Manufacturing strengthened in the United States and China in March while the euro zone contracted for the eighth straight month, underlining the uneven pace of global economic growth. The US Institute for Supply Management's index of national factory activity rose to 53.4, topping economists' expectations of 53.0. A reading above 50 indicates expansion.
Factory activity also strengthened in leading Asian exporters China, South Korea and Taiwan, although output w as still far from robust. However, other reports showed the downturn in Europe's periphery members has spread to the core countries of Germany and France, according to purchasing managers' indexes for March. The outlook is grim as new orders fell across the region for the tenth month.
"We are probably through the weakest for the global backdrop in terms of the major economies already, but they are now coming out at different paces," said Jeavon Lolay, head of global research at Lloyds Banking Group. "Asia is going to lead the global economy with the United States not too far behind, leading the developed economies, but Europe will be the laggard."
Still, the US data also showed a hint of weakness. The ISM said new orders edged down to 54.5 from 54.9 and prices paid also eased to 61.0 from 61.5. But the US factory employment index rose in March to 56.1 from 53.2, suggesting job growth continues in the sector. Markit's Eurozone Manufacturing PMI dropped to 47.7 last month from 49.0 in February, in line with a preliminary reading. It has now been below the 50 mark, which divides growth from contraction, since August.
The Institute for Supply Management (ISM) said its index of national factory activity rose to 53.4 from 52.4 in February, topping economists' expectations of 53.0. It was a rebound for the sector that in February saw the pace of growth unexpectedly slow. Even so, the forward-looking gauge of new orders was modestly weaker in March, easing to 54.5 from 54.9.
The index has been stuck in a tight range in the low 50s since last summer, pointing to steady, though slow growth for the sector. Separate data showed US construction spending fell 1.1 percent to an annual rate of $808.86 billion, the lowest level since October as investment in private and government projects fell. As well, spending in January was revised to show a much bigger 0.8 percent fall instead of the previously reported decline of just 0.1 percent.
Earlier data from Germany, Europe's largest economy, showed its manufacturing sector contracted last month and it was a similar story in neighbouring France. In Spain, struggling to implement austerity measures demanded by the European Union to meet tough deficit targets, the sector contracted for the 11th month. Manufacturing in Italy shrank for an eighth month.
The economic slump will make it even harder for the 17-nation euro zone to overcome its debt crisis as it will depress tax revenues and hurt consumer spending. Periphery countries have borne the brunt of the sharp downturn as their own austerity measures continue to hamper a return to growth, particularly Greece, where the sharp decline in manufacturing continued last month.
"The euro zone economy remains extremely sluggish in Q1. Despite the ECB accommodative policy and efforts to boost confidence and liquidity conditions, the effects on the real economy have not materialised yet," said Annalisa Piazza at Newedge Strategy. Joblessness in the euro zone reached its highest in almost 15 years in February with more than 17 million people, or 10.8 percent, out of work, highlighting the human cost of the bloc's debt crisis and governments' struggle to overcome it.
In an effort to stimulate growth and boost liquidity, the European Central Bank has cut its main refinancing rate to a record low 1 percent and pumped more than 1 trillion euros into the banking system. But is now expected to adopt a wait-and-see approach. Across the channel, British manufacturing activity expanded at its fastest pace in 10 months in March, driven by a pick-up in new orders, and increasing the chance that Britain's economy grew in the first three months of 2012 and avoided a recession.
Asia's economic fate remains closely tied to that of its export customers in the US and Europe. Demand there still looks sluggish, even though the euro zone debt crisis poses less of an immediate threat to global economic stability and US data has shown a bit more bounce.
The brighter Asian figures, released on Sunday and Monday, still suggested economic growth slowed in the first quarter of 2012. China appeared to be headed for its weakest quarter since early 2009, at the depths of the global financial crisis. China's official Purchasing Managers' Index hit an 11-month high with a stronger-than-expected reading but a separate private survey by HSBC, which focuses more on smaller factories than the large state-owned enterprises captured in the official data, painted a gloomier picture.
"The upside surprise in China's manufacturing PMI is welcome, and should help quell excessive fears of a 'hard landing' in China," said Vishnu Varathan, an economist with Mizuho in Singapore. HSBC's PMI for South Korea edged up to a one-year high in March and in Taiwan, the figures showed a second straight month of improving business conditions.
But that wasn't enough to get economists cheering.
"Don't get carried away," said Ronald Man, an economist with HSBC in Hong Kong who follows South Korea. "Further upward momentum requires expectations of higher new orders to materialise." In contrast to the rest of the region, factory activity in India faltered in March. Expansion in Asia's third-largest economy slowed for a third straight month as growth in new orders eased and the cost for raw materials showed no signs of falling. Adding to India's worries, while growth is expected slow, the latest figures indicate a pickup in inflation which would make matters dicey for the Reserve Bank of India, which has often been criticised for being behind the curve.