As China Slows, the Pain Hits Home

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U.S. Services Sector Slows in December, Factory Orders Rise

The pace of growth in the services sector slowed for a second straight month in December with business activity expanding at a lower rate and new orders contracting, according to the Institute for Supply Management.

ISM’s index fell to 53 points last month from 53.9 in November, dropping to its lowest reading since June 2013 and under expectations for a read of 54.5.

Separately, financial data firm Markit said its services sector Purchasing Managers Index eased slightly from the prior month, slipping by 0.2 point to 55.7 in the month.

“We think the economy is on track and in recovery mode, and it isn’t unusual to see periodic weak reports,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York. “ISM was a bit weak but the ongoing trend supports an ongoing recovery.”

For both surveys, a reading above 50 indicates expansion. December marked the 48th straight month of growth in ISM’s services index. In addition, ISM’s employment gauge rose to 55.8 from 52.5 in November.

A separate report from the Commerce Department showed new orders for factory goods rebounded in November, rising 1.8 percent, as had been forecast.

The department also said orders for durable goods, manufactured products expected to last three years or more, rose 3.4 percent instead of the 3.5 percent increase reported last month. Durable goods orders excluding transportation rose 1.2 percent as previously reported.

As a Boom Slows, Peru Grows Uneasy

“This is Peru,” he said. “When you go to the shopping malls they’re full of people, they’re full. That’s a good indicator that people are really spending money.”

Peru’s economy grew an average of 6.4 percent a year from 2002-12 after adjusting for inflation, according to government figures, a remarkable period of sustained expansion that has made it one of the world’s star economies.

But suddenly growth has slowed here, and just beyond the view from Mr. Kristensen’s window, under Lima’s perpetually gray winter sky, the reason becomes clear.

At Dock 5B, ships are loaded with Peru’s mining riches, including copper ore, lead and zinc — the raw materials that fueled the Peruvian boom with their rising prices in recent years. But in the first six months of this year, mineral shipments through the port were down 12 percent by weight, according to APM Terminals, Mr. Kristensen’s company, which operates the facility for the Peruvian government.

The decrease resulted from a drop in demand in a struggling world economy and a slowdown in China, one of Peru’s top trading partners. Those factors have also caused mineral prices to plummet, sucking the wind from the sails of Peru’s economy.

This bust amid the boom has given vent to a national angst, with hand-wringing over the economy a mainstay of newspaper front pages and television news programs. Headlines bemoan soaring trade imbalances as the value of mining and other exports, including apparel and agricultural products, plunges at the same time imports are surging.

Miguel Castilla, the economy and finance minister, said he expected the economy to grow between 5.5 percent and 6 percent this year. While that was down from earlier predictions, it would maintain Peru’s place as one of the fastest-growing economies in Latin America. Even some of the most skeptical economists predict Peru’s economy will grow by nearly 5 percent this year, a rate that would be celebrated as a ripping success in many countries.

But in Peru, such predictions are being treated as something close to disaster.

“Growing for a decade at 6 percent, you get used to it,” said Gustavo Yamada, the dean of economics at the University of the Pacific in Lima. Mr. Yamada said he expected growth in Peru to settle into a range of about 4 percent to 5 percent in coming years.

“That creates a scenario,” he said, “of, ‘Hey, wait a minute, we were going to be the next Inca tiger, what a disappointment.’ ”

Polls show that consumer confidence has slipped this year, and a Peru Central Bank survey in June showed that investor confidence was at its lowest point in almost two years.

“We have become used to a sustained period of growth, and we have forgotten about cycles,” said Mr. Castilla, the economic minister.

Just as outside factors, like rising metals prices, fueled Peru’s boom, similar factors, like the slow recovery in the United States, Europe’s economic woes and China’s slowdown, are now causing it to cool down, he said.

“We’re at a crossroads,” Mr. Castilla said. “We have everything we need to cope with this less favorable world condition, but there’s an urgent need to implement the reforms that have been approved recently and to tackle other issues.”

Those changes include steps to clear away economic obstacles — like making government more efficient, making capital markets work better and improving infrastructure.

Mr. Castilla’s ministry has also chosen a list of 31 projects worth $22 billion, including mining and infrastructure, that it wants to fast-track by removing bureaucratic obstacles.

Peru’s economy is a mash-up of strengths and weaknesses. The country has robust international reserves, a large rainy day fund that can be used for economic stimulus in a crisis, and low public debt.

Poverty in Peru has been cut by more than half in recent years, falling from 59 percent of the population in 2004 to 26 percent last year, according to government figures. Millions have moved into the middle class, which the Inter-American Development Bank estimates has doubled in size from 2007-12 and now includes about half of all Peruvian families.

Economic Expansion Slows Down in Japan

TOKYO — Japan’s economic growth slowed in the quarter that ended in June to an annualized rate of 2.6 percent, government data showed Monday, clouding the outlook for the economic policies of Prime Minister Shinzo Abe and raising concerns that he may put off moves to tackle the country’s enormous public debt.

This was the third consecutive quarter of growth for Japan’s gross domestic product of about $5 trillion, the third-largest in the world, after those of the United States and China.

Still, the expansion fell short of analysts’ expectations for Japan, whose economy grew at a robust pace of 3.8 percent in the previous quarter, helped by the Abe government’s monetary and fiscal stimulus drive.

