Factory output weathers eurozone storm

Factories around the world have so far weathered the storm threatening the eurozone economy, suggest data released yesterday.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

A key indicator of the health of US manufacturing showed that it recorded its 10th successive month of growth and exceeded economists' expectations. Output figures from <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Asia showed that the pace of growth slowing somewhat in May but the data suggested the sharp improvement in Asian business conditions since the global financial crisis was being sustained.

“The European fiscal crisis doesn't appear to have harmed the prospects of US manufacturers, at least not yet,” said Paul Ashworth, senior US economist at the consultancy Capital Economics. The euro fell to a four-year low of $1.2112 yesterday and though Asian stock prices fell as a result of the output growth data, US stocks were buoyed by the manufacturing news.

The composite index of business activity from the US Institute of Supply Management fell slightly to 59.7 in May from April's 60.4. Analysts had expected a fall to 59.5. Economists said the May reading was consistent with overall real gross domestic product growth of 5.5-6 per cent, well above the US long-run average.

Strikingly, the sub-component of the index that measures new export orders rose to a two-decade high of 62.0 from 61.0 a month before, in spite of the dollar's rise and threats to overseas demand sparked by the Greek economic crisis. “We will probably see a bigger impact in the coming months but for now at least Europe's woes don't appear to have derailed the US recovery,” Mr Ashworth said.

In China, official and unofficial surveys of purchasing managers' index data showed a deceleration in factory output last month, along with the pace of hiring, in response to a slowdown in new orders from home and abroad. The official purchasing managers' index of the China Federation of Logistics and Purchasing fell to 53.9 in May from 55.7 in April. The unofficial but closely watched HSBC China Manufacturing PMI fell to 52.7 from 55.2. An index reading above 50 indicates an increase in output.

The HSBC reading was the lowest in a year, reflecting relatively lacklustre demand in domestic and foreign markets. But economists said the slowdown in the pace of growth was unlikely to mark a serious setback for China's economy, which is benefiting from extraordinary fiscal and monetary stimuli during the crisis.

“The slowdown in the headline manufacturing PMI suggests that the overheating risk is likely to ease as tightening measures filter through,” said Hongbin Qu, HSBC's chief economist for China. “That said, we see robust economic growth without double-dip risks, not least because of massive infrastructure investment and resilient private consumption.”

Other economists pointed out that the official PMI measure has fallen in May compared to April in every year since the statistical series was launched in 2005, suggesting that the decline should be viewed as a seasonal phenomenon.

Figures released in India showed that the sub-continent's manufacturing sector expanded at its fastest rate in more than two years.

The HSBC Markit Purchasing Managers' Index, based on a survey of 500 firms, surged to a 27-month high. India's economy grew 8.6 percent in the quarter to the end of March.