2012.05.02 11:52:58 2ND UPDATE: Euro-Zone Manufacturing Slumps As Unemployment Matches Record High

-- Euro-zone April PMI slump led by Greece as austerity bites across the region -- Euro-zone PMI fall confirms region is lagging US, Asian recoveries -- Manufacturing payrolls slashed at steepest pace in more than two years -- Data suggest region will struggle to emerge from recession quickly -- Unemployment rate matched record high in March (Adds unemployment figures.) By Ilona Billington and Paul Hannon Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The euro zone's manufacturing sector shrank at the sharpest pace in almost three years in April, while its unemployment rate rose to match a record high in March as 169,000 people lost their jobs. The grim data indicate that the currency area's economy is likely to continue to contract in the second quarter. Manufacturing activity in the U.S. and Asia expanded in April, confirming the euro zone as the weakest region in the global economy as the fiscal crisis and austerity programs take their toll. The manufacturing PMI for the euro zone slumped to 45.9 in April from March's 47.7. That was weaker than the preliminary reading and also the lowest index level since June 2009. Economists had forecast the index would be unchanged from the 46.0 preliminary reading. A level above 50 signals an expansion in activity, while a level below 50 signals a contraction. "Manufacturing in the euro zone took a further lurch deeper into a new recession in April, with the PMI suggesting that output fell at a worryingly steep quarterly rate of over 2%," said Chris Williamson, chief economist at Markit. In contrast, the U.S. ISM's manufacturing purchasing managers' index rose to 54.8 in April from 53.4 to reach its highest level since June last year. China's official PMI, meanwhile, came in at 53.3, up from March's reading of 53.1. The euro sank and the two-year German bond yield hit a record low after the PMIs were released, while yields on Italian and Spanish 10-year government bonds ticked up a touch. The decline in euro-zone manufacturing activity has spread across the currency area, but was steepest in Greece, Markit Economics' PMI for the sector showed Wednesday. The European Union's official statistics agency Eurostat Wednesday said the unemployment rate rose to 10.9% from 10.8% in February. That matched expectations, and equaled the April 1997 rate, which had been the highest since records began in 1995. The number of people without jobs rose to 17.365 million, an increase of 1.732 million from March 2011, and the most since records began in January 1995. The continued rise in unemployment is likely to crimp consumer spending in coming months, and limit the euro-zone economy's ability to grow rapidly. It is also likely to fuel discontent with the austerity programs now in place in most members of the currency area. Demonstrators turned out in large numbers for May Day rallies in hard-hit European countries Tuesday, protesting their governments' push for austerity and flexing populist muscle ahead of key Greek and French elections May 6. A turnaround in the jobs market appears unlikely in the near term. According to the surveys of purchasing managers, manufacturers across the region cut jobs for a third straight month in April and at the fastest pace in more than two years as new orders--both domestically and from overseas--declined, highlighting firms' gloomy economic outlook. "It is evident that euro-zone manufacturers are currently finding life very difficult amid challenging conditions," said Howard Archer, chief euro-zone and U.K. economist for IHS Global Insight. "Domestic demand is being handicapped by tighter fiscal policy in many euro-zone countries, still-squeezed consumer purchasing power and rising unemployment." The euro-zone economy contracted by 0.3% in the fourth quarter of last year, and most recent data suggest it did so again in the first quarter of this year. Many economists regard two quarters of contraction as indicating an economy is in recession. According to the survey of purchasing managers, manufacturing activity declined in all three of the currency area's largest economies, with domestic orders falling. Germany's manufacturing PMI fell to 46.2 in April from 48.4 in March, while Italy's PMI slid to 43.8 from March's 47.9, while in France the PMI improved a little to 46.9 from 46.7, remaining firmly in contractionary territory. Economists had forecast the German PMI to fall to 46.3, and the French index to rise to 47.3, unchanged from the preliminary readings. Meanwhile, the Italian manufacturing PMI was expected to drop to 46.7. Greece's PMI fell to 40.7 from 41.3 in March. "The issues facing manufacturers...remain deep-rooted," said Paul Smith, a senior economist at Markit. "Panelists again noted problems in accessing working capital and a culture of cash payments. It remains hard to see how these issues can be solved, suggesting that the manufacturing sector is set for continued struggle in the months ahead." Spain's PMI showed conditions in the country's manufacturing sector deteriorated sharply again in April, with the third consecutive monthly decrease in the index. New orders fell at a substantial pace, amid a faster output contraction and a decrease in output prices, despite continued rises in production costs. The PMI stood at 43.5, down from 44.5 in March, the 12th consecutive month of a sub-50 reading and an indication that Spain's economy probably contracted in April, having shrunk in the fourth quarter of 2011 and the first quarter this year. Spain's IBEX 35 stock index fell hard, dropping 1.1% to 6928.70 following the release of the PMI. "The current level of the manufacturing PMI is consistent with further declines in activity going forward," said BNP Paribas' Ricardo Santos. He forecasts a 0.9% quarter-on-quarter decline in second-quarter gross domestic product. According to the Eurostat figures, Spain's unemployment rate rose to 24.1% from 23.8%. Greece's stood at 21.7%, although that figure was for January, and is likely to have risen since. And while Eurostat said Germany's unemployment rate was steady at 5.6% in March, the country's labor agency Wednesday said using a different method, seasonally adjusted jobless numbers increased by 19,000 in April, with the unemployment rate rising to 6.8% from 6.7%. In the U.S., the unemployment rate stood at 8.2% in March, while Japan's was at 4.5%. -By Ilona Billington, Dow Jones Newswires; +4420 7842 9452; ilona.billington@dowjones.com (Andrea Tryphonides in London, David Roman in Madrid and Christopher Lawton in Frankfurt contributed to this article.) (END) Dow Jones Newswires May 02, 2012 05:52 ET (09:52 GMT)