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U.S. factory activity races to 14-year high in August

A production operator checks a panel at the SolarWorld solar panel factory in Hillsboro, Oregon, U.S, January 15, 2018. Picture taken January 15, 2018 REUTERS/Natalie Behring

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity accelerated to more than a 14-year high in August, boosted by a surge in new orders, but growing concerns over rising raw material costs as a result of import tariffs could restrain further growth.

The Institute for Supply Management (ISM) said on Tuesday its index of national factory activity jumped to 61.3 last month, the best reading since May 2004, from 58.1 in July. A reading above 50 indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.

The ISM described demand as remaining “robust,” but cautioned that “the nation’s employment resources and supply chains continue to struggle.” According to the ISM, respondents to the survey were “again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations.”

President Donald Trump’s “America First” trade policy has led to an escalating trade war with China and tit-for-tat import tariffs with other trading partners, including the European Union, Canada, and Mexico.

Trump has defended the duties on steel and aluminum imports and a range of Chinese goods as necessary to protect American industries from what he says is unfair foreign competition.

Economists have warned that the tariffs could disrupt supply chains, undercut business investment and slow the economy’s momentum.

The ISM’s new orders sub-index increased to a reading of 65.1 last month from 60.2 in July. Factories reported hiring more workers last month, with production increasing sharply.

The survey’s supplier deliveries index jumped to a reading of 64.5 last month, highlighting the rising bottlenecks in the supply chain, from 62.1 in July. It hit a 14-year high of 68.2 in June.

U.S. stocks were trading lower while yields of U.S. Treasuries were higher. The dollar <.DXY> was stronger against a basket of currencies.

CONSTRUCTION SPENDING TEPID

In a separate report on Tuesday, the Commerce Department said construction spending barely rose in July as increases in homebuilding and investment in public projects were overshadowed by a sharp drop in private nonresidential outlays.

Construction spending edged up 0.1 percent. Data for June was revised up to show construction outlays declining 0.8 percent instead of the previously reported 1.1 percent drop.

Economists polled by Reuters had forecast construction spending increasing 0.5 percent in July. Construction spending increased 5.8 percent on a year-on-year basis.

Spending on private residential projects rebounded 0.6 percent in July following two straight months of declines.

While homebuilding rose in July, the overall trend has slowed, with builders continuing to complain about rising material costs as well as persistent land and labor shortages. Residential investment contracted in the first half of the year.

Spending on private nonresidential structures, which includes manufacturing and power plants, dropped 1.0 percent in July. That was the biggest decline since August 2017 and followed a 0.1 percent gain in June.

Overall, spending on private construction projects slipped 0.1 percent in July after decreasing 0.5 percent in June.

Investment in public construction projects increased 0.7 percent after tumbling 1.7 percent in June. Spending on federal government construction projects rebounded 2.5 percent. That followed a 3.0 percent drop in June.

State and local government construction outlays advanced 0.6 percent in July after falling 1.6 percent in the prior month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Businesses growing in face of upcoming risks

waiter carries food at British restaurant

By Jonathan Cable

LONDON (Reuters) – Business started 2017 on a solid footing, surveys showed on Friday, thriving ahead of a myriad of political risks in the coming year.

Fears of a growing protectionist agenda in the United States, whether national elections across Europe upset the status quo and just how fractious Britain’s divorce proceedings from the European Union become, are all expected to weigh in the months ahead.

Yet so far those risks seem to have been mostly ignored with firms from Asia to Europe increasing or at least largely maintaining activity. Similar upbeat results are expected later from the United States..

Euro zone businesses started 2017 by increasing activity at the same multi-year record pace they set in December.

China’s factory activity grew for a seventh month and while India’s services business contracted for a third month as firms struggled to recover from a government crackdown on currency in circulation, the pace slowed.

“The outlook for this year is reasonably bright despite all the risks. The numbers for January have generally been quite positive,” said Andrew Kenningham, chief global economist at Capital Economics.

