Eurozone businesses performed much better than forecasters expected this month and China's vast factory sector grew a shade faster, but US manufacturing activity sputtered to its slowest since July, underscoring the uneven nature of the post-crisis global economy.
The improvement in purchasing managers' surveys in Europe and China, released on Thursday, will ease some worries about the outlook for those two key economies. Still, news that companies in the euro zone cut prices at the steepest rate in almost five years will be of concern to the European Central Bank, which is striving to ward off the risk of deflation in the region.
Pricing weakness was also a feature of the soft US data, a factor that could give the US Federal Reserve a reason to be in no rush to complete its pivot away from six years of extraordinary monetary accommodation. "The data will no doubt add to the view that (US) policymakers should be in no rush to raise interest rates, with output and order book growth slowing and price pressures easing," said Chris Williamson, chief economist at Markit, which publishes the surveys.
In China, manufacturers booked more foreign and domestic orders but activity remained weak and analysts said the surveys did not point to a fourth-quarter turnaround for the slowing economy. "They don't change the picture for the euro zone which is bordering on recession. For China, although the headline number edged up, it really doesn't point to a substantial improvement," said Andrew Kenningham, senior global economist at Capital Economics.
"It's a very unbalanced picture," Kenningham said of the global economy. Markit's Eurozone Composite Flash Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the region and seen as a good indicator of growth, rose to 52.2, above all forecasts in a Reuters poll.
The poll had predicted a fall to 51.7 from September's headline reading of 52.0 and October marks the 16th month the index has been above the 50 level that separates growth from contraction. But optimism among services firms was at its lowest in over a year and new orders to factories fell for a second straight month. "The general tone of the October purchasing managers' survey suggests that the fourth quarter is going to be another almighty struggle," said Howard Archer at IHS Global Insight.
Markit said the PMIs point to a 0.2 percent expansion of euro zone GDP in the current quarter, with risks to the downside. A Reuters poll last week also predicted 0.2 percent growth. While Germany's private sector saw faster growth this month, France's business slump deepened, with business activity hitting an eight-month low. In Britain, retail sales fell more than expected in September, despite store prices falling at their steepest rate in more than five years, adding to signs the economic recovery is losing some of its pace.
Similarly, euro zone inflation slipped to its lowest for five years in September, official data showed last week, and the latest PMIs will do little to allay fears that deflation - which hit five peripheral countries last month - will spread. "Given the concerns over potential euro zone deflation, it was particularly worrying that the purchasing managers reported combined manufacturing and services output prices fell at the fastest rate since February 2010," Archer said.
The composite output price index slumped to 47.1 from 48.5. The European surveys lifted share markets on Thursday and leavened an otherwise shaky mood following the Chinese numbers. China's flash HSBC/Markit manufacturing PMI edged up to a three-month high of 50.4 from a final reading of 50.2 in September, and just a hair's breadth from the 50.3 reading forecast by analysts.
Growth in new orders at home and abroad, however, slowed in October and producer prices fell, pushing factory inflation to a seven-month low and highlighting still-soft domestic demand. The index measuring the rate of growth in factory output also fell to a five-month low of 50.7. "The sub-indices do not show good momentum," said Shuang Ding, an economist at Citi in Hong Kong.
China's economy appears likely to miss the government's 7.5 percent growth target this year and hit a trough not seen since 1990. Third-quarter growth of 7.3 percent reported on Tuesday was the weakest since the global financial crisis. Still, while growth is unlikely to accelerate in the fourth quarter, the PMI indicates it may at least be levelling off.
"If the flash PMI is right, then October is going to be almost the same as September, slightly better, which suggests that at least it's not getting worse, that growth has stabilised at this quite subdued level," said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong.
In its US report, Markit said manufacturing slowed to its lowest rate of growth in three months and its gauge of new orders hit its lowest level since January. The "flash" PMI fell to 56.2 from September's final reading of 57.5, undershooting expectations for a more modest pullback to 57.0. The new orders subindex fell to 57.1 from 59.8 in September and output fell to 58.0, the lowest since March, from 59.6 in September. The employment subindex eased slightly from September's level, which was the strongest reading of labor conditions in the manufacturing sector since March 2012. The report also showed factory output prices at their lowest since June.
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