Economists polled by Reuters had expected Japan’s economy to grow at a similarly healthy clip in the April-to-June quarter. But weak capital expenditure, reflecting continued caution among Japanese corporations about the country’s long-term prospects, slowed growth, according to figures released by the Cabinet Office.

Compared with the previous quarter, the Japanese economy grew 0.6 percent.

Private consumption rose a better-than-expected 0.8 percent over the previous quarter, as a brightening mood in Japan pushed up spending on food, travel and luxury products. But capital expenditure fell 0.1 percent, below a market forecast for a 0.7 percent increase.

“Corporations’ cautious attitudes was the main factor limiting growth,” Harumi Taguchi, principal economist at the research firm IHS, said in a note. Companies, he added, “remained hesitant to increase capital expenditure and continued to cut inventory in light of the slow recovery of exports and uncertainty regarding the sustainability of the economic recovery.”

Though export growth slowed in the quarter, shipments were expected to pick up as recovery gathered steam overseas, Mr. Taguchi said, especially in the United States and Europe.

A weaker yen has also assisted Japanese exports.

Less robust growth in China, Japan’s largest trading partner, is a concern. A spat over islands in the East China Sea that are claimed by both countries, has also hurt trade between the two countries.

Signs of slowing growth could strengthen the hand of critics of Mr. Abe’s economic drive, known as Abenomics, which has relied heavily on monetary stimulus and government spending to revive growth in Japan’s long-deflationary economy.

Mr. Abe has promised to follow up with market deregulation and the easing of trade barriers to raise the long-term growth potential.

Weaker growth could also derail Japan’s plans to raise taxes and pare back soaring government debt, which reached ¥1 quadrillion, or $10.3 trillion, in the latest quarter, more than twice the size of its economy.

To start easing that debt burden, the government plans to raise the sales tax to 8 percent next April, from the current level of 5 percent, and to 10 percent in October 2015.

According to government calculations, raising the sales tax could double tax receipts to more than 5 percent of gross domestic product, compared with the current 2 percent to 3 percent.

Whether Japan goes ahead with raising the tax will depend on how sustainable the government deems economic growth to be. Under the current plan, the increase will be implemented if it is likely that the economy can sustain at least 2 percent real G.D.P. growth for the next decade.

Mr. Abe said Monday that he remained confident on Japan’s economic prospects and that he would stay on course with economic overhauls. He has been noncommittal about the consumption tax, however.

“The economy has been steadily rising,” he said at a news conference. “I’ll continue to focus on the economy, implementing further growth strategies in the autumn.”

Some economists warn that raising taxes too soon could derail Japan’s nascent recovery.

“A tightening in fiscal policy would almost certainly snuff out the current cyclical rebound,” Duncan Wooldridge and Silvia Liu, economists at UBS, said in a note to clients before the G.D.P. numbers.

“The desire for fiscal consolidation in the long run must not sacrifice the war on deflation in the short run,” the note continued. “To hike or not to hike the consumption tax is the only policy which matters over the next four quarters.”

China’s Export Growth Slows Amid Concern of Slowdown

HONG KONG — Chinese exports showed only modest growth in May, rising just 1 percent from a year earlier, officials said Saturday, an increase that was much lower than analysts’ expectations.

In April, the increase was 14.7 percent, a figure that was believed to have been artificially inflated. Before Saturday’s figure came out, analysts expected Chinese exports to have risen at least 7 percent in May.

Concern is rising about the sputtering Chinese economy and tightening liquidity. The European Union, China’s biggest trading partner, remains mired in a stubborn economic downturn, while in the United States, China’s next-largest export market, the Federal Reserve has recently been sending signals it may start curtailing its stimulative monetary policies.

China’s figures showed it had a trade surplus of $20.4 billion in May, up from $19.3 billion, as imports declined 0.3 percent, the Customs Administration said. The drop in imports — however slight — was a possible sign of weakness in the domestic economy.

Chinese stocks declined last week, their first weekly decline in six weeks, amid signs of tightening liquidity within China. A clearer picture of the Chinese economy is expected Sunday, when the government releases data on retail sales, industrial output and inflation.

Economists had expected the May figures to show a slowdown, as the government has begun a campaign to prevent companies from overstating their exports. Many businesses are believed to have done so in March and April as a way to bypass currency controls and bring more money into the country to speculate on further appreciation of China’s renminbi.

The main evidence for such strategies lay in official statistics showing soaring exports to Hong Kong and bonded export zones on the mainland even as exports to the rest of the world from these places remained weak.

Louis Kuijs, an economist in the Hong Kong office of the Royal Bank of Scotland, had estimated in May that more than half of the officially reported growth of 14.7 percent in April from a year earlier was the result of companies’ manipulating their statistics to place bets on the Chinese currency. The true rate of export growth in April, without the effects of these strategies, was more like 5.7 percent.

The sharp slowdown in export growth in May “in part reflects the impact of a clampdown by the government on firms dressing up financial inflows as exports,” Mr. Kuijs said in an e-mail on Saturday.

Chinese customs data compiled by CEIC Data in Hong Kong showed that the mainland’s exports to Hong Kong were up only 7.7 percent in May from a year earlier. In April, they had been up 57.2 percent from the same month last year, and in March they had been up 92.9 percent.

Changing expectations about China’s currency — fewer businesspeople now expect further appreciation — may have also reduced the incentive for companies to overstate exports, Mr. Kuijs said.