Growth in Britain’s services sector slowed for the first time in four months in January, dipping just below its long-run average, as businesses battled the sharpest rise in costs in more than five years.

But on Thursday the Bank of England sharply revised up its growth forecast for 2017 to 2.0 percent, a view held by only the most optimistic forecaster in a Reuters poll of 50 economists taken last month.

Britain’s economy unexpectedly outpaced all its major peers last year, wrongfooting those who expected an immediate hit from June’s Brexit vote.

The Markit/CIPS British services Purchasing Managers’ Index dropped to a three-month low of 54.5 last month from December’s 15-month high, at the bottom end of a range of forecasts in a Reuters poll of economists, but Markit said the PMIs still point to first quarter growth of 0.5 percent.

IHS Markit’s final composite PMI for the euro zone, seen as a good guide to growth, held at 54.4. It has not been higher since May 2011 and has remained above the 50 mark dividing growth from contraction since mid-2013.

That points to first quarter expansion of 0.4 percent, Markit said, matching the median prediction in a Reuters poll.

“Despite the slightly disappointing outcome this remains a very strong report,” said James Knightley, senior economist at ING.

China’s factory activity expanded for the seventh straight month in January, giving Beijing more room to tackle chronic imbalances in the economy. The Caixin/Markit Manufacturing PMI fell to 51.0.

The world’s second largest economy has seen a broad-based pickup in recent months, with fourth-quarter GDP beating expectations due largely to a strong housing market and higher government spending on infrastructure projects.

A recovery in the country’s “smokestack” industries has also been supported by government mandates to close down outdated production capacity in the coal and steel sectors, as well as a rebound in investment in the property sector that came amid a record flood of credit.

India’s Nikkei/IHS Markit Services PMI remained below 50 registering 48.7 in January as firms still reel from Prime Minister Narendra Modi’s decision in November to abolish high-value bank notes.

Modi’s policy removed 86 percent of the currency in circulation, hitting consumption and capital investments, and shattered traditional cash-reliant supply chains.

(Editing by Jeremy Gaunt)

Momentum and risk: world economy enters 2017 with winds fore and aft

By Jonathan Cable and Nichola Saminather

LONDON/SINGAPORE (Reuters) – Factories across the world fired up – or at least kept up activity – in January with some registering multi-year output highs, just as a barrage of political risks threatens the global economy with potential harm.

Rising protectionism from the United States, concerns over how Britain’s negotiations on leaving the European Union will pan out, and national elections in Europe’s largest economies all lie ahead.

But entering 2017, economic growth gathered momentum, according to surveys released on Wednesday, following on from last year thanks to a bounce in consumption.

Euro zone factories registered the fastest activity rate for nearly six years, China’s activity expanded for the sixth month and Japanese manufacturing growth was the fastest in almost three years.

Even in Britain, where a slump in sterling since the June referendum stoked the sharpest rise in factory costs on record last month, growth remained robust.

There were also signs of growth in Brazil, where industrial output rose in December at its fastest monthly pace in 2-1/2 years after one of the worst years on record.

“So far momentum is pretty strong heading into 2017,” said Jacqui Douglas at TD Securities. “But political risks are definitely one of the biggest this year and given the surprises we had through 2016 it’s really hard to tell what’s in store.”

Among unexpected events last year was Britain’s vote to leave the EU and the election as U.S president of Donald Trump, both seen as the result of anti-establishment anger among voters who feel left out of the wealth of nations.

Signs of concern this may spread could be found on bond markets. The premium investors demand to hold France’s government debt rather than that of similar economies shot up on so-called Frexit fears – the possibility that the far-right National Front might win the presidential election and try to take the country out of the euro zone.

IHS Markit’s final manufacturing Purchasing Managers’ Index for the currency bloc rose to 55.2 in January from December’s 54.9, its highest since April 2011. A Markit/CIPS UK factory PMI edged down to 55.9 from December’s 2-1/2 year peak of 56.1, matching the consensus forecast in a Reuters poll.

Anything above 50 indicates growth.

