World factory growth slips as U.S. hiring weak
By Andy Bruce and Emily Kaiser
LONDON/SINGAPORE (Reuters) - Factory growth eased in Europe and Asia in May, surveys showed on Wednesday, feeding concerns that the world's main economic engines are cooling fast as richer countries curtail orders.
Adding to the gloom, U.S. private payroll growth slowed sharply in May, coming in far below expectations and falling to the lowest level in eight months. The report raised concerns about a broader reading of U.S. payrolls figures due on Friday and pushed down the U.S. dollar and stock futures For a story: [ID:nN01229306]
Purchasing managers indexes (PMI), measuring the activities of thousands of factories across the world, sank to multi-month lows in China and Europe, where even regional pacesetters France and Germany showed fresh signs of sagging.
The surveys for South Korea, India and Taiwan also showed the pace of factory activity easing, while U.S. figures due later on Wednesday are expected to complete the picture of global manufacturing surge that may be running out of stream.
Some slackening was expected as quake- and tsunami-damaged Japan struggled to churn out parts for the automotive and high-tech industries. Lackluster growth and consumption in the United States and Europe have also restrained demand.
"I would be loathe to say there's a sharp slowdown in the pipeline, but some momentum seems to be lost," said Mark Miller, global macroeconomist at Lloyds Bank Corporate Markets.
The Markit Eurozone Manufacturing PMI for May slipped to 54.6 from 58.0 in April, its 20th month above the 50 mark that signifies growth but showing a sharp pull-back on fresh signs of decline in the currency bloc's debt-laden periphery.
Spanish manufacturers returned to contraction, while Italian and Irish factories saw a marked slowdown in growth. Supply-chain pressures dented the French and German PMIs, which had been hovering near all-time highs.
Survey compiler Markit described the declines in peripheral countries as worrying, suggesting they could face growing difficulty in cutting their enormous public deficits.
"In the case of the euro zone, some of the volatility you're seeing in government bond markets doesn't help, which is clearly a threat to growth via potentially higher longer-term interest rates," said Lloyds Bank's Miller.
Higher interest rates have already had a marked effect on growth in emerging Asia, where investors are nervously watching for any evidence that the slowdown there is worsening as central bankers tighten credit conditions to combat inflation.
That was most evident than in China, where the official PMI touched a 9-month low, below economists' forecasts as new orders fell sharply. A private survey hit its lowest mark in 10 months, held back by power shortages and a clampdown on credit.
SILVER LINING
If there was a silver lining, it was that factory cost inflation declined in most of the surveys -- both in Asia and Europe -- which will ease pressure on central bankers to ratchet up inflation-fighting measures.
In the euro zone, there were clear signs that inflation pressures had started to ease.
"The brighter news was that recent falls in commodity prices helped drive the greatest easing in input cost inflation since November 2008," said Chris Williamson, Markit's chief economist.
"The combination of weaker inflationary pressures and the steep easing in the pace of growth may encourage policymakers to hold off on interest rate hikes until a clearer picture of the health of the recovery appears."
India was a key exception as price pressures showed no sign of easing, leading economists to predict the central bank will continue on its tightening course. India's PMI dipped to 57.5 in May from 58.0 in April.
In China, where authorities have already taken measures to curb inflation, economists drew a distinction between the current slowdown suggested by the PMIs and the 2008 slump, when the financial crisis decimated global trade.
"It is important to point out that China is experiencing an economic slowdown, not a collapse like in the aftermath of Lehman's bankruptcy," said Dong Tao, a Credit Suisse economist.
HSBC's China PMI dipped to 51.6 in May from April's 51.8, holding above the 50-point level which is the dividing line between growth and contraction.
The government's data told a similar story. New export orders dipped to 51.1, suggesting demand was weakening as China's biggest export destinations -- Europe and the United States -- grapple with slowing economic growth.
The batch of surveys out of Europe emphasized that.
British manufacturing PMI hit a 20-month low in May of 52.1 from 54.6 in April, blamed on a weaker domestic market -- especially for consumer goods.
U.S. ISM Manufacturing PMI due at 1400 GMT is expected to slip to 57.7 in May from 60.4 the previous month. A raft of recent data on the property market, consumers and labor force have suggested the U.S. economy's soft patch could become protracted.
(Reporting by Yoo Choonsik in Seoul, Aileen Wang, Koh Gui Qing and Zhou Xin in Beijing and Sumanta Dey in Bangalore; Writing by Emily Kaiser and Andy Bruce; Editing by Neil Fullick, John Stonestreet)