World economy troughing?

 Business confidence and sales/production surveys are among the first indicators out for the previous month.  This is because they tend to ask simple questions:  do you feel confident about the next 6 months/year?; or, are your sales up or down?  They don't ask how much sales are up or down, which official department of statistics surveys need to know.  They tend to be equally weighted, i.e., all respondents' replies count the same, whereas, say, official surveys of retail sales or industrial production weight the results according to the size of the company.   The PMI (Purchasing Manager Index) surveys typically come out on the first day of the month, or soon after, and are surprisingly good guides to economic activity.  I tend to extreme-adjust the data to remove large spikes, up or down, and in addition, I sometimes smooth the results, particularly for smaller economies. 

The chart below shows the extreme-adjusted PMIs for the "big 8" economies, weighed by GDP.  These are: the USA; the Euro area (countries with the euro as currency); the UK; Japan, Russia, India, China and Brazil.   They make up ~70% of the world economy.  

The green line is the one to watch, as it will be the closest guide to GDP growth, but available months before GDP data are released.  It appears to be turning up.  Of course, things could still go wrong.  For example, the Israel-Palestine war could lead to a surge in the oil price.  But for now, it looks as if the big 8 PMI has bottomed.  Remember that as long as the PMI is below 50%, it implies that the economy is contracting, though if the PMI is below 50%, but rising, it implies that the economy is contracting more slowly. 

However, composition also matters.  The big jump in the services PMI in December comes from just 3 economies: China, India and (particularly) Russia.  China is subject to big month-to-month fluctuations in its PMIs, relative to their underlying trends (so could be reversed next month); India is clearly booming; but Russia's economic data are becoming more and more questionable.  Are companies/CEOs in dictatorships willing to tell depressing truths about sales/employment/production if they fear that anything they say could be used against them?  Still, the "Big 4" average PMI (lower chart) is also showing a rise over the last few months, so even outside these three, PMIs are trending gently upwards.

None of these indicators point to a boom (except in India) but they do suggest that a lower turning point in the economic cycle is imminent.