Global manufacturing slows in May

By Edward Krudy and Jonathan Cable

NEW YORK/LONDON (BestGrowthStock) – Manufacturing growth slowed across the globe in May, but there was some relief in the United States where there was scant evidence of an impending slump, amid increasing uncertainty over the impact of Europe’s debt crisis on the global economy.

U.S. manufacturing expanded in May for a 10th straight month, though at a slightly slower pace than in April, according to data released on Monday. New orders and exports were stable, however, calming fears that Europe’s crisis has started to drag on the U.S. economy.

“It was better-than-expected outcome but still a slower pace than in April,” said Tom Porcelli, U.S. economist at RBC Capital Markets in New York.

“We still remain at a remarkably high level and it’s still consistent with an expansion in manufacturing which we still expect will move along at a pretty decent clip.”

The Institute for Supply Management said its index of national factory activity slipped to a reading of 59.7 in May from 60.4 in April, but it was still the 10th month the index was above 50, the level that signals expansion. The index’s employment component rose to a six-year high.

Major U.S. stock indexes rose following the data, reversing an earlier decline, also helped by government data showing that U.S. construction spending had its biggest monthly increase in almost 10 years.

PURCHASING MANAGERS IN THE LIMELIGHT

The May global Purchasing Managers’ Index surveys are being closely watched by investors because they could shed light on how the debt crisis in the euro zone is impacting the world economy.

China’s official purchasing managers’ index released on Tuesday fell in May to a reading of 53.9 from 55.7 in April, just below market expectations but still the 15th straight month of growth.

A companion index compiled by British research firm Markit for HSBC dropped to an 11-month low of 52.7 in May from a downwardly revised 55.2 in April.

Because China has been an engine of global growth as the world emerges from its deepest recession in decades, a sharp slowdown in China could deal a blow.

“The result indicates weakening of momentum in the manufacturing sector and confirms our expectation that GDP growth will slow sharply in Q2 and continue decelerating in Q3,” Dariusz Kowalczyk, SJS Markets chief investment strategist in Hong Kong, said.

In the euro zone, manufacturing activity expanded in May at a considerably more sluggish pace than April’s 46-month high.

The UK managed to buck the trend, with the index holding at April’s 15-year high.

The Markit Eurozone Manufacturing Purchasing Managers’ Index for May sank to 55.8 from 57.6 in April, down from an earlier flash estimate of 55.9. In the UK the index was unchanged from April at 58.0.

The 16-nation euro zone has been hit by waves of insecurity churned up by the region’s debt crisis and fears that troubles in Greece may spread to other peripheral economies.

“There has been a slowdown in growth globally, and in the euro zone there is subdued domestic demand due to the austerity measures implemented in some countries,” said Luigi Speranza at BNP Paribas.

Separate data from the euro zone showed unemployment, a lagging indicator, inched up in April to a near 12-year high of 10.1 percent.

According to economists in a Reuters poll on Friday, surging emerging economies will push global growth to a faster rate this year than previously thought, but the momentum will run out next year.

Canada on Tuesday became the first among the Group of Seven richest countries to hike its key interest rate from emergency low levels, but said the European debt crisis made its next move highly unpredictable.

INDIA IGNITES

India’s PMI surged to a 27-month high of 59.0 from 57.2 in April. It was the 14th month the indicator has been above 50.

India’s economy expanded 8.6 percent in the March quarter, compared with a year earlier, the strongest pace in six months, GDP figures on Monday showed.

Japan’s manufacturing sector grew in May at its fastest pace in almost four years after a slowdown in April. The Nomura/JMMA Japan Manufacturing Purchasing Managers Index rose to a seasonally adjusted 54.7 from 53.8 the previous month.

Nomura economist Minoru Nogimori said high export orders suggested Japan’s shipments will stay strong, particularly to Asia.

“Although there are concerns over financial market disruption triggered by government debt problems in Europe, we expect the export-led manufacturing recovery to continue,” Nogimori said.

South Korea’s May PMI hit a five-month low of 54.61 compared to 57.06 in April. The PMI coincided with official data showing that exports in May jumped close to 42 percent over a year earlier and the average exports per working day hit a record $1.84 billion.

Many Asian countries are still showing double-digit gains in exports from a year earlier despite the financial market turmoil triggered by the debt crisis.

“But the key word here is ‘yet’ and there still must be some caution about the near-term strength of external demand,” said Brian Jackson, senior emerging market strategist at Royal Bank of Canada in Hong Kong.

Investing Analysis

(Additional reporting by Alan Wheatley in Beijing; Writing by Jan Dahinten; Editing by Jason Webb and Leslie Adler)

Global manufacturing slows in May