Euro Zone's Factories Gain Momentum

By Paul Hannon 
        The euro zone's manufacturing sector expanded at a faster pace than  first estimated in April, while the recovery became more broadly based and was  aided by a marked acceleration in Italy, one of the currency area's weaker  economies over recent years. 
         But in a reminder that low inflation is likely to remain a worry for  the European Central Bank in the months ahead, manufacturers reported cutting  their prices for the second straight month. They also reported a decline in the  costs of goods and services they use to make their products. 
         Data provider Markit said its purchasing managers index for  manufacturing--which is based on a survey of 3,000 companies--rose to 53.4 from  53.0 in March, a slightly higher reading than the preliminary estimate of 53.3  released last month. A reading above 50 indicates month-to-month expansion in  activity. 
         The economic recovery that started in the second quarter appears to  be broadening, with all of the national PMIs on which the euro-zone measure is  based signaling an increase in activity for the first time since November 2007.  
         "The recovery is becoming more broad-based and therefore hopefully  more sustainable, as rising demand from each member state feeds growth in other  countries," said Chris Williamson, Markit's chief economist. 
         According to the survey, manufacturing activity has now expanded for  10 straight months, and that looks set to continue in coming months, with new  orders rising. That included a pickup in export orders from the U.S. and Asia,  despite fears that the stronger euro may have made the currency area's goods  less competitive on world markets. 
         That prompted manufacturers to hire additional workers for the fourth  straight month, and at the fastest pace since August 2011. 
         Signs of a continued expansion in manufacturing activity will likely  be seen by members of the European Central Bank's governing council as  confirmation that a seven-month period of very low inflation hasn't derailed a  modest economic recovery that began in the second quarter of 2013, despite  warnings from the International Monetary Fund and other bodies. 
         The European Union's statistics office Eurostat said Wednesday that  euro-zone consumer prices increased 0.7% in April from a year earlier, a pickup  in the annual rate of inflation from 0.5% in March. The ECB's target is an  inflation rate of just under 2.0%. 
         The ECB expects that while the inflation rate will remain low for  much of the rest of this year, a gradual pickup in economic activity will slowly  push the inflation rate toward that target, and that there is little risk that  the currency area will slip into deflation, or a period of self-reinforcing  price declines. 
         However, the survey of manufacturers also found that inflationary  pressures eased in April, with businesses reporting that the prices they paid  for raw materials and other inputs fell, while they cut the prices they charge  their customers. The Netherlands was the only euro-zone member surveyed to  record an increase in the prices charged by manufacturers. 
         Write to Paul Hannon at paul.hannon@wsj.com 
         (END) Dow Jones Newswires
         May 02, 2014 04:32 ET (08:32 GMT)