Industry leads recovery in Europe and the US

The new business year began with a flurry of economic optimism yesterday as closely-watched surveys of industrial activity from Europe and the US showed buoyant growth.

In Europe, the manufacturing purchasing managers' index (PMI) showed that factory activity across the crisis-hit eurozone improved for a third consecutive month in December, thanks to a surge in new orders and rapid hiring of new staff.

In the US, factory output expanded as its quickest rate for seven months as consumer and corporate spending began to take over from the initial boost of inventory rebuilding.

The European index, compiled by Markit, rose to 57.1 in December, up from 55.3 the previous month and the 15th month above the all-important 50 level, which divides expansion from contraction.

Germany is still the engine of the bloc's growth, thanks to strong industrial exports, but the improvements are starting to spread. France, the Netherlands and Austria all recorded solid performances last month, and even hard-hit economies such as Ireland and Portugal saw increases in industrial activity.

Of the eurozone's struggling "peripheral" economies, only Greece remains in decline, the Markit survey showed. "Germany remained the star performer, seeing near-record growth, followed by France, where the PMI slipped only slightly from November's 10-year peak," said Chris Williamson, the chief economist at Markit. "However, welcome signs of recovery were also evident in the periphery, where export sales helped to boost output growth in all cases except Greece, where the rate of decline at least moderated," he added.

Within the headline PMI figure, the output index also rose to a five-month high of 58.4 and the manufacturing jobs index shot up to 53.8 – its fastest rise for more than 10 years – raising hopes for improved consumer confidence, despite unemployment in the eurozone running at more than 10 per cent. "Robust orders and rising backlogs of work bode well for eurozone manufacturing activity early in 2011," said Howard Archer, the chief economist at IHS Global Insight.

But the end of inventory rebuilding and vicious public spending cuts will weigh on the year as a whole, Mr Archer warned. "It still seems likely that eurozone manufacturers will find life more difficult as 2011 progresses," he said.

On the other side of the Atlantic, the economic doom and gloom is also showing signs of being dispelled.

Even before yesterday's manufacturing figures were released, the price of oil for February delivery hit $92 – a 27-month high – as traders gambled on further global economic recovery in 2011, boosted by stronger signs of life from the US.

Sure enough, the Institute for Supply Management (ISM) manufacturing index published later in the day showed a rise from 56.6 in November to 57 last month, within which the new orders index rose to 60.9 – its highest level since May – and the production index rose from 55 to 60.7.

The good news from the ISM followed last week's jobless claims data and regional manufacturing figures, both of which also pointed to a better economic performance in 2011.