Factories Worldwide Are Showing Momentum

http://www.nytimes.com/2013/12/03/business/economy/factories-worldwide-are-showing-momentum.html

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Bucking fears of a sharp brake on growth after the government shutdown in the United States and earlier signs of distress in Europe and Asia, global manufacturing activity sped up in November, raising hopes for a broader global economic turnaround in the coming year.

In the United States, figures released on Monday showed factories operating at the most robust pace since the spring of 2011, and well above the level economists had expected for the month. Separate surveys out Monday in Europe and China also offered encouraging signs in a sector often considered a bellwether for the global economy.

Experts attributed the rebound in the United States to demand from a recovering construction sector, as well as rising exports. Overseas, German factories helped push manufacturing in Europe forward, while China also showed unexpected strength.

“The news is a bit more encouraging when you look at advanced economies,” said Tal Shapsa, an international economist with Barclays. “The recovery is gradual and isn’t spectacular, but in an environment of fiscal headwinds, it looks good.”

That caution in the face of the better data extended to Wall Street, where stocks fell slightly Monday after rising more than 2 percent in the last month. For the year, however, the Standard & Poor’s 500-stock index was up more than 26 percent, reflecting a view in the markets that business remains on the upswing for large companies despite a series of blows from government cutbacks around the world.

The S.&P. 500 declined 4.91 points, or 0.3 percent, to 1,800.90. The Dow Jones industrial average dropped 77.64 points, or 0.5 percent, to close at 16,008.77. The Nasdaq composite index fell 14.63 points, or 0.4 percent, to 4,045.26.

In government bond trading, the price of the Treasury’s 10-year note fell 14/32, to 99 19/32, while its yield rose to 2.80 percent, from 2.75 percent late Friday.

If the recovery in the manufacturing sector reaches into the labor market and hiring picks up in the United States, it could encourage the Federal Reserve to begin easing back on its stimulus efforts later this month or early next year.

After expectations that the central bank would begin this tapering earlier in the fall, policy makers wavered amid softer data and waited for more signals of stronger growth before cutting back on monthly bond purchases aimed at keeping interest rates low and encouraging more hiring of out-of-work Americans.

A stronger clue about the Fed’s course of action will come on Friday, when the Labor Department reports on job creation and unemployment for November. The data for October was significantly better than expected, despite the government shutdown, and the consensus among economists polled by Bloomberg is that the economy may have created about 180,000 new jobs in November, while the unemployment rate fell to 7.1 percent from 7.3 percent in October.

Besides the healthier factory output data on Monday, a separate survey by the government showed that overall construction spending rose 0.8 percentage point in October, which was also better than expected. Much of the gain was due to a surge in government-funded construction.

Ryan Wang, a United States economist with HSBC, said the trends — healthier manufacturing and a recovering housing sector — were actually linked. “The recovery in the housing sector has extensive spillover into other parts of the economy, like lumber, furniture and even automobiles,” he said. “When people buy a new home, they often buy a new car, and in a nutshell, autos and housing are the bright spots for the U.S. economy.”

Overseas, the picture was more complicated. In Europe, the purchasing managers’ index, compiled by the research firm Markit, rose to 51.6, the best reading since June 2011, and the fifth month in a row that it was above 50, signaling growth rather than contraction. But conditions varied widely around the Continent, with Germany barreling ahead while France and Spain showed much weaker results.

In China, the HSBC/Markit P.M.I. also suggested stable growth, despite fears that China, the world’s second-largest economy, might have been cooling off too quickly after the white-hot expansion that has prevailed in recent years. One explanation, economists said, is that Japan, a major source of demand for Chinese manufacturers, is performing better in the wake of aggressive economic stimulus efforts by the Bank of Japan.

In the United States, the combination of healthier construction in the government survey for October and a sharply higher level of factory activity in the private Institute for Supply Management survey for November could help alleviate fears of a sharp slowdown in the fourth quarter.

Economists polled by Bloomberg expect economic growth in the autumn quarter to come in at just under 2 percent, well below the 3.1 percent increase in output they expect the government to report in its final estimate for third-quarter growth due out later this month. But if the survey figures are matched by evidence of stronger gains across the economy, it could mean that the current quarter is actually advancing at a somewhat faster pace than the consensus expectation.