Manufacturing activity in the world's top two economies is picking up momentum from growing domestic demand, surveys showed Thursday, though U.S. consumers could soon turn weaker amid higher taxes.
Markit's U.S. purchasing managers index rose to a preliminary reading of 56.1 in January, a 22-month high and up from 54 in December. Production, orders and employment improved. Readings above 50 signal growth.
HSBC/Markit's gauge of Chinese manufacturing climbed for the fifth month in a row to a two-year best of 51.9 from 51.5 last month, helped by domestic firms restocking.
Eurozone factory and service-sector activity contracted again, but appears to be stabilizing.
The S&P 500 topped 1,500 intraday for the first time since 2007, but closed virtually unchanged. The tech-heavy Nasdaq fell 0.7% as Apple dived.
Factory Mix-Up? Markit sees a sustained U.S. upturn in coming months with growth in economic output and payrolls accelerating during Q1.
"Global economic growth is reviving, meaning companies are seeing stronger demand from emerging markets such as China and India as well as parts of Europe, notably Germany," said Chris Williamson, Markit's chief economist. "However, it is the domestic market that is clearly providing the main impetus to the upturn, linked to improved confidence in the future given more aggressive stimulus from the Fed and reduced fears about the fiscal cliff.
But Markit's strong U.S. manufacturing data contradict signs from separate regional surveys. Federal Reserve branches in New York, Philadelphia, Richmond and Kansas City reported deteriorating activity in January.
The Institute for Supply Management, which will release January manufacturing data Feb. 1, has been less sanguine than Markit and was just slightly positive last month.
Consumer confidence gauges worsened in January as well, despite the New Year's deal to avoid most of the fiscal cliff's tax hikes. The taxes that are rising will hit as Americans struggle with low wage growth. Hiring in 2012 was virtually unchanged from 2011 and shows no signs of ramping up sharply this year.
While higher tax rates will slow the U.S. economy and the job picture doesn't look like it will improve much, consumers still can keep spending, said Sung Won Sohn, an economist at California State University Channel Islands. The recovering housing market should help, and lower energy costs will act like a slight tax cut, he added.
"We're going to see a very modest increase in consumption," he said. "If (consumers) want to spend, they've got the money.
Other data out Thursday were positive. Initial jobless claims fell 5,000 last week to 330,000, a five-year low. Analysts had expected claims to largely reverse the prior week's sharp decline.