Taking Stock a Year on
According to the consensus, a global economic recovery has begun. Crucial to this belief is the fact that this month's manufacturing confidence surveys (such as the US ISM index and the Euro Zone purchasing managers' surveys) have moved into 'expansionary territories', while the US economy reportedly expanded at a three percent rate in the third quarter and China's apparently did even better, with a near 9% rate of growth in real terms. Based on these observations at least, it would seem that the G20's co-ordinated policy response to last year's global financial crisis has finally borne fruit.
On a practical level, we have always found it of interest that, although financial markets place great stock in such 'high frequency' indicators as the US ISM Manufacturing Index, the indices may only have limited relevance to the economy as a whole. These confidence indices typically ask if conditions got 'better or worse?' in the latest month and, while it is true that manufacturing sector conditions are deemed to have improved in the latest three months, these three months represent the only periods of expansion in the last 20 months - in the other 17 months the manufacturing sector declined and, given this almost unprecedented contraction, some form of rebound was always to be expected particularly in light of the various governments' "cash for clunkers" car subsidies.
It remains to be seen, however, whether the recent manufacturing sector revival will extend into the remainder of the year now that the car schemes around the world have generally ended. However, this is not the only reason that we would not read too much into these manufacturing surveys.
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Tyndall