Closer analysis of the the first economic data for May published by World Economics earlier today paints a more mixed picture of the world economy than its headlines suggested.
While certain areas of the global economy monitored by World Economics (the whole planet except, currently, Europe) are clearly maintaining solid levels of growth, others are, to put it simply, not doing as well.
While significant growth in India is continuing to outpace all other major countries, the China SMI (sales managers' index) has hit a six-month low this month.
While US sales managers have remained in a buoyant mood as their sales continue to tick up, Mexico's economy stood on the verge of contraction.
While Nigeria has continued to grow from its year-long recession, Latin America is still just below the level that separates growth from contraction.
And probably causing great joy locally but irrelevant in the global context, the frontier economy of Mongolia has started to grow after three years of plummeting growth and recession in the private economy.
Five reasons why the SMI matters
- The SMI often provides the first indication each month of the speed and direction of economic growth in an economy
- The SMI provides the most complete indication of growth, covering all private sector activity
- The SMI is based on a key occupational group - uniquely able to sense changes in business activity levels
- The SMI is composite index of business confidence, market growth, sales, prices charged and staffing levels
- The SMI is a diffusion index, any index value above 50 indicates growth and below 50 indicates contraction
For what little it might be worth, and by way of longer-term context, I have worked in or around the international financial industry since 1 September 1979 when I joined Midland Bank International as a fresh-faced ambitious graduate trainee.
In the ensuing nearly 38 years, I cannot recall ever seeing any comment on the Mongolian economy in that time. Other than it might have related to Genghis Khan, Khagan of the Mongol Empire.
US sales managers stay in buoyant mood as sales growth continues
- Headline SMI remained close to the 17-month high reported in April
- Business confidence stays high
- Price charged index level suggests mounting inflationary pressures
The figures that count
The figures that matter are, of course, those recorded in the USA. There is no doubting the positivity there, even if some market observers confess they don't quite understand why. The Headline SMI there registered 54.5 in May, close to the 17-month high reported in April.
Sales managers reported an upturn in new manufacturing orders in May but World Economics panellists in the significant non-manufacturing sector report a fall-off in monthly sales growth and higher consumer prices for goods and services.
Remember too that auto loan defaults have been rising in recent months; Bloomberg headline on 10 March read 'US subprime auto loan losses reach highest level since the financial crisis. If that is not a good leading indicator, then I don't know what is.
Nevertheless, the World Economics data show that the increasingly buoyant levels of business confidence experienced in Q1 continued into the second quarter with a Business Confidence Index reading of 55.9.
Panel members are expecting the economy to improve in the coming months but are slightly less optimistic than they were last month.
Despite the drop off in overall business activity in the private sector, the US economy remains on a solid footing in May with high higher levels of economic growth than a year ago, says World Economics' own commentary.
Global SMI reports stable global sales growth
- Global business confidence remains very strong
- Global price inflation for goods and services eases from April's two-year high
- Market growth Index registers a fall to 53.4
Global manufacturing sector growth at 22-month high
- Business confidence remains strong
- Factory output prices ease in May, remaining close to April's four-year high
- New factory orders improve further in May
- Global services: Services sector activity continues to grow at solid levels
- Sales growth remains solid
- Business confidence continues to be strong
- Prices charged grow further for consumer services
Mexico on verge of contraction
By contrast with its northern neighbour, Mexico’s economic activity remains on the verge of contraction territory. While the data show that business confidence has improved, staffing levels continue to fall
Maybe the bosses displaying the confidence are doing so because of the cost-cutting they are undertaking. Market and sales indices register close to no growth levels, says World Economics.
There is less uncertainty further south, as Latin America continues in recession. The Market Growth Index remains in contraction territory for the 17th consecutive month...but business confidence improved in May as price inflation eases and sales show signs of growth.
China losing momentum
Almost half a world away, the economic engine that is China looks as if it is losing momentum. The China SMI hit a six-month low in May, slipping to 51.6, the lowest level since November.
Non-manufacturing sector growth continues to outpace manufacturing industry as the People's Republic continues the transition into a consumer- and services based economy. The Prices Charged Index continues to rise, indicating building inflationary pressures.
Even though sales remained stable in May, sales managers have expressed worry that the overall growth trend can’t continue.
Panellists have explained that their companies have been lowering capital expenditure, inventories of stock, and limiting their exposure to underperforming accounts to increase their capacity against possible coming risks and future challenges.
India continues to outpace
- India headline SMI remains close to its all-time high
- Rapid growth in the jobs market has taken the Index close to pre-demonetisation levels
- Price inflation remains very high as a consequence of de-monetisation
May data show India continues to outpace all other major countries. The SMI reflects rapid growth in its economy, and remains close to its all-time high level, comments World Economics.
Business confidence, although down somewhat on the extremely high levels reached in 2015, is still reflecting very buoyant "animal spirits " and is very high indeed compared with confidence in all other countries that the organisation currently measures.
The jobs market has rebounded close to its very high pre-demonetisation level and reflects the rapid growth indicated by the SMI Market and Sales Indices.
The Indian economy continues to race ahead, although the shock of demonetisation hasn't completely worn off and remains visible in the continuing rapid rise in prices.
Philippines SMI reports strong economic growth continues
- Market growth continues to grow but at a reduced rate
- Price rises remain high with inflation maintaining recent rate
- Employment levels remain strong and stable in May
Mongolian economy starts to grow
- Sales managers report green shoots of recovery
- Market Growth Index hits highest level for over three years
- Business confidence continues to grow rapidly
- Jobs market close to registering growth.
Nigerian sales managers report slower rate
- Headline SMI slows to 54.2
- Price inflation for goods and services eases sharply
- Confidence that business conditions will continue to improve remains high
South African economic activity picks up a little
- Sales growth increases to highest level in 14 months in May
- But, inflation remains high
- Business confidence plunges as political instability continues
Kenya reports improving business confidence
- Market growth continues to contract, but by a small margin
- Sales growth continues to improve month-on-month
- Price inflation accelerates in May