Reasons To Be Cheerful, Part 2.

10th June 09 - Reasons to be cheerful, part 2

This diary entry is all about the USA because, short of charting the remarkable resurgence in the Chinese economy, all the big news is in America at present especially since the UK’s so called government is economically moribund as mired in the expenses scandal. Expenses that are actually, as it turns out, never actually incurred by politicians.

The US equity market rose by 2.9% in a single day as GM moved into an orderly bankruptcy filing and the manufacturing sector started to pick up. The Institute for Supply Management has a forward looking "new orders" index which rose to 51.1 from 47.2 for April 09 and Nicholas Tenev, a Barclays Capital economis,t said it was "the first reading above the break-even point of 50 since November 2007 and suggestive of future growth." A further set of data measures national factory activity and this rose to 42.8% in May from 40.1% in the previous month. A reading above 50 suggests economic expansion so while that has not occurred yet, it was the closest since September 08.

Reading this data, Brian Bethune of HIS Global Insight said "The healing process in the manufacturing sector has started and we should see less downward pressure on employment levels in June." This was borne out by personal incomes rising by 0.5% while consumer spending fell 0.1% so indicating that saving rates are increasing. Another interesting event for shareholders is that the two erstwhile top guys of the Dow Jones Industrial Average namely GM and Citigroup were relegated in favour of Cisco Systems and insurer Travelers. How times change!

It is important to keep ones feet on the ground however. US Treasury Secretary Tim Geithner was speaking at Peking University and telling his audience of politicians and academics that he still supports a strong US dollar and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crises. "Chinese assets are safe." There was loud laughter in the audience.