Global manufacturing shrinks, stocks jump

The global manufacturing slump continued in December.

Bloomberg reports the latest ISM figures.

The Institute for Supply Management’s factory index fell to 32.4, below economists’ forecasts and the lowest level since 1980, from 36.2 the prior month. Readings less than 50 signal contraction. The group’s new-orders measure reached the lowest level on record and prices slid the most since 1949.

Bloomberg reports similar weakness in European manufacturing.

A measure of manufacturing fell to 33.9 last month from 35.6 in November, according to a survey of purchasing managers by Markit Economics. That was lower than a Dec. 16 calculation of 34.5 and the weakest since the report was introduced in 1998. A reading below 50 indicates contraction.

There was a slight improvement in the manufacturing index for the UK, although the sector continued to shrink. From the Telegraph:

The Chartered Institute of Purchasing and Supply/Markit index of manufacturing activity rose to 34.9 last month – just slightly above November's record low of 34.5 on a scale where figures under 50 indicate a contraction.

Reuters reports a similar situation in China.

Chinese factories slashed output and workers at a record pace in December and manufacturing activity overall fell for a fifth month as the global financial crisis hit export demand, a survey by brokerage CLSA showed on Friday...

CLSA's Purchasing Managers' Index (PMI) rose to 41.2, up from the record low of 40.9 in November, indicating that while manufacturing was still shrinking, the pace had slowed from November's record.

But it's a new year, and investors can't wait to get back into the markets. From Bloomberg:

The S&P 500 rose 3.2 percent to 931.8, capping its first three-day gain in five weeks and best start to a year since 2003. The Dow Jones Industrial Average increased 258.3 points, or 2.9 percent, to 9,034.69. The Russell 2000 Index of small U.S. companies advanced 1.3 percent.

Both the S&P 500 and Dow climbed to their highest closes since the first week of November...

Europe’s Dow Jones Stoxx 600 Index climbed 3.1 percent today, while the MSCI Asia Pacific excluding Japan Index increased for a fifth day. South Korea’s president pledged to counter the economic slowdown, while India’s central bank cut interest rates for the fourth time in less than three months, extending the steepest set of reductions since 2000.