Europe's factories grow, U.S. manufacturing at two-year high

Thu Aug 1, 2013 10:57am EDT
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NEW YORK/LONDON (Reuters) - U.S. manufacturing grew in July at its fastest pace in two years while European factories snapped a two-year run of declining output, suggesting a prolonged euro zone recession may be near its end.

Output at British factories also surged last month, according to business surveys released on Thursday, while an index of China's massive manufacturing sector suggested the slowdown in the world's No. 2 economy may be stabilizing.

The data should hearten policymakers around the world, particularly those at the European Central Bank who have come under pressure to support an economy struggling to escape from the longest recession in the 17-country euro zone's history.

It probably does not, however, point to an imminent tightening of monetary policy. ECB President Mario Draghi on Thursday stressed that interest rates would remain at current lows or lower for an "extended time.

On Wednesday, the U.S. Federal Reserve said that the world's biggest economy was recovering but still needed support, dashing some expectations that it would start winding down its own stimulus program as soon as September.

"The general tilt of the Fed and other global central banks is still very accommodative, so I'm not concerned that this data will change that," said Thomas Simons, money market economist at Jefferies & Co in New York, who said the Fed will probably wait until the fourth quarter to slow its monthly bond purchases.

A sharp rise in new orders helped propel the Institute for Supply Management's index of national factory activity to a two-year high of 55.4 in July, beating economists' expectations of 52.0 and June's reading of 50.9.

A separate index from financial data firm Markit rose to 53.7, a four-month high, from 51.9 in June.

"It's obviously good news. Orders have bounced back. If this is happening in the context of a global improvement, that's a good thing," said Pierre Ellis, senior global economist at Decision Economics Inc in New York.   Continued...

A labourer cuts scrap steel at a factory of Dongbei Special Steel Group Co., Ltd., in Dalian, Liaoning province July 24, 2013. REUTERS/China Daily