Global Factory Weakness Spreads as Debt Crisis Persists

By Simone Meier and Michelle Jamrisko on October 01, 2012 

From Bloomberg Buisinessweek

 (Corrects euro-area unemployment rate in third paragraph.) For more on Europe’s debt crisis, see TOP CRIS.)

Manufacturing from Europe to China contracted in September as the euro region’s fiscal crisis eroded investor confidence and clouded global growth prospects.

A gauge of manufacturing in the 17-nation euro region was at 46.1, above an initial estimate of 46 on Sept. 20, Markit Economics in London said today. A reading below 50 indicates contraction. A Chinese factory index was at 49.8 for September, a statistics bureau report showed. In the U.S., manufacturing unexpectedly returned to growth last month.

Economies around the globe are cooling as European governments toughen spending cuts to restore investor confidence as the region’s economic slump deepens. Euro-area unemployment held at a record 11.4 percent in August and Japan’s Tankan index of large manufacturers’ confidence dropped to minus 3 for the past quarter, two reports showed today.

“Europe is still a big problem out there, you’re seeing weaker global growth in general,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. “A lot of firms doing business in Europe are reporting weaker results, a lot more caution.”

U.S. stocks rose after the Institute for Supply Management said its factory index rose to 51.5 in September from 49.6 a month earlier. Economists in a Bloomberg survey projected a reading of 49.7, according to the median of 76 forecasts.

The S&P 500 rose 1 percent as of 10:20 a.m. New York time. The Dow Jones Industrial Average added 1.1 percent. In Europe, the Stoxx Europe 600 Index extended its gain and was up 1.5 percent.

Deepening Slump

Signs of strength in the U.S. emerged despite indications of a deepening slump in Europe. At least five euro-member states are already in recession. Economic confidence unexpectedly declined in September and service industries also contracted last month. Markit will release a final reading on Oct. 3.

At 25.1 percent, Spain had the highest unemployment rate within the 27-member European Union, according to today’s labor report. Ireland and Portugal, which both received external aid, reported a jobless rate of 15 percent and 15.9 percent, respectively. Greece didn’t provide data for August.

“Manufacturers across the euro area suffered the worst quarter for three years in the three months to September,” Chris Williamson, chief economist at Markit, said in the statement. “Output, order books and exports all continued to fall at steep rates in September, causing firms to cut their staffing levels once again.”

China Slowdown

Weakness in exports is hitting economies across the globe as Europe’s austerity measures cap demand.

Today’s Chinese indicator, released by the statistics bureau and the nation’s logistics federation, came after a similar measure from HSBC Holdings Plc and Markit showed an 11th straight contraction. Outgoing Premier Wen Jiabao aims to stop economic growth slipping below his 7.5 percent target for this year, a pace that would already be the weakest since 1990.

China’s central bank has held off from adding to interest- rate cuts in June and July, partly on concern housing prices will rebound, Chen Yulu, a People’s Bank of China academic adviser, said last week. The Bank of Japan (8301) meets twice this month to review monetary policy after expanding easing in September.

‘Poor’ Data

In the U.S., the Federal Reserve last month said it would keep its target interest rate close to zero until at least mid-2015 and began a third round of stimulus, buying $40 billion in mortgage bonds a month.

The European Central Bank will probably keep the benchmark interest rate at a record low of 0.75 percent when council members meet on Oct. 4, according to a Bloomberg survey. The Frankfurt-based central bank pledged to purchase government bonds in tandem with Europe’s rescue fund to fight the crisis.

Howard Archer, chief European economist at IHS Global Insight, said he expects the ECB to lower borrowing costs further.

“We lean toward the view that they will probably hold off to November,” Archer said. “If the ECB does hold fire next Thursday, we suspect another month of poor euro-zone economic data and surveys will encourage the bank to act in November.”

To contact the reporters on this story: Simone Meier in Zurich at smeier@bloomberg.net; Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Link: http://www.businessweek.com/news/2012-10-01/euro-region-manufacturing-contracted-for-14th-month-in-september