China official factory PMI points to steady growth revival

Workers ride on an motor rickshaw through an aluminium ingots depot in Wuxi, Jiangsu province September 26, 2012.

Credit: Reuters/Aly Song

By Lucy Hornby

BEIJING | Mon Dec 31, 2012 10:08pm EST

BEIJING (Reuters) - China's official manufacturing purchasing managers' index held steady in December at 50.6, matching November's seven-month high, as growth in new orders was unchanged and the pace of output softened marginally.

With the main index above 50 for three straight months, the survey indicates that China's vast factory sector is expanding. The official PMI was released a day after a similar survey by HSBC suggested manufacturing activity at its strongest since May 2011.

Together the surveys support a growing consensus that economic activity in China revved up during October to December, after GDP growth had slowed for seven consecutive quarters to 7.4 percent in the third quarter. That provides a welcome sign for a global economy where both the euro area and Japan are in recession and the United States is struggling for significant growth.

"Output has stayed above the 50-mark, showing that the manufacturing industry appears to maintain growth expectations, but the rate of growth has weakened," the National Bureau of Statistics, which released the data, said in a note.

The official PMI reading was slightly below expectations in a poll of economists by Reuters last week that predicted a rise in the PMI to 51.0.

The survey showed output in oil processing, quarrying and tobacco industries slipped while food processing, auto manufacturing, textiles, steel and electronics all expanded, the bureau said.

A new export orders sub-index fell to 50 from 50.2 in November. A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth.

HSBC said its China PMI, which gathers more data from smaller, privately held firms with a strong export focus, rose in December to 51.5, its highest since May 2011.

The HSBC survey showed strong output despite a retreat in a sub-index tracking new export orders. China's export sector, a major source of growth for the economy, must combat slowing demand in its biggest markets and rising wages and costs at home.

China's official PMI generally paints a rosier picture of the factory sector than the HSBC PMI because it focuses on big, state-owned firms. The HSBC PMI targets smaller, private firms. There are also differing approaches to seasonal adjustment between the two surveys.

INVESTMENT

Some analysts caution that the pickup in economic activity in recent months may reflect renewed investment spending, rather than the consumer activity that policymakers acknowledge is needed to rebalance the economy.

"It's pretty clear that it's more driven by infrastructure and increasingly housing, that's driving heavy industry," said Zhang Zhiwei of Nomura International, speaking on Monday.

Rising land prices have prompted widespread expectations that the real estate market will be revived by an investment-driven recovery that would offset weak export markets, even though the central government had pledged to maintain investment and purchasing restrictions to try to control prices.

Railway spending delayed from earlier in 2012 was being rushed out before the end of the year, and rising prices for land purchased by state-owned developers could point to a relaxation in property market curbs that has yet to be made official, Zhang argued.

Steel futures recently hit a five-month high, after a dismal year in which lackluster demand contributed to overcapacity at debt-ridden mills and traders.

China was expected to achieve economic growth of 7.7 percent in 2012, forecasts in a benchmark Reuters poll show. That would mark the slowest full-year expansion since 1999.

While that is way above the world's other major economies, it is below the roughly 10 percent annual growth in China seen for most of the last 30 years.

The government has relied on fine-tuning its policy settings to try to combat the worst downturn China has faced since the 2008-2009 global financial crisis, studiously avoiding any hint of repeating a 4 trillion yuan ($640 billion) stimulus package it launched back then, which led to a debt-fuelled spending binge by local governments.

Measures to boost growth included reducing bank reserve levels and interest rates. More lately, they included injecting liquidity into the financial system through money market operations and accelerating approval of infrastructure projects.

The head of the influential Development Research Centre called for appropriate base money growth in 2013, including more cuts in banks' reserve requirement ratios (RRR), and a wider floating range for the yuan to make it more flexible, in comments published on Monday.

The central bank reiterated on Monday that China would stick with a prudent monetary policy in 2013, the latest sign that Beijing will not change policy direction when the new government takes over this year.

(Reporting by Lucy Hornby: Editing by Neil Fullick)

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Housing, factory data point to momentum in economy

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012.

Credit: Reuters/Jonathan Ernst

By Lucia Mutikani

WASHINGTON | Fri Dec 28, 2012 1:34pm EST

WASHINGTON (Reuters) - Contracts for U.S. home resales hit a 2-1/2-year high in November and factory activity in the Midwest expanded this month, suggesting some strength in the economy despite the threat of tighter fiscal policy.

The National Association of Realtors said on Friday its Pending Home Sales Index, based on contracts signed last month, increased 1.7 percent to 106.4 - the highest level since April 2010 when the home-buyer tax credit expired.

November marked the third straight month of gains for signed contracts, which become sales after a month or two, and followed a 5 percent increase in October.

A separate report showed the Institute for Supply Management-Chicago business barometer rose to 51.6 in December from 50.4 in November. A reading above 50 indicates expansion in the regional economy. It was the second straight month of growth and was driven by a rebound in new orders.

The data suggested some of the growth momentum from the third quarter carried into the final three months of 2012, even as businesses and households braced for sharp cuts in government spending and higher taxes in the new year.

Data so far in the fourth quarter ranging from consumer spending, housing, employment and the various manufacturing indicators have been fairly upbeat.

"We don't see much evidence that the economy was slowing as we headed into the end of the year, but everything could change on January 1," said John Ryding, chief economist at RDQ Economics in New York.

There are fears that currently stalled budget talks in Washington will fail to steer clear of a $600 billion "fiscal cliff" of less government spending and higher taxes, which could tip the economy back into recession.

"There is nothing here to suggest that the economy has enough momentum to withstand the shock if we go over the fiscal-cliff with no quick return," said Ryding. "The good news right now is it looks like we could have the mid-twos kind of GDP (growth) for the fourth quarter."

STRENGTHENING HOUSING RECOVERY

The economy grew at a 3.1 percent annual rate in the third quarter. The latest Reuters survey of economists put fourth-quarter gross domestic product growth at a 1.2 percent rate, mostly because of superstorm Sandy, which struck the East Coast in late October and fiscal cliff-related cutbacks in business spending.

U.S. financial markets ignored the data as attention remained focused on the developments in Washington surrounding the fiscal cliff.

Stocks on Wall Street fell, putting the Standard & Poor's 500 index on track for a fifth straight day of declines. U.S. Treasury debt prices rose, while the dollar was little changed against a basket of currencies.

Though the employment gauge in the Chicago ISM survey fell to a three-year low in December, economists expected a rebound given the strength in new orders.

"The drop in employment reflects the weakness in new orders in November and to a lesser degree the fiscal cliff. With the bounce back in new orders, employment will also bounce back," said Eric Green, chief economist at TD Securities in New York.

The pending home sales report pointed to a strengthening in the housing market recovery. Contracts were up 9.8 percent in the 12 months through November.

The housing market has turned the corner after a dramatic collapse, which dragged the economy through its worst recession since the Great Depression of the 1930s.

Home sales and prices are rising, encouraging builders to undertake new construction projects. Home resale contracts were up in three of the country's four regions. They were unchanged in the South.

"The housing revival seems to be happening in a way that puts some positive feedback loop, a virtuous cycle into the economy," said Jerry Webman, chief economist at OppenheimerFunds in New York.

(Reporting By Lucia Mutikani; Editing by Neil Stempleman)

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