Economic trends remain positive

Reports last week mostly showed that the global economy is expanding and will continue to do so although employment in the United States may not have done so yet.

The global economy entered 2010 on a positive note, according to surveys of purchasing managers worldwide. The JPMorgan global all-industry output index edged up to 53.2 in January from 53.1 in December. Growth was led by manufacturing, with the JPMorgan global manufacturing PMI rising to 56.1 in January, its highest reading in five and a half years, from 54.6 in December. Growth was pulled down by the services sector as the JPMorgan global services business activity index fell to 51.2 in January from 51.8 in December.

Global economic growth is likely to continue, according to the composite leading indicators (CLI) published by the Organisation for Economic Co-operation and Development. A report on Friday by the OECD showed that the CLI for the OECD area as a whole rose 0.9 point in December. The CLIs for the US and the euro area increased by the same amount. The CLI for Japan increased by 1.2 points. According to the report, the CLIs provided "stronger signals of an expansionary economic outlook" in December than in the previous month.

In the US, economic reports last week were mixed but not inconsistent with continuing gradual expansion of the economy.

In line with the global pattern, purchasing managers' data released by the Institute for Supply Management at the beginning of last week were generally positive. Its manufacturing PMI rose to 58.4 in January, the highest since August 2004, indicating that manufacturing activity expanded strongly at the beginning of 2010.

The services sector was somewhat weaker, though. The non-manufacturing index rose to just 50.5 in January from 49.8 in December. The business activity index actually slipped to 52.2 in January from 53.2 the previous month.

Employment has also been slow to return to growth. The employment report released by the US Labor Department on Friday showed that non-farm payrolls fell by 20,000 in January based on the establishment survey.

Set against this, however, was an unexpected drop in the unemployment rate to 9.7 percent from 10.0 percent in December. This was achieved because, in contrast to the establishment survey, the household survey on which the unemployment rate is based showed that employment rose by 541,000.

In any case, a return to job growth is unlikely to be far off as the employment trend has remained generally positive. As long as the economy maintains its recovery, as the OECD CLI for the US suggests it will, it is a matter of time before the data start showing an unambiguous increase in employment.