U.S. resilient, Europe debt woes touch Asia

By Leah Schnurr

NEW YORK |
Fri Dec 16, 2011 2:15am IST

NEW YORK (Reuters) – The global economy is showing signs of splitting between growing momentum in the United States and faltering growth or worse in much of the rest of the world.

News on Thursday of a fall in U.S. employment claims to a 3-1/2-year low and a stronger-than-expected rise in regional factory activity added to the sense of increased momentum.

But the United States is still far from immune and Europe’s debt crisis is expected to drag on the world’s largest economy in 2012, at the very least.

A string of largely better-than-expected data in recent weeks has surprised investors about the ability of the United States to weather the sovereign debt crisis in Europe, which is starting to crimp growth in emerging trade partners such as China.

“The data is all very in line with a modestly improving overall economy here in the United States,” said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

“Stability in the U.S. economy is going to be a vital part of stabilizing global GDP. This comes at a very good time.”

Even so, overall factory data in the United States on Thursday was mixed as industrial output declined in November for the first time in seven months, illustrating the halting nature of the recovery.

U.S. stocks rose after data showed the number of Americans filing new claims for jobless benefits dropped by 19,000 to a seasonally adjusted 366,000 last week, the lowest level since May 2008.

Also cheering investors, two factory surveys for the U.S. Northeast showed growth accelerated as new orders improved, and manufacturers were more optimistic about the months ahead.

While the pace of decline in the euro zone’s business economy unexpectedly slowed in December, surveys earlier

on Thursday confirmed the region is almost certainly stuck in recession.

That leaves the United States as perhaps the only major Western power currently making a significant contribution to global economic growth, though it remains uncertain if the United States can expand on its own.

Indeed, the head of the International Monetary Fund said the world economic outlook is “quite gloomy” and will require action by all countries, starting with those in Europe, to head off an escalating crisis that carries risks of a global depression.

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating,” Christine Lagarde said.

As well, U.S. President Barack Obama urged lawmakers to renew a payroll tax cut and long-term unemployment benefits, saying the measures were essential to the health of the U.S. economy.

“MILD RECESSION”

The New York Federal Reserve’s “Empire State” general business conditions index rose to a seven-month high at 9.53 from 0.61 the previous month.

The Philadelphia Federal Reserve Bank said its business activity index jumped to 10.3 from 3.6 the previous month, rising to its highest level since April. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware, while the Empire State data covers New York state.

But production in the U.S. industrial sector eased 0.2 percent last month, the first drop since April, following a 0.7 percent gain in October.

In the euro zone, Markit’s flash composite purchasing managers’ index PMI.L, which corresponds closely with economic growth, rose unexpectedly in December to 47.9 from 47.0 last month.

But it has now lingered for four months below the 50 line that divides growth from contraction.

“(It) reinforces the notion that the euro zone economy is slipping into a mild recession rather than falling off a cliff,” said Martin van Vliet, senior economist at ING.

The survey compilers warned against viewing its latest gauge of euro zone business as a turning point, especially since there is still a strong risk the euro zone sovereign debt crisis could spiral out of control.

EU leaders took a historic step toward fiscal union last week but there is still pressure for more aggressive action.

A resolution to the crisis is all the more important as its repercussions spread through the global economy. China saw its first year-on-year drop in foreign direct investment in 28 months in November.

The HSBC flash manufacturing purchasing managers’ index, the earliest indicator of China’s industrial activity, rose modestly to 49.0 in December from 47.7 but pointing to a monthly contraction in activity nonetheless.

Most economists gave a cautious welcome to the euro zone PMI data, which measures changes in the activities of thousands of businesses across the euro zone.

Furthermore, only France and Germany were responsible for the upturn in the index, while the euro zone’s peripheral economies continued to struggle.

Markit said its data pointed to a quarterly economic decline of 0.6 percent in the euro zone in the final quarter of this year.

(Additional reporting by Rodrigo Campos in New York, Andrew Quinn in Washington and Andy Bruce in London; Editing by James Dalgleish)

Article source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/nYnj9fqButk/global-economy-idINDEE7BE0I220111215

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