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.