Spring sunshine: Global economic confidence rises to 18-month high

Just call it another green shoot for the economy: Global economic confidence has risen to an 18-month high. This comes on the heels of a likely top to U.S. layoffs and improving industrial production, a new Bloomberg News survey indicates.

A positive psychology shift

The Bloomberg Professional Global Confidence Index, which surveyed more than 2,400 Bloomberg users, rose to 43.57 in June from 38.72. in May, Bloomberg News reported Wednesday. The index was a 21.2 in April and 5.95 in March. A reading above 50 means optimists outnumber pessimists. The survey was conducted June 1-5.
Further, sentiment increased in most markets. Sentiment among U.S. respondents increased to 36.7 in June from 34.0 in May; among Western Europe respondents, it increased to 32.6 from 23.7; Asia, 58.2 from 47.5; and Latin America, 47.0 from 41.7.

Economist Richard Felson, who was not a part of the survey, told DailyFinance Wednesday the rebound in China's manufacturing and the argument (or at least confidence) that the worst of the U.S.'s super-sized'monthly job losses is behind us is at the core of the psychology shift in the markets.

"We now have hard data that China's manufacturing sector is stabilizing, and with its fiscal stimulus spending on infrastructure, that's painting a picture that better demand conditions are ahead for Asia. And we can see this in the recent run-up in oil and copper prices," Felson said."

"The West is a more complicated picture. Job losses will continue in the U.S. for probably another year and the European Union's recovery won't start until the spring 2010." Felson added. "But if we see continued signs of rising demand, such as rising durable goods orders, followed by stabilization in housing and retail sales, that's enough to keep the 'green shoots' thesis intact."

Still, Felson was took pains to point out that "investors should not read too much positive sentiment into the recent data." The U.S. "is still in the mother of all recessions, and job losses continue, and that's a major problem." The global economic climate has gone from one of, "financial system life-support" to "an economy that lacks sufficient demand." Locating new sources of demand, is policy makers next major task, he added.

Economic Analysis: The rising positive sentiment is welcome, as psychology is a major factor in both business decisions and prospective stock market levels. That said, psychology, as economist Felson noted, is not enough: the engines of growth must appear. Potential engines of growth in the U.S. include: health care services, information technology, infrastructure, education, renewable energy, biotechnology, and high-end, technology-intensive manufacturing.
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