A similar survey for the United States due later on Wednesday is expected to show factories in the world’s largest economy also increased activity.

TOKYO TEMPERING TRUMP

A stronger dollar helped major economies such as Japan, where export orders surged, Markit/Nikkei PMI numbers showed, a welcome sign for the economy along with recent data suggesting a more durable recovery may be underway.

However, those encouraging signals sit uncomfortably with the growing threat from Trump’s trade policies. Japan is moving to temper the risks with plans to show Trump its firms are ready to create U.S. jobs, according to a document whose contents were revealed to Reuters.

In export-reliant Asia, and other regions where global supply chains are closely interlinked, Trump’s election is a particular risk to both world trade and broad economic growth if the new president follows though on his “America First” policies.

“The uncertainty surrounding future market access to the U.S. is bound to weigh on investment activity as companies await regulatory certainty,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.

“I suspect there’s going to be a lot of capital expenditure expansion projects that will be put on hold as long as the uncertainty surrounding the trade environment persists.”

In China, the world’s second-biggest economy, growth was led by an investment and construction boom that has helped spur global growth. Its official PMI stood at 51.3 in January, slowing marginally from 51.4 in December.

Analysts question whether Chinese growth will be sustainable once the impact of earlier stimulus begins to wear off and if the property market cools. They warn a slowdown in the Asian economic powerhouse could ripple across the region and beyond.

“Within China, we expect that real estate will slow down, because the government is quite keen to contain housing prices,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.

Other regional economies like Indonesia showed positive momentum in manufacturing activity, while Indian factory activity returned to modest growth in January, bouncing from a contraction in December triggered by the government’s scrapping of high value banknotes.

Even in laggard South Korea where manufacturing contracted for the sixth straight month, exports rose at the fastest pace in nearly five years.

“We remain quite cautious how much of an acceleration in growth we can see in this pretty challenging climate,” Oxford Economics’ Kuijs said.

“Things like PMI are timely indicators of the hard data but sometimes they do run ahead, and the improvement in actual data doesn’t materialize.”

(Editing by Jeremy Gaunt)

General Motors says to invest additional $1 billion in U.S.

By David Shepardson

WASHINGTON (Reuters) – General Motors Co confirmed on Tuesday it would invest an additional $1 billion in its U.S. factories in 2017 and will move some parts production from Mexico to the United States that was previously handled by a supplier.

The investments are in addition to the $2.9 billion the automaker announced last year, GM said.

GM and other automakers have been sharply criticized by U.S. President-elect Donald Trump for building vehicles in Mexico that are imported into the United States. Trump will be sworn in on Friday.

GM said the $1 billion investment will create or retain 1,500 jobs. The Detroit automaker said details of individual projects will be announced throughout the year.

GM also said it would begin work on bringing axle production for its next generation full-size pickup trucks, including work previously done in Mexico, to operations in Michigan, creating 450 U.S. jobs.

The part was previously built by American Axle Manufacturing Holdings Inc. American Axle did not immediately respond to a request for comment.

GM spokeswoman Joanne Krell said the automaker planned to add 7,000 new U.S. jobs over the next two to three years. Krell said the decisions being in the announced “had been in the works for some time” but she added “the timing was good for us to share what we are doing.”

The 7,000 figure includes the 450 jobs on axle production, 1,500 jobs tied to the $1 billion announcement and more than 5,000 new jobs tied to engineering, GM Financial and advanced technology.

GM shares rose in early trading, up 0.7 percent or $0.26 per share to $37.60.

‘BIG STUFF’

Trump, who made bringing back manufacturing to the United States a large part of his successful election campaign, did not directly mention GM on Tuesday but touted recent automaker investments in the United States.

“With all of the jobs I am bringing back into the U.S. (even before taking office), with all of the new auto plants coming back into our country and with the massive cost reductions I have negotiated on military purchases and more, I believe the people are seeing ‘big stuff,'” he wrote in a pair of tweets.

