To start the year, Wall Street has ramped up its soft-landing calls, and Ned Davis Research strategists seem to agree that there is little chance of a downturn. A note published Tuesday noted that economic indicators across manufacturing, supply chains, and equities indicate a lower risk of a global recession.
The global economic lull we experienced in the second half of 2023 appears to be abating as we begin the new year, said chief economist Alejandra Grindal and senior analyst Patrick Ayers.
Global composite PMI, a measure of services and manufacturing, rose to 51.8 in January, its highest level in eight months.
Historically, it’s still below the long-term average of 53.2, but the global composite PMI has a recession threshold of 47.8. The current positive trend implies near-term concerns can be laid to rest.
NDR noted that the new orders index showed its strongest expansion in seven months, and the future output index touched its highest level since June.
For the first time in 17 months, manufacturing has emerged from contraction territory, strategists said. In the meantime, services, the largest chunk of the economy, remain strong. Breadth in both sectors has improved, indicating that the expansion is expanding.”
In January, the global services PMI increased by 0.7 points to 52.3, its strongest growth since July 2023. The index is still below its long-term average of 53.6, but it is improving.
In addition, new business increased for the third consecutive month, and export orders expanded for the first time in five months.
The percentage of economies with expanding services sectors jumped ten points to 77%, the highest share in six months,” the strategists said. “This puts our breadth measure closer to pre-pandemic levels, when global expansion typically saw services breadth at 85% or higher.”
As a whole, emerging markets outside of China have experienced the strongest growth, with India and the Middle East leading the way. According to the firm, the US, Japan, the UK, and China are experiencing “moderately constructive” growth, while Canada and the eurozone are experiencing a slower pace.
As a result, US manufacturing grew for the first time in nine months and by the widest margin in more than a year in January, according to NDR.
Despite the Red Sea crisis and disruptions to global shipping, NDR believes prices have remained resilient so far.
According to Goldman Sachs analysts, any spike in freight costs won’t cause inflation to rise again, and the situation is entirely different from the pandemic’s supply-chain disruptions.