U.S., China factories struggle; Fed hints at less stimulus

Thu May 23, 2013 12:28pm EDT
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By Andy Bruce and Steven C. Johnson

LONDON/NEW YORK (Reuters) - Chinese factory activity declined in May for the first time in seven months and U.S. manufacturing grew at its slowest pace since October, suggesting it may take a while before the global economy starts to pick up steam.

Thursday's downbeat business surveys from the world's two largest economies came a day after Federal Reserve Chairman Ben Bernanke spooked markets by hinting that the U.S. central bank could soon scale back monthly bond purchases, provided the economy maintained its recent momentum.

Stock markets around the world tumbled after Bernanke's remarks and extended losses after the Chinese factory data was released.

MSCI's world equity index .MIWD00000PUS was down 1.4 percent, while Japan's Nikkei index .N225 plummeted 7.3 percent and the benchmark S&P 500 index fell about 0.5 percent.

Separate surveys showed the downturn in the 17-country euro zone eased slightly this month, though businesses continued to suffer from a chronic lack of new orders, which should inhibit a near-term recovery.

Financial data firm Markit said that in the United States, falling overseas demand and domestic belt-tightening pushed the U.S. Manufacturing Purchasing Managers Index to a seven-month low of 51.9 in May from 52.1 the previous month. A reading above 50 indicates expansion.

Chris Williamson, Markit's chief economist, said the data suggested that manufacturing, which had its best quarter in two years during the first three months of 2013, would provide only a modest boost to overall U.S. growth in the second quarter.

But recent improvement in the U.S. labor market and rising home prices have suggested the U.S. economy is recovering more quickly than its peers.   Continued...

An employee welds a water turbine at a factory in Jinhua, Zhejiang province May 23, 2013. REUTERS/William Hong