A solid October for factories in US, Europe

Glassware being inspected at a factory in Maryland. Flash data from IHS Markit showed US headline PMI rising to 53.2 this month, from a three-month low of 51.5 in September.
Glassware being inspected at a factory in Maryland. Flash data from IHS Markit showed US headline PMI rising to 53.2 this month, from a three-month low of 51.5 in September.PHOTO: THE WASHINGTON POST

Latest PMIs signal strong upturn in business conditions; uptick rate for US fastest in 12 months

NEW YORK/LONDON • October turned out to be a good month for manufacturers on both sides of the Atlantic, with the United States recording the strongest upturn in business conditions in 12 months.

Flash data from research firm IHS Markit showed US headline Purchasing Managers' Index (PMI) rising to 53.2 this month from a three-month low of 51.5 in September.

The latest reading signalled a solid upturn in overall business conditions, and the rate of improvement was the fastest since October last year.

Stronger output and new business growth were the key factors boosting the headline PMI, which helped offset a drag from softer job hiring this month.

"Manufacturers reported that supportive domestic economic conditions remained a key growth driver, helping to offset sluggish export sales in October," IHS Markit said in its report.

"Survey respondents also noted that increased production and greater purchasing activity reflected hopes of a post-election upturn in client demand."

Meanwhile, business activity in the euro zone for this month expanded at the fastest pace so far this year, as a buoyant Germany offset the impact from firms raising prices at the sharpest rate in more than five years, a survey showed.

The upturn in both activity and prices will make welcome reading for policymakers at the European Central Bank (ECB), who left their ultra-loose policy unchanged last Thursday but kept the door open to more stimulus in December.

IHS Markit's euro zone flash composite PMI jumped to 53.7 from last month's 52.6. It was far above the 50-point line indicating growth in activity and smashed even the highest forecast in a Reuters poll of economists which had predicted a more modest rise to 52.8.

Highlighting the confidence among manufacturers, they increased headcount at the fastest rate since May 2011. The employment subindex was 53.7 compared to last month's 52.1.

IHS Markit said, if maintained, the PMI pointed to 0.4 per cent euro zone growth in the current quarter, although it added that there were upside risks to the projection.

Despite years of ultra-loose monetary policy, inflation is nowhere near the ECB's 2 per cent target ceiling - it was just 0.4 per cent in September - so evidence of rising prices could dampen expectations of the ECB extending its massive asset-buying programme.

It has already spent over a trillion euros buying government bonds, cut its refinancing rate to zero and adopted a negative deposit rate.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 25, 2016, with the headline 'A solid October for factories in US, Europe'. Print Edition | Subscribe