November 2, 2009 / 4:37 PM / 11 years ago

Global factory output expands, points to recovery

NEW YORK/LONDON (Reuters) - Factory activity in the United States expanded by the most in three and a half years in October, while manufacturing in the euro zone grew for the first time in 17 months, surveys showed on Monday.

A labourer welds steel pipes at a factory in Nanjing, Jiangsu province October 23, 2009. REUTERS/Sean Yong/Files

Manufacturing also picked up in Britain and China, suggesting a global economic recovery is underway, the surveys showed.

The upbeat data comes ahead of policy meetings of the Federal Reserve, European Central Bank and Bank of England this week with policymakers facing a mass of conflicting signals.

The U.S. Institute for Supply Management said its index of national factory activity rose to 55.7 in October, the highest since April 2006 and up from 52.6 in September. The median forecast of 74 economists surveyed by Reuters was for a reading of 53.

A reading above 50 means business activity expanded.

The ISM report also said its employment index for the manufacturing sector jumped to 53.1 in October, the strongest showing since April 2006, from 46.2 a month ago.

“These numbers confirm that there is stabilization and an improving economy,” said Thomas Nyheim, vice president and portfolio manager at Christiana Bank & Trust Co. in Greenville, Delaware.

The 16-nation euro zone saw its manufacturing sector expanding at its fastest rate since April 2008 while in the UK the sector grew at its fastest pace in two years.

The Fed, ECB and BoE have all slashed interest rates to historic lows and pumped liquidity into their economies in a bid to temper recession.

The Federal Reserve, the U.S. central bank, will meet on Tuesday and Wednesday but it is not expected to change interest rates from the current ultra-low level near zero.

Economists have begun to turn their attention to how the central banks will wind down their strategies. But while the euro zone economy is seen growing again in the third quarter, Britain’s contracted unexpectedly, despite a raft of upbeat data, including the purchasing managers index data.

Presenting the same problem from the opposite direction, U.S. GDP figures last week were stronger than forecast but other economic evidence from there has been decidedly patchy.

“I think the story is there are major survey data problems and quite how policymakers make sense of this I don’t know,” said Ross Walker at RBS.

Markit’s Eurozone Purchasing Managers Index jumped to 50.7 in October from 49.3 in September, but there was divergence among its big four nations with Germany and France growing while Spain and Italy continued to see weakness.

“Today’s data suggest that the recovery in the euro area is starting to gather pace ... (but) we remain cautious about the economic outlook in the months ahead,” said Colin Ellis at Daiwa Securities.

In the UK the CIPS/Markit PMI leapt to 53.7, smashing expectations for 50.0 and way above even the highest forecast from 30 analysts for 51.0.

The figures suggest Britain’s economy made a strong start to the final quarter of this year, having suffered its longest recession on record.

The Bank of England will decide on Thursday whether to increase its 175 billion pound quantitative easing program which is pumping new money into the economy.

ASIA ROARS

Activity among China’s manufacturers expanded for the seventh month running, boosted by a pick up in employment and export order growth, according to a survey compiled by British research firm Markit and published by HSBC.

HSBC said its China Purchasing Managers’ Index rose to an 18-month high in October of 55.4 from 55.0 in September.

“We believe the ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months, hence underpinning strong economic growth in the fourth quarter,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement.

Many economists believe China will drive the global rebound after the world’s third-largest economy grew at an annual 8.9 percent rate in the third quarter on the back of a big government stimulus.

India’s manufacturing industry also expanded for the seventh month while South Korea, Asia’s fourth largest economy, posted an eight consecutive month of growth although the pace slowed in both countries.

Additional reporting by Ryan Vlastelica in New York and Alan Wheatley in Beijing; Editing by Chizu Nomiyama

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