U.S. jobless rate down as global factories boom

By Pedro da Costa and Jonathan Cable

WASHINGTON/LONDON (Reuters) – U.S. and European factory growth eased slightly in March but remained at levels consistent with a brisk recovery, while America’s jobless rate retreated for a fourth straight month, data on Friday showed.

Chinese and Indian firms ratcheted up their production, skirting any major effects from Japan’s devastating earthquake and tsunami thus far.

Worryingly for European policymakers, sustained growth in orders allowed eurozone manufacturers to pass on the costs of soaring raw materials to customers at a pace not seen since at least late 2002.

The inflation outlook in the United States was less clear cut. Rising gasoline prices have raised some eyebrows, but hiring remains anemic and wages stagnant, making an upward price spiral less likely.

“The level of slack in the labor market remains great enough not to allow inflation to remain a problem for the (Federal Reserve) in the next year,” said Lena Komileva, head of G10 strategy at Brown Brothers Harriman in London.

“The debate surrounding the Fed’s outlook is likely to move toward the level of accommodation that the economy needs, rather than about the need to tighten policy,” she said.

The U.S. jobless rate dropped to 8.8 percent in March. It has now fallen a full percentage point since November, the biggest four-month decline since the period ending February 1984. At the same time, the Institute for Supply Management’s survey of U.S. manufacturing sentiment dipped slightly but remained at an elevated 61.2.

The ISM’s employment measure also slipped, while prices paid reached their highest level since July 2008.

“There was some cooling in the details of the ISM survey in March relative to February, but overall the ISM has looked very strong throughout the first quarter,” said Daniel Silver, an economist at JPMorgan.

In Europe, Markit’s Eurozone Manufacturing Purchasing Managers’ Index dipped to 57.5 last month from February’s near 11-year high, marking the 18th month above the 50 mark that divides growth from contraction.

The output price index rose to its highest level since Markit began tracking it in November 2002 and, coupled with data on Thursday that showed euro zone inflation at 2.6 percent in March, will cement expectations of a rate rise next week.

“They are still at very robust levels and pointing to healthy growth in the industrial sector, suggesting that the euro zone recovery will continue in the near term and gain some steam,” said Ben May at Capital Economics.

Similar surveys of firms in Asia’s major economies showed oil prices had thus far done little to dent growth, even though China’s outlook was clouded by signs of disruptions to trade with Japan.

A pair of China PMIs showed factories were growing moderately rather than booming, and while some economists warned of a continued slowdown, few thought slowing production would slam the brakes on the world’s second largest economy.

China’s official purchasing managers’ index (PMI), compiled by the government, rose to 53.4 in March from a six-month low of 52.2. A comparable survey published by HSBC steadied near seven-month lows at 51.8.

“It’s growing at a slow and steady speed as tighter monetary policy impacts,” said Stephen Green, an economist at Standard Chartered in Shanghai. “I’m not overly worried about growth.”

In India, the mood among manufacturers was more upbeat. An HSBC-sponsored PMI there compiled from a survey of around 500 firms held steady at a four-month high of 57.9.

British manufacturing growth weakened from a survey record high the prior month after the inflow of orders slowed sharply but the prices charged index hit a survey record, showing manufacturers’ pricing power is rising.

RESTIVE RATES

The European Central Bank has already signaled it intends to raise interest rates next week from a record low of 1.0 percent and the Bank of England, facing inflation more than double its target, may follow suit as soon as May.

And China, worried that rising prices could stir social unrest, has steadily tightened policy since October, when it declared that fighting inflation was a priority.

The PMI surveys suggest this may be working. While prices climbed, they did so at a slower pace and most analysts expect China to raise interest rates at least once more this year. A government researcher said on Friday a rate rise could happen as soon as this month.

In the United States, hawkish comments from a number Fed officials has caused some investors to wonder whether the central bank might begin to raise rates by year-end. However, such musings may prove short-lived if Fed Chairman Ben Bernanke, slated to speak in Atlanta on Monday, hints that he favors maintaining policy accommodation for longer.

(Additional reporting by Koh Gui Qing in Beijing)

U.S. jobless rate down as global factories boom