Trump has been inaccurate in describing some U.S. auto investments, wrongly saying last week that Fiat Chrysler was planning to build a new factory in the United States. The company announced it is investing $1 billion in two existing plants, adding 2,000 jobs.

On Jan. 3, Trump threatened to impose a “big border tax” on GM for making some of its Chevrolet Cruze compacts in Mexico – and he has extended that threat to German automakers like BMW and Toyota Motor Corp over building vehicles abroad.

GM also said an unnamed supplier has committed to make components for GM’s next-generation full size pick-up trucks in Michigan, moving 100 supplier jobs from Mexico to the United States.

But even as GM invests in U.S. plants, it has also been making job cuts. In recent months, the company announced plans to lay off about 3,300 employees at three factories.

It said in November it would cut about 2,000 jobs when it ends the third shift at its Lordstown, Ohio and Lansing, Michigan plants in January. Last month it said it planned to cancel the second shift and cut nearly 1,300 jobs from its Detroit-Hamtramck assembly plant in March.

GM’s “general plan is to build where we sell and we’re focused on what we’re doing in the United States,” Chief Executive Mary Barra said in an interview with Reuters on Monday.

Barra, who said she planned to attend Trump’s inauguration, said GM wants to work with him, adding, “I do believe we have more in common than we have areas that we aren’t aligned.”

(Reporting by David Shepardson in Washington and Ankit Ajmera in Bengaluru; Editing by Ted Kerr and Frances Kerry)

Ethiopian protesters attack factories in Africa’s rising economic star

Demonstrators chant slogans while flashing the Oromo protest gesture during Irreecha, the thanksgiving festival of the Oromo people, in Bishoftu town, Oromiya region, Ethiopia, i

By Aaron Maasho

ADDIS ABABA (Reuters) – Protesters in Ethiopia damaged almost a dozen mostly foreign-owned factories and flower farms and destroyed scores of vehicles this week, adding economic casualties to a rising death toll in a wave of unrest over land grabs and rights.

The violence has cast a shadow over a nation where a state-led industrial drive has created one of Africa’s fastest growing economies, but where the government has also faced rising international criticism and popular opposition to its authoritarian approach to development.

The flare-up followed the death of at least 55 people in a stampede on Sunday when police fired tear gas and shot into the air to disperse demonstrators in the Oromiya region near the capital.

It raises to more than 450 the number of people rights groups and opponents say have been killed in unrest since 2015. A U.S. researcher was killed on Tuesday when her car was attacked by stone-throwers near Addis Ababa.

UC Davis post doctoral student Sharon Gray is shown November 20, 2014. Photo courtesy of Plant Biology Dept/UC Davis/Handout via REUTERS

The government says the toll cited by critics is inflated.

Fana Broadcasting, which is seen as close to the state, reported on its website that 11 companies ranging from textile firms to a plastics maker to flower farms had been damaged or destroyed, while more than 60 vehicles had been torched.

Dutch firm FV SeleQt said its 300-hectare vegetable farm and warehouse had been plundered. Another Dutch firm, Africa Juice, said its factory had been partially destroyed.

The manager of one of the Turkish companies, textile firm Saygin Dima, told Reuters this week at least a third of his factory was burned down.

Fana’s website showed images of burned-out trucks on the road side, blaming the damage on “perpetrators of violence”, echoing the line taken by the government, which accuses local rebel groups and dissidents based abroad for stoking the unrest.

It said the firms damaged had created 40,000 jobs in a country of 99 million people that has long been blighted by famine but which has been rapidly transforming its fortunes, delivering growth rates that hit 10 percent in fiscal 2015/16.

Demonstrators chant slogans while flashing the Oromo protest gesture during Irreecha, the thanksgiving festival of the Oromo people, in Bishoftu town, Oromia region, Ethiopia, October 2, 2016. REUTERS/Tiksa Negeri

STRUGGLING FOR WORK

People from Oromiya, a region at the heart of the state’s industrialization efforts, accuse the state of seizing their land and offering tiny compensation, before selling it on to companies, often foreign investors, at inflated prices.

