Saturday 2 December 2006

Manufacturing index drops below 50 in the US, stronger elsewhere

Yet more bad news yesterday for the US economy. Reuters reports:

U.S. and European stocks tumbled, benchmark bonds surged and the dollar slid after The Institute for Supply Management said its index of national factory activity unexpectedly dropped to 49.5 from 51.2 in October, below economists' median forecast for a slight rise to 51.5.

It was the first time the index had fallen below 50, which indicates shrinking activity in the sector, since April 2003. The Commerce Department reported U.S. construction spending declined 1 percent in October, more than expected and adding to a growing pile of evidence that the housing market is cooling...

The ISM report also showed that new orders, a gauge of future growth, fell to 48.7 from 52.1 in October, while the employment index slipped to 49.2 from 50.8.

Prices paid, however, climbed to 53.5 in November, from 47.0 in October, pointing to continued inflationary pressures in the manufacturing sector even as growth slows.

Elsewhere in the world, though, things were not as bad. Reuters reports:

Surveys of company purchasing managers showed an unexpected but minor slowdown in the 12-nation euro zone. The PMI index, which measures how the manufacturing sector performs, slipped to 56.6 from 57.0 in October, falling below forecasts but still a healthy pace...

Improvement in the jobs market was illustrated by a separate report from the European Union's statistics office, which said joblessness in the euro zone slipped to 7.7 percent of the workforce in October from 7.8 percent in September...

Britain's manufacturing PMI index showed the slowest pace of growth in six months in November, dropping to 52.6 from 53.5 in October, but Switzerland's rose close to a record high of 67 after 62.3 in October...

India's manufacturing sector eased a little from a peak in October but momentum remained strong. The seasonally adjusted PMI index fell to 58.9 in November from 59.3 a month earlier as the high pace of growth in output and new orders dropped back a notch.

By contrast, Japanese manufacturing activity grew at the slowest pace in a year and a half as cooling demand at home offset a rise in orders from overseas. The NTC Research/Nomura/JMMA Purchasing Managers Index, released on Thursday, slipped to a seasonally adjusted 53.7, the lowest since May 2005. It was 54.1 last month.

Two surveys on Chinese manufacturing released on Friday showed a rebounding in growth, indicating that the underlying foundations of the world's fourth-biggest economy are solid. Brokerage house CLSA's PMI index hit a four-month high of 53.0 in November from 52.1 in October, while an index based on an official survey rose to 55.3 from 54.7.

Not surprisingly, the US dollar continued to fall yesterday. Bloomberg reports:

Futures traders increased bets that the euro will rise against the dollar to near a record as signs of slowing growth pushed the U.S. currency to a 20-month low...

The dollar dropped to $1.3340 per euro at 4:56 p.m. in New York from $1.3243 yesterday. Its record low is $1.3666 in December 2004. Against the British pound, the U.S. currency declined to $1.9848, the lowest in 14 years. The dollar also fell to 115.29 yen from 115.80 yesterday and touched a three-month low of 114.98.

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