Global Economy: “Is everybody happy?” was the catchphrase made famous by Ted Lewis, a multitalented entertainer who was popular before and after World War II.
The answer to that question today is “Yessir!”
That was another one of his well known catchphrases.
Everybody seems to be happy in the US and Europe. Stock investors are joyous around the world.
Consider the following happy stuff:
(1) US consumer confidence. The Consumer Sentiment Index, compiled by the University of Michigan Survey Research Center, jumped 5.6 points during October to 100.7, the highest reading since January 2004 (Fig. 1). Its two major components rose sharply too: The current conditions index rose 4.8 points to 116.5, the best level since November 2000, while the expectations index rose 6.1 points to 90.5 (Fig. 2).
(2) US regional surveys. The average of the business conditions indexes for the available five Fed regional surveys (New York, Philadelphia, Richmond, Kansas City, and Dallas) jumped from 14.0 in July to 24.1 this month—the highest reading since July 2004 (Fig. 3). The average of the new orders indexes showed billings rose from 11.9 to 21.3 over the same period, back near March’s record high of 24.5. The average of the employment indexes jumped from 10.2 during July to 18.8 this month, the best jobs rate in the history of this series going back to June 2004. No wonder consumers are so happy!
(3) European consumer & business confidence. Everybody is very happy in Europe. That’s according to the Economic Sentiment Index (ESI) for the European Union, which jumped this month to 114.2, the highest since June 2007 (Fig. 4). The Eurozone ESI kept pace, rising to 114.0, the highest since January 2001, suggesting that real GDP growth is continuing to improve in the region (Fig. 5). Leading the pack is Germany, where the ESI rose to 114.5, the highest reading since April 2011 (Fig. 6). Germany’s Industrial ESI has been especially strong in recent months (Fig. 7).
(4) Flash M-PMIs. Markit’s October flash M-PMI for the Eurozone rose to 58.6 this month, well above its reading of 53.5 a year ago (Fig. 8). October’s flash for the region’s NM-PMI has been hovering at an elevated range around 55.0 all year.
For the US, Markit also reported solid increases to solid levels in both the M-PMI (from 53.1 to 54.5) and NM-PMI (from 55.3 to 55.9) (Fig. 9).
(5) Exports in GDP. Boosting the Eurozone’s growth is exports of goods and services (as measured in the region’s real GDP), which rose 4.4% y/y during Q2 to a new record high (Fig. 10). This measure is up 19.9% over the past four years (since Q2-2013). US exports of goods and services in real GDP edged up to a record high during Q3-2017, but is only up 8.0% over the past four years (Fig. 11).
(6) World stock markets. Are you getting a warm fuzzy feeling about the global economy? You should be. Debbie and I have been since last fall. Over the same period, Joe and I have embraced a more Go Global investment posture with less commitment to our long-held Stay Home investment strategy. It’s been working this year. Here is the performance derby (in dollars) for the major MSCI stock price indexes so far ytd through last Friday: Emerging Markets (28.8%), EMU (24.1), Japan (17.8), All Country (17.5), US (15.4), and UK (11.1) (Fig. 12).
Doesn’t all this make you want to have a Coke? Blissed-out investors worldwide are swaying to the bubbly soda’s theme song in celebration of the global synchronized boom:
I'd like to build the world a home,
And furnish it with love,
Grow apple trees and honey bees
And snow white turtle doves.
I'd like to teach the world to sing
In perfect harmony.
I'd like to hold it in my arms,
And keep it company.
US Consumers: Getting Personal. The Bureau of Economic Analysis in the Commerce Department released September data on personal income yesterday. It was all good news, though Fed officials must be depressed to see that the core PCED inflation rate at 1.3% y/y remains depressed below their 2% target (Fig. 13). The good news: Such a low inflation rate and lots of jobs are boosting consumer confidence and spending. We guess that means that everyone is happy except Fed officials. Consider the following happy developments:
(1) Wages & salaries. Wages and salaries in the private sector rose 3.4% y/y to a record high during September (Fig. 14). Inflation-adjusted average hourly earnings for production and nonsupervisory workers remained unchanged at a record high during September, and up 0.9% y/y (Fig. 15). It is up 19.5% since January 1999, belying the widely held notion that real incomes have stagnated for the past 18 years.
(2) Proprietors’ income. One of the most neglected economic series of them all is the proprietors’ income component of personal income (Fig. 16). It reflects the profits of small business owners, and tends to be about three-quarters as large as pre-tax corporate profits. As Debbie and I have observed in the past, small businesses account for lots of jobs in our economy. So it was good to see September’s proprietors’ income holding onto recent record highs. If Trump’s tax reform agenda happens and it benefits proprietors’ after-tax income, the result is likely to be greater demand for labor.
(3) Standard of living. Everybody is happy because most Americans have been enjoying increases in their standard of living (SOL) to record levels. You wouldn’t know that based on the widely followed Census series on real median household income, which was up just 0.6% during 2016 compared to 1999 (Fig. 17). Much more accurate and comprehensive measures of the SOL are real mean household personal income and consumption. Both are at record highs, with the former up 25.8% since the start of 2000 and the latter up 28.2% over the same period. No wonder everybody is happy!
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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