Factories deliver mixed performance globally in January By Reuters



© Reuters. Employees work on the production line at Jingjin filter press factory in Dezhou, Shandong province, China August 25, 2022. REUTERS/Siyi Liu

By Lucia Mutikani and Jonathan Cable

WASHINGTON/LONDON (Reuters) -Global factories delivered a largely patchy performance at the start of 2024, surveys showed on Thursday, as new orders spurred momentum in the United States, but soft Chinese demand left Asia’s economies on a shaky footing and disruption to Red Sea shipping delayed deliveries in Europe.

In the United States, factories are on the cusp of recovery. The Institute for Supply Management’s Purchasing Managers’ Index (PMI) increased to 49.1 last month from a slightly downwardly revised 47.1 in December.

While it was the 15th straight month that the PMI remained below 50, which indicates contraction in manufacturing, its forward-looking new orders sub-index rebounded to 52.5 from 47.0 in December.

With orders picking up, goods inflation is stirring after months of deflation. The survey’s measure of prices paid by manufacturers increased to 52.9 from 45.2 in December.

The U.S. Federal Reserve left interest rates unchanged on Wednesday, but hailed a strong economy in which inflation continued to decline despite solid growth and low unemployment.

“The downturn in the (manufacturing) sector is fading and appears to justify the Fed’s view that it can wait a little longer before cutting interest rates,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

EURO ZONE TURNS A CORNER

Elsewhere, the prolonged downturn in euro zone manufacturing activity eased for a third consecutive month but could stretch through this quarter as a majority of sub-indices in the region’s PMI remained within the contraction zone.

HCOB’s final euro zone manufacturing PMI, compiled by S&P Global, climbed to 46.6 in January from December’s 44.4, matching a preliminary estimate, but still firmly below the 50 mark separating growth in activity from contraction.

Almost all sub-indices moved in a positive direction while those covering pricing showed inflationary pressures may have weakened last month.

Inflation in the euro zone eased as expected last month, but underlying price pressures fell less than forecast, official preliminary data showed on Thursday.

The downturn in Germany’s manufacturing industry, which accounts for about a fifth of Europe’s largest economy, eased in January and it was a similar picture in France.

Italy’s manufacturing sector contracted in January for a tenth straight month but at a significantly slower pace than at the end of last year while in Spain the pace of contraction also slowed markedly.

In Britain, which left the European Union four years ago, factories recorded an 18th consecutive month of contraction, albeit shallower than in December.

“While the UK and the euro zone have turned the corner and see an accelerated recovery starting 2024, today’s sub-50 PMI still indicates contraction and concerns remain,” said Boudewijn Driedonks at consultancy  McKinsey &  Company.

“The ongoing Red Sea crisis and supply chain disruption is a case in point – just as inflation is beginning to cool off.”

In the United States, the speed of deliveries cooled. That could in part also be reflecting the attacks on cargo vessels in the Red Sea by Yemen-based Houthi, which have forced shipping companies to avoid the route through the Suez Canal.

ASIAN MIX

China’s private-sector Caixin/S&P Global manufacturing PMI stayed at 50.8 in January, unchanged from December.

The reading contrasted with an official survey that showed manufacturing activity contracted for the fourth straight month. Deflationary pressures were a lingering blight in the world’s second-largest economy, suggesting underlying weakness in demand.

Taken together, they point to a still-underperforming economy and back market expectations for more policy support measures this year.

The picture was patchy for Asian economies, with some bearing the brunt of soft Chinese demand better than others.

South Korea’s factory activity expanded in January for the first time in 19 months on improved orders for goods in key markets such as the United States and China.

But activity shrank in Taiwan and Malaysia, and expanded at a slower pace in the Philippines, the surveys showed.

“But both external and domestic demand appears weak in China,” said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute. “That means the global economy lacks a key driver of growth, which bodes ill for Asian economies.”

Manufacturing activity in Japan also shrank for an eighth straight month in January as output and new orders slumped, with some analysts warning of the hit from the production suspension at Daihatsu, a unit of auto giant Toyota Motor (NYSE:) Corp.

India, by contrast, saw manufacturing improve substantially in January, with factory activity expanding at its fastest pace in four months on robust demand.



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