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Global Economic Slump 'may Be Over' As Industry Booms Again

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The US industrial sector is now growing for the first time in a year and a half, according to an authoritative survey of producers, while Chinese factory activity surged to a 16-month high and the manufacturing outlook in France and Germany improved.

However, the recovery is not being universally shared, with the UK joining Italy and Spain in seeing deterioration in its purchasing managers’ index (PMI) scores. And despite the good news, the Dow Jones dropped 185.68 points to 9310.60 amid worries that losses will continue to mount on banks’ balance sheets.

The Institute of Supply Management said its index of US factory output rose into positive territory, notching up its biggest two-month jump since 1983. The index, in which anything above 50 points represents that the sector is expanding, rose from 48.9 to 52.9 in August. The figures will be taken as evidence that the range of measures taken by the White House to stimulate the economy, including a “cash-for-clunkers†scheme designed to encourage families to buy new cars, is working. Indeed, US car sales increased sharply in August.

The news pushed the dollar higher against the yen and the euro as speculation grew that the US would be able to get back to strong growth sooner than many of its peers.

Analogous surveys in Asia were similarly strong. The Chinese manufacturing purchasing managers' index produced by Markit rose from 52.8 points to 55.1 in August, while an official version also rose to 54 points. It coincided with news that the Communist Party is considering a “Chinese Marshall Plan†to create demand for its products by lending money to countries in Africa, South America and Asia.

In Taiwan, the PMI rose for the sixth successive month from 53.8 in July to 55, while in South Korea the index stood at 53.6 – the second highest reading in 19 months, though down from 54 in July.

In Europe, the French and German PMIs both improved, with France’s index up from 48.1 to 50.8, while Germany’s was up from 45.7 in July to 49.2 last month .

The data is of particular importance since many economists consider it to be a useful indication for how the wider economy is performing. Indeed, Goldman Sachs economists have declared that a combination of the UK PMIs for the main sectors is usually a better proxy for determining gross eventual domestic product growth in any given quarter than the official provisional estimates.

However, Graham Turner of GFC Economics cautioned reading too much into the August improvement.

He said: “The boost from one-off initiatives – cash-for-clunkers – is distorting the underlying picture. One could conclude that the Obama plan is at least working in the short run and, therefore, should give the economy some breathing space to work through the excess supply of properties. Equally, one could also argue these initiatives deflect from more durable policies that will prevent a relapse in 2010.â€

It's the survey recovery.

We appear to be on the brink on another leg down and yet we still have the propaganda machine running at full speed to convince us all it's all over.

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