US factory activity retreats from 2-1/2-year high

Global manufacturing growth caps strong first quarter, led by China

WASHINGTON, April 3, (RTRS): An index of manufacturing activity retreated from a 2-1/2-year high in March amid modest declines in new orders and production, but a surge in manufacturing jobs indicated that the sector’s energy-led recovery was gaining momentum.

Other data on Monday showed construction spending rising to a near 11-year high in February amid robust gains in home building investment. The reports pointed to strong economic fundamentals, despite growth appearing to have slowed sharply in the first quarter.

The Institute for Supply Management (ISM) said its index of national factory activity slipped to a reading of 57.2 last month from 57.7 in February, which was the highest since August 2014.

A reading above 50 indicates an expansion in manufacturing, which accounts for about 12 percent of the US economy. The manufacturing recovery is being driven by the energy sector as steady increases in crude oil prices boost drilling activity.

A report from energy services firm Baker Hughes on Friday showed US drillers added 137 rigs in the first quarter, the most since the second quarter of 2011. That has fueled demand for machinery, resulting in business spending on equipment rising in the fourth quarter for the first time in a year.

Last month, the ISM survey’s production sub-index decreased 5.3 percentage points to 57.6. A gauge of new orders fell to 64.5 from a reading of 65.1 in February. But a measure of factory employment jumped 4.7 percentage points to 58.9, the highest

In this file photo, recycled plastic chips destined to be made in to thread are shown at the Repreve Bottle Processing Center, part of the Unifi textile company in Reidsville, North Carolina. On April 3, the Institute for Supply Management, a trade group of purchasing managers, issues its index of

manufacturing activity for March. (AP)

reading since June 2011.

Manufacturers reported paying more for raw materials, more evidence that inflation pressures are steadily building up. A report on Friday showed a key consumer inflation measure in February recorded its biggest annual gain in nearly five years.

The ISM’s prices index rose 2.5 percentage points in February to 70.5, the highest reading since May 2011.

Factories across Europe and much of Asia posted another month of solid growth in March, rounding off a strong quarter for manufacturers, even though exporters fear a rise in US protectionism could snuff out a global trade recovery.

China led the way, with an official manufacturing index expanding at the fastest pace in nearly five years. Surveys on Monday also showed encouraging growth in Europe, Japan, India and much of emerging Asia.

In the euro zone, IHS Markit’s final manufacturing Purchasing Managers’ Index rose to its highly in nearly sixyear high of 56.2 in March, far above the 50 mark that separates growth from contraction.

However, British manufacturers lost some momentum last month, as export orders grew more slowly and rising inflation cut into consumer demand.

Sterling’s tumble following June’s vote to leave the European Union helped manufacturers enjoy their fastest annual growth in three years during the final quarter of 2016 but the sector’s PMI suggested growth slowed in the first three months of this year.

The official Chinese PMI on Friday rose to 51.8 in March from 51.6, thanks to a months-long construction boom which is helping to boost resources prices around the world.

That was the strongest reading since April 2012, though a private survey focusing on smaller companies suggested a more cautious outlook, raising questions about whether the export recovery can be sustained.

Julian Evans-Pritchard, an economist at Capital Economics, said the strength in China won’t last — measures to cool its overheated property market and tighter central bank policy is likely to curb investment and industrial activity in coming quarters.

But the biggest risk for China may be brewing halfway across the world. US President Donald Trump is due to hold his first meeting with his Chinese counterpart, Xi Jinping, in Florida later this week and those talks may be tense.

On Friday, Trump sought to push his crusade against US trade deficits and for more manufacturing jobs back to the top of his agenda, by ordering a study into the causes of the trade deficits and a clampdown on import duty evasion.

The failure of the new US administration to push through healthcare reforms last month has also added to global worries Trump will struggle to pass the tax cuts and spending plans he promised, which could boost demand in the world’s largest economy.

Delays to the re-flationary plans could see US orders and global investment slow in coming months as businesses grow more cautious.

China has strong domestic demand to fall back on, at least for now, but other export-reliant Asian economies are more vulnerable if Trump goes on a trade offensive.

Japanese factory activity expanded at a solid clip in March, though the pace slowed from the previous month as growth in new export orders and output slowed.

In South Korea, where exports account for half of the economy and domestic demand is similarly weak, readings have been decidedly mixed.

On a more upbeat note, India’s manufacturing activity grew at the fastest pace in five months as output and new orders accelerated.