Last week I covered the agricultural industry’s economic status. Now let’s turn our focus to the state of the general and global economy.
Will the green shoots get weed whacked? Examination of lead and lag economic indicators suggest the economy may have bottomed out, with some bright spots ahead.
The composite leading index, an indicator of economic direction six months forward, has been positive in recent months.
The purchasing manager index (PMI), which was in the mid to high 30s in the first half of the year, was is 42.7 and most recently 44.8. A number above 42 is a sign that the economy is functioning above recessionary levels. The PMI has to be above 50 for a growing economy. The big question is whether the improvement of this indicator is due to manufacturers replacing inventory because of just-in-time inventory management, or a sustainable increase for the long term.
Much of the positive flavor of the economy has been caused by increases in the stock market from March lows, and the global economy, particularly the BRIC nations, i.e. Brazil, Russia, India and China. Yes, copper prices are increasing as the result of increased economic activity, but are the BRIC emerging economies, which are 18% of world GDP, enough of an economic engine to carry the rest of the globe?
In summation, the jury is still out on a very fragile global economy. Major political and military events and the substantial debt of the U.S., Euro sector and others could create a challenging decade ahead regarding inflation, interest rates and currency values.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.