Sizing Up The Global Situation

“While global economic conditions are more stable than [during] the depths of the European sovereign debt crisis late last year, underlying economic conditions are still fragile and fluid in many parts of the world, which could affect consumer confidence and spending momentum for the coming quarter.” –Venkatesh Bala, chief economist at The Cambridge Group, a division of Nielsen

Trying to get a handle on the direction of the global economy right now is much like trying to figure out which way a soccer ball will bounce on a wet, bumpy field. One minute you think the ball is heading for the goal, but then the very next it takes an awkward (and very unexpected) bounce left or right, leaving you wide of the net.

Look at some of the most recent trend data, for example. On the one hand, according to a recent global survey conducted by Nielsen, consumer confidence shot up five index points to 94 in the first quarter this year.

Nielsen reported that overall confidence increased in 68% of global markets it measured – increasing in 38 out of 56 markets overall, while falling in 16 markets and remaining flat in two – compared to the fourth quarter in 2011 when confidence only inched up 21% in those global markets, noted Venkatesh Bala, chief economist at The Cambridge Group, a division of Nielsen.

Indeed, in the U.S., consumer confidence rose nine points to 92, its highest level since before the ‘Great Recession’ while China’s consumer confidence increased two points to 110, its highest level since the inception of Nielsen’s index in 2005.

“Households around the globe experienced brighter personal situations in terms of jobs and personal finances last quarter, especially in the U.S. and Asia, which was reflected with improved consumer confidence and higher discretionary spending,” said Bala.

Yet other recent data streams are not so rosy – not by a long shot. For instance, after five straight months of gains, the Credit Managers’ Index (CMI) slipped to 55.1 in April from 56.2 in March. While the decline is not drastic and – excluding February and Marc – the CMI rests at a high spot, April has not been a month to write home about, noted Chris Kuehl, economist for the National Association of Credit Management (NACM).

For the last few weeks, analysts have been trying to decide whether the economy is on the edge of another spring swoon, he explained – repeating a slide that occurred at a similar time period in 2011 and 2010.

“A lot of the factors are not the same as they were in either of these years, but the data that has emerged in the last week didn’t inspire much confidence or enthusiasm,” Kuehl said. “The growth in jobs has slowed and people seem to be getting laid off again. The latest durable goods orders are not looking good and there was some pretty gloomy prognostication coming from the Federal Reserve.

While he cautioned that the numbers are not suggesting an imminent crisis, with nothing approaching the return to recession in the U.S. as what’s being experienced in Europe, Kuehl believes the CMI decline does indicate that the robust growth at the beginning of 2012 has faded somewhat, provoking concerns the economy will start to retreat for the third time in as many years.

“There has been nothing as dramatic as last year’s earthquake in Japan that destroyed the global supply chain or the Arab Spring that resulted in massive political change in the Middle East and much higher oil prices,” he noted. “But this spring did feature tensions in Iran sufficient to force the price of oil up for a while, and the financial crisis in Europe has had almost as much impact on the global economy as the disaster in Japan.”

The good news, Kuehl said, is that the all the metrics that make up the CMI are still above the 50 mark denoting expansion. “But the bad news is that there are several factors with readings between 50 and 50.7,” he stressed. “It is a very fragile situation and it will not take much to push these numbers into contraction territory.”

Small business owners, for one, are not taking any of this lightly according to the most recent Business Confidence Survey compiled by global human resources company Insperity. According to the firm’s poll of 5,700 of its small- and medium-sized business clients, more than 40% remain unsure about the timing of a U.S. economic rebound, although 75% said they are meeting or exceeding the 2012 performance plans they outlined at the first of the year.

“Many owners of small and medium-sized businesses appear to be optimistic, but are taking a guarded approach to business operations,” noted Paul Sarvadi, Insperity’s chairman and CEO. “True to form, the entrepreneurial spirit that started these firms is alive and well. However, an uncertain economy and impending election appear to be weighing in on business decisions.”

Although 56% expect sales increase through year-end, only 38% plan to add new employees, while 56% said they’ll maintain the same number.

The economy was still listed as the leading short-term concern by 68% of the business owners Insperity polled, although that’s down from 80% last November. Rising health care costs was cited by 49% versus 57% in November 2011, while controlling overall operating costs is a big concern among 46% of respondents, followed by government health care reform at 44%.

For the longer-term, Insperity said the top responses were led by 64% saying they were either very concerned or had elevated concerns about government expansion and its effect on business, with 60% designating the federal deficit, the total national debt, and potential tax increases to control it, as major worries.

However, in spite all of that, the survey found concerns about the health of the U.S. economy dropped to 57% compared to 73% in November last year.

That’s quote an uncertain mix of metrics, to be sure – ones that don’t paint a clear picture at all which way freight volumes might go. Thus, like any good soccer player knows, it’s time to stay up on one’s toes and be ready to bolt in any the direction the unpredictable ball might bounce.