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If manufacturing activity is a harbinger of future economic growth, then the U.S. economic outlook is brightening, somewhat. In fact, economic activity in the manufacturing sector expanded in June for the 23rd consecutive month, and the overall economy grew for the 25th consecutive month, according to the nation's supply executives in the latest Manufacturing ISM Report On Business.
However, in Germany, Europe’s largest economy, which has been the catalyst for the region’s expansion, manufacturing activities grew at the weakest pace in 17 months in June, according to economic industry sources. Output growth also slowed in France, Italy, Austria and the Netherlands, while contracting in Spain, Ireland and, especially, Greece.
Manufacturing growth is slowing in Asian economies, as well, from China to South Korea, which poses a challenge for central bankers who were considering raising interest rates as a way to dampen inflation fears. Last month, the Purchasing Managers’ Index by the China Federation of Logistics and Purchasing fell to the lowest level since February 2009, while a gauge by HSBC Holdings Plc and Markit Economics for India showed manufacturing in June grew at the slowest pace in nine months. In addition, South Korean exports rose at the slowest rate in the last 20 months.
In general, economists report that Europe’s current debt crisis, emerging austerity plans, and the slowly recovering U.S. economy are damping demand for Asian goods, putting pressure on policy makers to delay further interest rate hikes, even as some commodity prices increase.
VDC sees the global manufacturing index as a valuable tool - among many - for monitoring economic growth and decline on several levels - inventories, new orders, production, employment, etc. Ultimately, all of this data suggests the embedded community will see gradual improvement through 2H 2011, particularly in market segments that are less susceptible to widespread economic reforms and tighter government budgets.