures, the purchasing managers’ survey reinforces belief that the ECB will pull the interest rate trigger sooner rather than later,” Archer said.

The Fed, in contrast, has held to its policy of completing $600 billion in bond purchases by June, the latest in an array of attempts to revive growth in the world’s largest economy.

Additional reporting by Tony Munroe in Mumbai, Anooja Debnath in Bangalore and Simon Rabinovitch in Beijing; Editing by Andrew Hay and Dan Grebler

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