They also say they struggle to find work, even when a new factory is sited on property they or their families once owned.

“I went to apply for a job at a steel factory that was built on my family’s land but I was turned away when they discovered I was the son of the previous land owner,” said Mulugeta, who asked for only his first name to be used to avoid any state reprisals.

“Most factories give priority to employees from other regions for fear local people would one day stage strikes,” he said, speaking by telephone from Oromiya where he now drives a truck for another company.

In Ethiopia, once ruled by Marxists whose draconian policies drove the nation into a devastating 1984 famine, all land still belongs to the state and owners are only deemed leaseholders, even if they have been living or farming there for generations.

For the state, it means a swift and legally uncomplicated route to ejecting leaseholders to make way for new factories and construction of highways and railways, including a 750-km electrified line opened this week that links the capital of landlocked Ethiopia with Djibouti’s busy sea port.

For the opposition and those turfed out of farm plots where they grow food for their families, it shows how the government that has ruled for quarter of a decade tramples on their rights.

“It is time for the government to change tack,” said Merera Gudina, chairman of the opposition Oromo Federalist Congress. “People are demanding change, but the problem is the only language the government knows is the use of excessive force.”

The government says police have clashed with what it calls “armed gangs” intent on destabilizing the nation. A regional Oromo official accused protesters of hindering efforts to reverse generations of poverty in Oromiya.

Pressure has been mounting from abroad too. U.S. President Barack Obama told his Ethiopian hosts in Addis Ababa last year that greater political openness would “strengthen rather than inhibit” the development agenda. The government said it differed over the pace of any reforms demanded by Washington.

“Economic development has outpaced political change,” said former U.S. ambassador to Ethiopia and academic David Shinn.

Noting “phenomenal” economic gains, he said: “It is less clear, however, whether the Ethiopian peasant farmer, who still constitutes about 80 percent of the population, has benefited significantly.”

FEELING THE HEAT

Foreign investors are feeling the heat from protesters, not because they are foreigners but because they are among the biggest purchasers of the new land leases from the state.

Ethiopia’s budding tourist industry is also taking a hit. The Bishangari Lodge, on Lake Langano about 200 km south of Addis Ababa, was looted and torched this week.

Resort owner Omar Bagersh said, even before the attack, he had had 90 percent cancellations in the past two or three months. “It is very difficult to convince a tourist to travel to a country that has this kind of situation,” he said.

Investors have been attracted by cheap electricity from Ethiopia’s huge new hydroelectric dams being built, cheap labor, improving transport and tax incentives offered by a financially stretched government hungry for foreign exchange.

New industries have been focused in Oromiya and the nearby Amhara regions, which surround Addis Ababa, a city that now boasts Sub-Saharan Africa’s only light rail metro system and a rapidly rising skyline.

Protests in Oromiya province initially erupted in 2014 over a development plan for the capital that would have expanded its boundaries, a move seen as threatening farmland.

Clashes with police flared in 2015 and this year, although the government has shelved the boundary plan.

Protesters have increasingly focused on broader political issues, accusing the government of stifling opposition. The government, which won a parliamentary election in 2015 in which the opposition failed to secure a single seat, denies this.

(Additional reporting by Toby Sterling in Amsterdam and Edmund Blair in Nairobi; Writing by Edmund Blair; Editing by Andrew Heavens)

Japan quake survivors face low food supply, closed factories

By Minami Funakoshi and Kaori Kaneko

TOKYO (Reuters) – The Japanese share market fell more than 3 percent on Monday after a series of earthquakes measuring up to 7.3 magnitude struck a southern manufacturing hub, killing at least 42 people and forcing major companies to close factories.

About 30,000 rescue workers were scouring the rubble for survivors and handing out food to those unable to return to their homes following the quakes which struck Kyushu island from Thursday. The biggest hit near Kumamoto city early on Saturday.

“There are still missing people. We want to make further efforts to rescue and save people and prioritize human lives,” Prime Minister Shinzo Abe told parliament, adding he aimed to declare the region a disaster zone to free up reconstruction funds.

