U.K. Manufacturing Grows in Sign of Industry Stabilization

U.K. manufacturing expanded for a second month in January as orders rose and output surged the most since September 2011.

A gauge of factory activity was at 50.8, compared with a revised 51.2 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today. A reading above 50 indicates expansion. Separate reports today showed euro-area manufacturing shrank less than initially estimated last month, while Chinese manufacturing expanded.

Britain’s economy shrank by a more-than-forecast 0.3 percent in the fourth quarter and the Bank of England said last month that “substantial headwinds to recovery remained.” Still, Markit said the fact that its factory index remains above 50 is an encouraging start to 2013.

“On the surface this is good news for manufacturing and should be welcomed,” CIPS Chief Executive Officer David Noble said in the statement. “However, underlying factors suggest deep rooted problems remain.”

The median forecast of 29 economists in a Bloomberg News survey was for a decline to 51 in January from an initially reported 51.4. Markit said the increase in the output gauge reflected a “robust increase in consumer goods.” Domestic orders improved, countering a decline in export orders, and the labor market “continued to stabilize,” it said.

‘Offers Hope’

The output reading “offers hope that the contraction in the fourth quarter will not be repeated in the first quarter,” said James Knightley, an economist at ING Bank NV in London. “Order books are also looking OK, so we are hopeful of another positive manufacturing figure in February and March.”

The pound weakened against the dollar after the report. It was trading at $1.5831 as of 10:48 a.m. London time, down 0.2 percent from yesterday.

London-based Invensys Plc said in a Jan. 24 statement that there was “continued softness” in European and North American equipment orders in the final quarter of 2012. It expects its performance will improve for the full year “subject to any significant changes to the global macro-economic environment.”

While manufacturing is showing signs of improving, the larger services industry remains weak. Markit will publish its survey of services on Feb. 5.

The factory survey “will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector, which contracted at the fastest rate for two years in December,” Markit said.

Global Backdrop

In the euro region, a factory gauge rose to 47.9 in January from 46.1 in December, according to a separate Markit report today. That compares with an initial estimate of 47.5 on Jan. 24. The index for Germany, the region’s largest economy, jumped to 49.8 from 46. Italy’s measure also rose, while France’s declined.

The Purchasing Managers’ Index for China was 50.4 in January compared with 50.6 in December, the National Bureau of Statistics said. A separate gauge from HSBC Holdings Plc and Markit covering fewer businesses rose to a two-year high of 52.3 from 51.5.

U.S. manufacturing probably strengthened last month, economists said before a report today. The Institute for Supply Management’s January factory index will rise to 50.6 from 50.2 the prior month, according to the median estimate in a survey.

The U.S. Labor Department also publishes payrolls data today. That report will show that employers hired 165,000 new workers last month, the most since August, following a 155,000 gain in December, according to another Bloomberg survey.

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