Private industry in the euro zone expanded for the first time in more than a year in July, which was also a good month for US factories, but the massive manufacturing engine that powers China continued to lose steam, surveys showed today.
The jump in Markit's "flash" Eurozone Composite PMI to 50.4, which marked the first expansion since January, 2012, should hearten European Central Bank policymakers who have promised to do whatever it takes to pull the 17-country euro zone out of the longest recession in the bloc's history.
Still, Markit’s flash Eurozone Composite PMI, based on surveys of thousands of companies across the region and a reliable indicator of growth, jumped to an 18-month high of 50.4 in July from 48.7 in June.
That smashed even the most optimistic forecast and is the first month the PMI has been above the 50 mark that divides growth and contraction since January 2012.
The upbeat surveys come after official data showed French industrial morale was at its highest in over a year in July while Italian retail sales rose on a monthly basis for the first time in 14 months.
But data showing China’s factories lost momentum again this month dulled the good news in Europe and boded ill for companies exposed to the world’s second largest economy.
Chinese growth has slowed in nine of the past 10 quarters. Knock-on effects are already being felt widely. Japanese export growth has slowed despite a weaker yen while Apple has lamented a drop in Chinese demand for its products. "China's slowdown is starting to become more dangerous," said Yasuo Yamamoto, a senior economist at Mizuho Research Institute in Tokyo.
China’s overall PMI of business conditions fell to 47.7 from June’s final reading of 48.2, its weakest since August 2012 and its third straight month below 50, which marks expansion.
The employment sub-index slid to 47.3, the weakest since the depths of the global financial crisis in early 2009.
Weaker demand from China and other emerging markets had contributed to a slowdown in US manufacturing in recent months, though the sector rebounded modestly in July thanks to a pick-up in demand at home Markit’s “flash” US Manufacturing Purchasing Managers Index rose to 53.2, a four-month high, while output also was at its strongest since March.
Increased workloads also encouraged firms to take on workers again after reducing payrolls in June, though the pace of hiring remained sluggish. While the manufacturing rebound bodes well for US growth in the third quarter, it is unlikely to persuade the Federal Reserve to hasten the end of its massive stimulus program. “It is likely that policymakers will generally need to see growth strengthen further before sounding more confident about the ability of the economy to withstand any tapering of stimulus,” said Markit chief economist Chris Williamson.
Chinese leaders, meanwhile, have stressed in recent weeks that reform is their priority. But they have also been at pains to assure investors that Beijing will not allow the economy to slip too far.
