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 Data showed growth in China's manufacturing sector slowed to a
six-month low, while its service sector grew at its slowest pace in
five years.
That could increase worries that weaker growth in Asia's economic
powerhouse could spell trouble for markets and the world economy.
Worries about Chinese growth were factors behind the recent selloff
in emerging market assets, as many countries depend on Chinese
demand for exported goods.
U.S. manufacturing grew at a substantially slower pace last month as
new order growth plunged the most in 33 years, although some
economists said extremely cold winter weather was partly
responsible.
"The data was very weak across the board. It's hard to find any good
news in there. It looks like a general slowdown, though you don't
know how much of this is weather related," said Paul Zemsky, head of
asset allocation at ING Investment Management in New York.
Markets were weak, with global equity indexes falling, driving
investors to safe-haven assets like U.S. government debt. The U.S.
stock market hit a low not reached since November.
Euro zone factories had their best month since mid-2011 and
increased jobs for the first time in two years — a welcome sign for
a region where unemployment remained at record highs.
The fall in the U.S. Institute for Supply Management's index of
national factory activity to 51.3 — its lowest since May — was its
second straight decline. But most economists continue to see the
United States outpacing other developed countries in 2014.
"This, in combination with possible paybacks from sharp inventory
and export gains in the fourth quarter might mean that the U.S.
economy has temporarily lost some momentum at the turn of the year,"
said Harm Bandholz, chief U.S. economist at UniCredit Research.
"But, if anything, that will only be a brief blip."
A separate report from Markit showed manufacturing grew more slowly
in January after hitting an 11-month high in December. Reports on
January car sales from U.S. automakers also pointed to a loss in
momentum.
Analysts were most encouraged by developments in Europe, where
Markit's final Eurozone Manufacturing Purchasing Managers' Index
rose to 54.0 last month, comfortably ahead of December's 52.7. The
last time it was higher was in May 2011.
"The major area of uncertainty over the last few years has been the
euro area, but the latest PMI numbers tend to confirm (it)... is on
a gentle recovery path with the periphery gaining encouraging
momentum as well," said Philip Shaw at Investec.
The gain was led by a sharp pick-up in Germany and a revival among
the states on the region's periphery, though France, the bloc's
second-biggest economy, remained a drag on the region.
Factories increased employment to meet demand, providing some cheer
to policymakers after data on Friday showed unemployment across the
bloc held near a record high of 12 percent for the third straight
month in December.
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Earlier data from Britain suggested a swift upturn in factory
activity there had eased slightly, while the pace of growth in
Canada's factory sector cooled in January, with the RBC Canadian
Manufacturing Purchasing Managers index hitting its lowest level in
nine months.
BRAKING CHINA
Recent numbers from China have painted a more subdued picture of
developments there.
The Markit/HSBC manufacturing PMI fell to a six-month low of 49.5 in
January, suggesting the overall factory sector contracted from
December. A similar government measure also fell to a six-month low,
although it indicated the sector was still expanding modestly.
A government PMI on the services sector fell to 53.4 in January,
firmly in expansion territory but still the index's lowest level
since December 2008.
That run of data provided further reminders for markets of the
pressures on the world's top emerging market economy as Beijing
tries to push major reforms without tamping down growth too much.
China's government wants to reduce a heavy reliance on the
investments and exports that have fueled breakneck economic growth
in the past three decades in favor of consumption and services,
which it thinks will provide lower but more sustainable growth.
Barclays analysts, referring to manufacturing, said they estimated
the seasonal impact of Lunar New Year holidays was minimal on
China's factory sector.
"In our view, much of the decline reflects (a) downbeat demand
outlook and suggests continued softening in growth momentum," Jian
Chang and Jerry Peng said in a note.
Other PMIs on Monday showed Indian manufacturing running at its
strongest pace since March 2013 and in South Korea the sector was
expanding at its fastest in eight months. An Indonesian PMI showed a
slight pick-up in factory activity
Last week, a Japanese PMI rose to its highest level in nearly eight
years as new orders expanded at their fastest pace on record — a
sign of strong domestic demand before prices rise with an increase
in a domestic sales tax due in April.
(Additional reporting by Andy Brice in
London, Yati Himatsingka in Bangalore, Rieka Rahadiana in Jakarta,
Se Young Lee in Seoul and Stanley White in Tokyo; editing by Alex
Richardson, John Stonestreet and Dan Grebler)
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