China's manufacturing rebound adds to talk of global recovery

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Are the first signs of rebound appearing in the east? Possibly, but don't throw an economic expansion party just yet.

Manufacturing in China expanded for the first time in nine months, as export declines moderated and investment surged due to the government's $586 billion (four trillion yuan) stimulus package, as measured by the closely-followed, independent CLSA China Purchasing Managers Index. The CPMI rose to a seasonally-adjusted 50.1 in April from 44.8 in March, Reuters reported Monday. Readings above 50 indicate an expansion; below 50, a contraction.

Seeing traction in moving earth

Eric Fishwick, head of economic research at CLSA in Hong Kong, says China's effort to stimulate its economy with fiscal spending is getting some traction.

"China's government has been extremely successful in stimulating investment," Fishwick told Bloomberg News Monday. A "sharp improvement in export orders" also fueled the rebound, he said.

The CPMI's rise reinforced data released earlier for the government of China's Purchasing Managers' Index, which rose to 53.5 in April from 52.4 in March, Agence France Press reported Monday.

Economist David H. Wang, a China expert, told DailyFinance Monday the April CPMI data "provides further evidence that slack demand conditions are ending in China."

"Based on earlier economic fundamental data, I raised my Q2 GDP forecast for China to 6.5-7.5 percent and the CPMI data for April and the increased investment spending in China are good signs for the global economy," Wang said.

Wang also cited data released by Caterpillar (CAT), which announced last month that spending on infrastructure in China was sparking a turnaround in demand for bulldozers and earth-moving equipment.

"We're about six months into China's stimulus plan and now we're beginning to see some strength from highway and railroad building, housing construction and public infrastructure work in China," Wang said. "Provided this momentum continues, this will increase demand for infrastructure equipment, construction equipment and many supply categories. This is good news for both China and for American companies, but I must emphasize, this is only two months of data."

Wang said he wants to see "at least two, three more months of positive, solid manufacturing data from China," before he can declare that an infrastructure-led rebound is underway in China.

Economic Analysis: Another pleasant data point from China. Add the April CPMI to the 6.1 percent Q1 GDP increase in China, and there is a spark at the camp site. Still, investors should heed economist Wang's analysis: essentially, we have only two months of positive data, and little more. More than once (to say the least), economic recoveries have stalled miserably after even a quarter of bullish data points, so the stance remains guarded. The increased demand in the east is welcome, but many more months of positive data must be registered to draw any other upbeat conclusions.

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