Asia Data Highlight Fragility of Recovery
Tokyo. Manufacturing activity powered ahead in Japan and China in September, providing fresh evidence of global recovery, but other data from Tokyo showed worrisome signs the impact of massive state stimulus spending may be starting to fade.
Japanese manufacturing grew at its fastest pace in three years, with expanding new orders at home and abroad, while factories in China cranked up production for the sixth straight month, private activity indexes showed.
Signals were far more mixed for Japan, the world’s second-largest economy. The Nomura/JMMA Japan Manufacturing Purchasing Managers Index rose to 54.5 in September, from 53.6 in August. It remained above the 50 threshold that separates contraction from expansion for the third month in a row.
Official industrial output data for August, however, fueled fears that a boost from state stimulus spending is starting to wane before a viable, broad-based recovery is in place. Output rose 1.8 percent in August from July, the sixth straight month of gains.
In addition, manufacturers expect a further slowdown in September, the output report said.
“The effect of government stimulus is beginning to fade,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“The automobile sector has been buoyed by stimulus and tax breaks, and the benefits have spread broadly to other sectors, but that is not going to last forever.”
Production has rebounded, Minami said. “But it will gradually return to a natural level of growth and could briefly turn negative. It will sustain a gradual uptrend, but the outlook is patchy.”
Japan emerged from recession in the second quarter but growth was slower than initially estimated, as inventories fell more than early data had shown.
In China, manufacturers hired workers at the fastest pace in 25 months in September in response to a surge in business.
HSBC’s China Purchasing Managers’ Index showed factory output expanded for a sixth straight month. At 55.0, the reading was little changed from August’s 16-month high of 55.1.
“Although the headline PMI remained broadly unchanged from the previous month, there was a marked expansion of manufacturing employment in September,” Qu Hongbin, chief China economist with HSBC in Hong Kong, said in a statement.
New orders continued to grow quickly, signaling that the recovery in demand from both domestic and external sources was on track, Qu said. Export orders increased at their second-fastest rate in 27 months, while overall new orders were even stronger.
Prime Minister Wen Jiabao and other officials have warned repeatedly that the recovery is not on a solid footing, despite recent improvements. The government says its stimulus spending and easy credit policy will continue in order to support growth.
The stimulus plan’s focus on public works has fueled worries that steel, cement and other construction-related industries might be expanding too fast, possibly leading to a boom and bust.
The government warned last week that some industries suffer from overcapacity and said it would curb excessive investment. That prompted concern among investors that its moves might squeeze industrial profits.