The Nikkei stock index ended 3.4 percent lower, hit by a stronger yen and as investors weighed the impact of the disaster on manufacturers’ supply chains and insurers.

Factories for major manufacturers including Toyota, Sony and Honda were closed, disrupting supply chains around the country.

Japan’s atomic regulator declared three nuclear plants in the region safe, giving a degree of comfort to a country deeply scarred by the Fukushima nuclear disaster of 2011 that was sparked by an earthquake and tsunami.

All commercial flights to the damaged Kumamoto airport were canceled and the bullet train service to the region was suspended.

Food was in short supply as roads remained cut off by landslides. Evacuees made an SOS signal out of chairs at a school playground, hoping to catch the attention of supply helicopters, Japanese media reported.

“Yesterday, I ate just one piece of tofu and a rice ball,” said the mayor of one of the areas affected. “What we’re most worried about now is food.”

Of more than 500 quakes hitting Kyushu since Thursday, more than 70 have been at least a four on Japan’s intensity scale, strong enough to shake buildings.

DESPERATE SEARCH

The Kumamoto region is an important manufacturing hub and home to Japan’s only operating nuclear station.

Chief Cabinet Secretary Yoshihide Suga said the government would “take all the necessary measures” to support companies affected by the disaster and the economy more broadly, including tapping into reserve funds of 350 billion yen ($3.24 billion).

Abe said a sales tax increase next year would go ahead barring a financial crisis or major natural disaster, without elaborating on whether the quakes qualified as such a disaster.

On the stock market, Sony Corp and Toyota Motor led the sharp falls among manufacturers, dropping 6.8 percent and 4.8 percent respectively. Nissan Motor and Honda Motor both lost about 3 percent. Insurers and utilities were also sold, with nuclear plant operator Kyushu Electric Power slumping nearly 8 percent.

Toyota said it would suspend production at plants across Japan after the quakes disrupted its supply chain.

Electronics giant Sony said its Kumamoto image sensors plant would remain suspended. One of the company’s major customers for the sensors is Apple. Honda said production at its motorcycle plant in southern Japan would remain suspended through Friday.

Numerous aftershocks have rattled the region with one of 5.8 magnitude on Monday evening. There were no immediate reports of new damage or injuries.

Automotive chipmaker Renesas Electronics said earlier the aftershocks were keeping it from installing replacement equipment at a quake-hit plant.

The Kumamoto government said 42 people had been killed and nine were missing.

Thirty three people have been confirmed dead in Saturday’s quake and nine in the smaller tremor just over 24 hours earlier. The government said about 190 of the injured were in serious condition and some 110,000 people had been displaced.

Rescuers digging with their bare hands dragged some elderly survivors, still in pyjamas, out of the rubble and onto makeshift stretchers made of tatami mats.

“We can’t take a bath, we don’t have any clothes to change into – we just have what we ran out in,” a woman at one evacuation center told TBS television.

Public broadcaster NHK showed footage of forests and rice fields torn apart by the quake, saying one 50 km (31 miles) strip shifted almost 2 meters (6 feet) sideways.

Quakes are common in Japan, part of the seismically active “Ring of Fire” which sweeps from the South Pacific islands, up through Indonesia, Japan, across to Alaska and down the west coast of North, Central and South America.

At the other end of the ring this weekend, Ecuador’s biggest earthquake in decades killed at least 262 people, caused devastation in coastal towns and left an unknown number trapped in ruins.

A 9 magnitude quake and tsunami in northern Japan in March 2011 caused the worst nuclear crisis since Chernobyl in 1986, shutting down the nuclear industry for safety checks and sending radiation spewing across the countryside.

Nearly 20,000 people were killed in the 2011 tsunami.

(Additional reporting by Linda Sieg, Elaine Lies, William Mallard, Shinichi Soashiro, Chris Gallagher, Kiyoshi Takenaka, Tim Kelly and Thomas Wilson; Writing by Stephen Coates; Editing by Robert Birsel and Ian Geoghegan)

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