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Prospects Daily: U.S. manufacturing activity remains robust

Global Macroeconomics Team's picture

Important developments today:

1. European equities retreat amid Spanish debt concern

2. U.S. manufacturing activity remains robust

3. Eurozone output contracts in December


European equities retreat amid Spanish debt concern. European stock markets declined from Tuesday’s five-month high on Wednesday, led by sharp losses in banking stocks, on speculation that Spanish government is considering applying for loans from the European Union’s bail-out fund and the International Monetary fund. The benchmark Stoxx Europe 600 Index retreated 0.6% in early afternoon trading with the banking sector losing 1.6%. UniCredit, Italy’s biggest lender, tumbled to the lowest level since 1992, after the bank said it will sell new shares to strengthen its capital position. U.S equities fell as well, with S&P 500 Index losing 0.3% and the Dow slipping 0.2% in morning session.

U.S. manufacturing activity remains robust.
In contrast to the contraction in activity in Europe (see below), manufacturing activity in the US continues to gather pace. The Institute of Supply Management’s Manufacturing Purchasing Managers’ Index rose to 53.9 in December from 52.7 in November [see Chart at http://prospects or] – the 29th successive month of growth in manufacturing activity (the 50 mark separates contraction from expansion). With stocks at relatively low levels and US consumer and business spending remaining resilient amidst financial turmoil elsewhere, manufacturing output is likely to continue increasing in the months ahead. The new orders sub-index increased for the third successive month to 57.6 in December from 56.7 in November, indicating that new manufacturing orders grew at a faster rate in November compared to the previous month. In other favorable economic news, US factory orders, driven by non-defense aircraft orders was up 1.8% in November, from the 0.2% decline in October, according to a report by the US Commerce Department today.

Eurozone output contracts in December.
Final estimates of the Purchasing Managers’ Index (PMI) for the Eurozone in the month of December suggests that economic activity in zone continued contracting, albeit at a slower pace than in November. Today’s release of the Eurozone PMI Composite Output Index showed the pace of contraction moderating from 47.0 in November to 48.3 (above the initial preliminary estimate of 47.9) in December. The 50-mark separates contracting economic activity from an expansion in activity. Activity in Germany (51.3), the zone’s largest economy, moderately expanded, and activity in France stabilised. However, pulled down by activity in the highly-indebted economies, the pace of contraction of economic activity in the rest of the Eurozone (excluding France and Germany) steepened to the fastest pace of decline since mid 2009. Overall, economic activity in the Eurozone was at its weakest for some two-and-half years in the last quarter of 2011. With new business sub-index falling for the fifth month running, prospects for a recovery in the first quarter of 2012 remains dim.

Among Emerging Markets

In East Asia and the Pacific, China’s PMI in December rose from 49 in November to 50.3 in December, signaling an expansion in the manufacturing sector once again.

In Central and Eastern Europe, end-year inflation in Turkey soared past the central bank’s target rate of 5.5% for 2011, reaching a 3-year peak of 10.5% for the 12 months to December. The CPI index rose 0.58% on the month, with high food prices and domestic demand curbing the central bank’s efforts to bring prices close to the target rate. Annual core inflation eased very slightly, from 8.2% in November to 8.1% in December. The bank’s target inflation rate for 2012 is 5%.

In Sub-Saharan Africa, inflation in Kenya eased slightly from a three-year peak of 19.7% in November to 18.9% in December. The CPI index rose 0.7% over the month, the slowest pace in a year, as the central bank’s swift monetary tightening over recent months took effect.

Annual inflation in Tanzania rose to 19.2% in November from 17.9% in the previous month with a 1.4% monthly increase in the CPI index. In Rwanda, inflation eased to 7.4% from 7.9% in November from the previous month.