Are Buyers Betting on Growth?

Everyone has an opinion. Part of today’s trouble is the wide variety of opinions out there. From pundit to professor, from politician to preacher to reporter, there is a smorgasbord of views, each trying to explain our often wacky, post-recession world. But there’s more – social media has handed the microphone to the masses. Now anyone with a clever turn of phrase can own the world stage. Sorting out the good from the bad can be a full-time job; who should we listen to? How about those who are putting their money where their mouths are? Across industry, buyers are incessantly placing bets, laying their firms’ money out for the inputs required for the next few months’ production. What are they saying?

Well, in recent years, we’ve gotten good at asking. Once just a US thing, now purchasing managers’ surveys are a worldwide exercise. Developed and emerging markets alike have initiated their own versions of the original surveys, but they all ask the same, simple questions about activities and intentions. Market-watchers are quite interested in the forward plans of this select group, and with good reason: their collective intentions are a reliable bellwether of near-term economic performance.

Probably the most-watched purchasing managers indexes (PMI) are the US ones. The Institute for Supply Management has been conducting these for a long time, and recent numbers are impressive. The diffusion index for manufacturers is currently sporting some of the highest numbers in the post-recession period, and the new orders component is just a shade away from the post-recession high. Service-sector buyers have been in growth-mode for longer, and their numbers remain comfortably in the black, with new orders leading the charge. So much for the popular rhetoric that still casts an image of an America that is languishing. US manufacturers are definitely in a hiring cycle.

If that’s true in the US, it’s true in spades in Europe. The region-wide manufacturing index hovered near the zero-growth marker through most of 2015, but since mid-2016 has been on a tear, with April registering a five-year high of 56.8. It is virtually the same for service-sector activity, which is also soaring. And for all the acrimony in the French elections, buyers in France seem to be among the Zone’s most upbeat ones.

Japan’s numbers were scary at this time last year. Buyers were seeing red in the manufacturing sector, with the total index plunging through May. However, there was a decided U-turn at that point, and the sub-index has surged back into the growth zone, to levels last seen in 2013. Buyers in the service sector slumped last September, but only briefly; they, too, foresee near-term expansion.

This may well be a reflection of a region-wide rebound. China’s manufacturing figures are not wildly positive, but buyers there are now more convinced of growth than they have been since early 2015. They shed their blues in mid-2016, and have generally gained confidence since. Chinese service-providers have consistently been more optimistic, trending upward since mid-2016. As Chinese consumers become wealthier and more confident over time, this number is likely to improve.

Regional bellwether Singapore is seeing an export and manufacturing revival in recent months, and purchasers are indicating the same. They are seeing an upswing that has no peer since the post-recession rebound in early 2013. The rest of the economy is more sanguine, but is experiencing a modest uptrend. Recent upward movement in Taiwan, Hong Kong and Vietnam also indicate regional increases, although not every economy can boast the same. Some are likely still adjusting to softer commodity prices and bloated raw-goods inventories.

The overall trend is encouraging. Developed nations certainly appear to be taking the lead, with the US and Europe out in front as growth engines. It’s all happening much slower than anyone expected, but current movement seems to indicate an upward trend in growth that is a departure from the world economy’s cadence in the past few years, and perhaps a hint of that ‘real’ recovery that has thus far eluded the world.

The bottom line?

Against multiple reasons to hesitate and hold on to their cash, buyers are betting on growth. If they are putting their money down, shouldn’t you at least think about the same?

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