Factories From U.S. To China Post Gains

Investor's Business Daily

Factory activity in the U.S., eurozone and China continues to improve, reports showed Thursday, but the shaky outlook for economic growth casts doubt over how much faster manufacturing can expand.

Markit's purchasing managers' index for the U.S. edged up to 53.9 in August from 53.7 in July, meaning activity grew more quickly. Analysts expected a dip to 53.5.

While readings for new orders and employment picked up, those for output and exports decelerated. Backlogs also slipped back into contraction.

"The U.S. manufacturing sector saw only modest growth of production in August, suggesting that the economy is continuing to recover in the third quarter but that the pace of expansion remains disappointingly sluggish," said Chris Williamson, Markit's chief economist, in a statement.

Given the fragile growth in the U.S. and overseas, the Federal Reserve will be careful to avoid scaling back stimulus too quickly, he added.

U.S. stock indexes — which suffered a long Nasdaq trading halt — still rallied on the manufacturing surveys, also helped by a report that showed jobless claims continued to trend lower.

Markit's Chinese manufacturing index shot up to a surprise positive reading of 50.1 in August from 47.7, ending a four-month streak of declining activity.

Gauges for output and orders also swung back to expansion, and employment shrank at a slower rate. But demand for exports contracted at a faster clip.

That suggests much of China's factory growth likely came from government-funded investment projects, said Benjamin Reitzes, a senior economist at BMO Capital Markets.

Such stimulus isn't expected to last, given Beijing's efforts to rebalance the world's No. 2 economy away from the heavy reliance on investment and exports.

GDP growth in China also has been steadily cooling for about three years now, and BMO expects the second half of 2013 to see an expansion that will probably slow from 7.5% in Q2.

Eurozone factory activity expanded at a faster rate in August, with Markit's PMI rising 1 point to 51.3, a 26-month high. The services sector returned to growth.

Gains were led by Germany, while France saw deterioration. Readings for the rest of the eurozone improved, but the periphery is still weak and struggling to rein in debt with fiscal tightening.

That leads Reitzes to question how much further upside the eurozone has. China's uptick should provide a lift, though.

"When they both stabilize, they will help one another," he said.

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