Can U.S. Factories Stay Strong In A Weaker World?
By JED GRAHAM, INVESTOR'S
BUSINESS DAILY
U.S. manufacturing continued to
hum in November even as activity in other major economies was static — or
worse.
The question dividing economists
is whether the U.S. can maintain its outsized strength amid weak global growth
and a rising dollar.
The Institute for Supply
Management's index of U.S. factory activity barely eased from a 3-1/2-year high
of 59 in October to a still-lofty 58.7 last month, far above the neutral 50
level.
Some details were even more
impressive than the headline number. A gauge of new orders rose to 66 from
65.8. Backlogs and exports also improved.
Output dipped only slightly to
64.4 from 64.8 in October. The weakest part of the report was actually good
news, as an index of prices paid by producers for raw materials sank by 9
points to 44.5, at least in part a reflection of lower oil prices.
The vigorous U.S. manufacturing
report card sharply contrasted with the data from around the world. Markit's
eurozone purchasing managers index fell to 50.1, barely above stall speed, with
the new orders subindex at 48.7, signalling a third straight contraction.
Separate gauges of activity in Germany, France and Italy all came in south of
50.
A Little Help
Here?
In China, a government PMI eased
to an eight-month low of 50.3 last month, below forecasts for 50.6 as well as
October's 50.8. It came despite stimulus efforts from China's central bank.
The final reading on the
private-sector HSBC/Markit PMI confirmed activity cooled to a six-month low of
50, while the reading of factory output slipped to a seven-month low of 49.5.
HSBC's economics team warned that
the data in China could get worse: "We think growth still faces
significant downward pressures," with uncertainties tied to the property
market and export sector.
In Brazil, manufacturing
contracted at a faster pace, dropping to a 16-month low of 48.7 from 49.1. In
Japan, where a falling yen is offsetting a drop in input prices and domestic
demand has been stuck in a rut, the PMI slowed to 52 from 52.4.
Amid lackluster activity around
the world, U.S. strength looks unsustainable in the short term, said Michael
Montgomery, U.S. economist at IHS Global Insight.
"U.S. final demand is not
growing that rapidly," he said, pointing to the pace of inventory
accumulation as a big reason for the recent manufacturing gains.
While lower oil prices are a plus
for the consumer, Montgomery said a good part of that stimulus is offset by
higher prices at the supermarket and the potential that oil companies will curb
their drilling activity.
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