Global Manufacturing Picks Up Pace
By SUDEEP REDDY And BRIAN BLACKSTONE
Manufacturing activity picked up steam in the U.S. and Europe in February, suggesting the global recovery is gaining momentum even as Asia experiences some desirable cooling.
Indexes of manufacturing output hit their highest levels in seven years in the U.S. and more than ten years in Europe, marking an accelerating expansion that could add to inflationary pressures. Meanwhile, Asian factory output kept growing but at a less rapid pace. China's manufacturing sector posted its slowest expansion in seven months, easing worries about an overheating factory sector there.
In the U.S., the Institute for Supply Management's monthly survey showed large gains in both employment and production. Robust export demand, together with declining inventories, is sparking a surge in new orders that promises a fresh round of strong growth. Overall, the ISM's index of U.S. manufacturing rose to 61.4, up from 60.8 in January and the highest level since May 2004. Figures above 50 indicate growth.
Since the recession ended, "manufacturing has grown much, much faster than the rest of the economy," said Norbert Ore, chairman of the ISM's manufacturing survey. "Add exports and the recovery in the non-manufacturing sector and you get a second wave."
Rising global prices for metals, energy and other raw materials, though, are putting increasing pressure on manufacturers to raise prices for their products. In the ISM survey, which was conducted after much of February's increase in oil prices, the index of input prices rose to its highest level since summer 2008.
"The big challenge is, can manufacturers pass this on to their customers?" Mr. Ore said. Underlying inflation remains low in the U.S. despite higher commodity prices as firms remain hesitant to pass along increased input costs amid relatively weak domestic demand, and high unemployment limits workers' ability to demand higher wages.
Outside the U.S., purchasing-manager surveys suggest global growth is becoming more balanced, with parts of fast-growing Asia cooling off and Europe's recovery starting to broaden beyond Germany and its main trading partners. In Asia, the HSBC Taiwan PMI slid four points to 55.8 in February, signaling slower growth. A separate HSBC survey for China fell nearly three points to 51.7, a seven-month low. India's PMI posted a slight rise.
The euro-zone PMI rose to 59 in February, up from January's reading of 57.3 and the highest level in nearly 11 years, according to data provider Markit. "I think 2011 will be a strong year," said Michael Rentschler, vice president at ERNI Electronics near Stuttgart, which makes connectors and electrical transmission equipment for telecommunications, medical and transportation industries. "We are permanently looking for people." Germany's recovery propelled a steep drop in unemployment last month to a two-decade low.
Construction Spending Contracts
Manufacturing indexes hit highs in Germany, Austria and the Netherlands, and signaled expansion in all euro-zone countries surveyed except Greece, which remains in recession as Athens raises taxes and cuts state spending to meet austerity targets. Ireland posted its fastest new-orders increase in 11 years with employment up, too. Strong exports pushed Spain's PMI higher.
The 17-nation currency bloc's recovery "is broadening out a lot more than has been the case in recent quarters," said Greg Fuzesi, economist at JP Morgan Chase in London. A harsh winter kept a lid on growth during the fourth quarter of 2010, with the region expanding just 1.2%, at an annualized rate. Mr. Fuzesi said the PMI reports suggest growth could come in even higher than his 3% estimate for the first quarter of this year.
Price pressures intensified throughout the region, with indexes for both input and output prices reaching record highs, suggesting that European factories are increasingly able to pass along higher costs to customers. The euro-zone surveys were generally conducted before the latest surge in oil prices, so further price increases are likely.
"Everybody's raising prices in the industry, and that just goes straight through the food chain," Mr. Rentschler said.
Euro-zone consumer prices were up 2.4% in February from a year ago, the EU statistics agency said. That's a 28-month high and exceeds the European Central Bank's target of just under 2%, though measures of underlying inflation that exclude food and energy are more subdued. The ECB is expected to warn of inflation pressures when it meets Thursday. |
