U.S., Chinese manufacturing shrink, stoking growth fears

Mon Jun 3, 2013 11:30am EDT
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By Steven C. Johnson and Jonathan Cable

NEW YORK/LONDON (Reuters) - Manufacturers in the United States, China and Europe struggled last month as demand fell, suggesting an ailing world economy that still needs a steady diet of central bank support.

Output at U.S. factories declined in May for the first time in six months, the Institute for Supply Management reported, while China's massive manufacturing sector shrank for the first time in seven months, adding to concerns that the world's two largest economies were losing momentum in the second quarter.

Euro zone manufacturing contracted again in May, its 22nd straight month of decline, though the depth of the downturn eased for the first time in four months.

In the United States, the data bolstered the view that the economy was undergoing yet another spring swoon after expanding at a 2.4 percent rate in the first three months of the year.

That makes it unlikely the Federal Reserve would soon start to scale back the $85 billion in bonds it is buying each month. Fed Chairman Ben Bernanke said in May those purchases could be reduced at one of the central bank's "next few meetings."

"While the data for now constrains the thoughts of tapering (bond purchases), it is weak enough that it will also raise broader questions on global growth," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York.

U.S. data last week showed consumer spending fell in April for the first time in almost a year and inflation retreated further from the Fed's 2 percent target.

San Francisco Fed President John Williams on Monday became the second central bank policymaker in recent days to warn that falling inflation would make it harder for the Fed to ease up on asset purchases.   Continued...

Ford Assembly workers install a battery onto the chassis of a Ford Focus Electric vehicle at the Michigan Assembly Plant in Wayne, Michigan November 7, 2012. REUTERS/Rebecca Cook