Manufacturing activity surged across Asia in September as demand picked up, although plans by Japanese manufacturers for record cuts in capital spending cast doubts on the strength of a recovery in the industrialised world. A surprise slowdown at US Midwest factories also suggested the road back to global economic health will be a rocky one, even if Asia powerhouses such as China continue to build up steam.
Highlighting the problems which beset a global recovery, the Bank of Japan's tankan survey showed big manufacturers plan to cut capital spending by a record 25.6 percent in the fiscal year through March 31, more than indicated in a June survey. Capital spending typically has been a key growth driver for Japan's economy, but is now one of its weakest links as companies cut expenditures to protect fragile profits.
The tankan survey also showed, however, that Japanese firms were a little less pessimistic about business conditions than a few months ago, amid signs that exports are slowly reviving. "What it comes down to is how much of this recovery is going to be sustainable. I'm not a believer yet that this is a robust economy. This is going to be a very frustratingly weak growth period," said Robert MacIntosh, chief economist at Eaton Vance Corp in Boston.
By contrast, reports from Asia show much of the region continues to gather strength. Factories ramped up production in China, Japan, South Korea, India and Australia last month with new orders picking up from buyers at home and abroad. Some Asian companies have reported a jump in sales to China as its economy picked up.
China's manufacturing activity expanded for a seventh month in September, official data showed on Thursday, largely in line with a private survey on Wednesday. The official purchasing managers' index (PMI) rose to 54.3 from 54.0 in August, the strongest reading in 17 months, the China Federation of Logistics and Purchasing (CFLP) said.
The report was fresh evidence that growing domestic demand in China is helping to offset weak exports, though some analysts worry the economy is still too reliant on government stimulus as the main way to generate activity. Those concerns are shared by many policymakers around the world as they wait for signs recoveries are on a solid footing.
In South Korea, the HSBC/Markit manufacturing Purchasing Managers' Index showed activity expanding for a seventh month, though the rate of growth eased slightly to 52.7 from 53.6 in August. Separately, exports in September fell 6.6 from a year earlier, much less than expected.
India also saw manufacturing grow at a faster clip again after wavering in August. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, advanced to 55 in September from 53.2 in August. The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index rose 0.3 points to 52.0. There was a marked turnaround in employment after 20 months of decline, with hiring and firing now essentially in balance.