9th January 2012
The US has been leading the way says The Financial Times: "The Institute for Supply Management's purchasing managers' index rose to 53.9, the highest reading since April, from 52.7 in November, topping expectations of an increase to 53.5. Readings above 50 indicate expansion.
Bradley Holcomb, chair of the ISM's survey committee is quoted as saying: "Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012."
Analyst reaction has been tentatively positive. Holden Lewis, industrial analyst for BB&T Capital Markets is quoted the FT piece saying that the report suggests ‘improvement in the overall macroeconomic environment or at least sentiment'. In this piece in the Telegraph Cary Leahey, managing director and senior economist at Decision Economics says: "It's a pretty good report. Headline number nearly at 43. Decent gains in orders and production. After a number above 50 in the Chinese+- number and an improvement in the UK and European figures, these are a nice start for the New Year. The market will take this as another confirmation of a decent employment report this Friday."
Emerging markets are also showing some resilience: "The HSBC China services purchasing managers index (PMI) stood at 52.5 in December, unchanged from November, signalling a steady if sluggish expansion in the sector that is increasingly a barometer for domestic economic conditions." India has delivered similarly encouraging data.
In the UK, the picture has been weaker, but still not as bad as many thought at the end of last year. The most recent figures indicate a shallow recession in manufacturing, but were ahead of many analysts' expectations: "The Markit/CPS purchasing managers' index (PMI) rose to 49.6 from November's figure of 47.7. A small fall in the figure had been expected. Any figure below 50 indicates that the manufacturing sector is contracting….The survey found that the stabilisation of UK manufacturing in December reflected growth in new export orders, which made up for a weak domestic market." The reading on export orders was over the all-important 50-mark at 53.5, up from 49 in November. The survey also found that inflationary pressures on manufacturers were receding.
Simon Ward at Henderson and Mindful Money blogger has taken this as supporting his view that the global economy began to regain momentum in late 2011: "A weighted average of new orders indices in G7 manufacturing purchasing managers' surveys moved above the breakeven 50 level in December, as had been suggested by improving earnings revisions
"Global manufacturing activity is benefiting from strength in consumer demand – G7 retail sales volume consolidated recent gains in November. A widening sales / output gap has aided inventory adjustment and should lead to increased production in early 2012, assuming no demand relapse."
Of course, there are still areas of weakness. The figures emerging from the Eurozone suggest weakness in most countries barring Italy and Germany: "Better-than-expected numbers in Italy and Germany were tempered by the fact that manufacturing growth in the fourth quarter of 2011 reached its lowest level since 2009. "Eurozone manufacturing is clearly undergoing another recession," said Chris Williamson, chief economist at Markit.
Japan is weak for structural as well as macroeconomic reasons. It is losing out to near-neighbours China and South Korea and has struggled to regain momentum after the earthquake: "Alarm bells are ringing in the offices and factories of Japan Incorporated. The currency, electricity shortages caused by last year's tsunami, unfavourable tax and trade policies and the relentless rise of China and South Korea are heaping pressure on the country's once unchallenged makers of cars and electronics to decamp for lower-cost locations. Politicians, business leaders and the media warn that, if nothing is done, the industries responsible for much of Japan's postwar growth could fall into irreversible decline."
That is bad news for Japan, but less so for the global economy – manufacturing is still happening, it is just happening somewhere else.
The strength of manufacturing in the US and its resilience in China are the most positive pieces of news to emerge from the early 2012 economic data. It suggests that the economic outlook in some parts of the world may not be completely bleak and that growth, while sluggish, may yet emerge.
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