This could be the most bullish indicator on the global economy right now

JAIME REINA / AFP / Getty Images

If the latest batch of manufacturing and services purchasing managers indices (PMI) are anything to go by, the global economy continued to strengthen during the September quarter.

The global composite PMI released by IHS Markit held at 54.0 in September, leaving it at the highest level since April 2015.

As a survey of over 18,000 firms from 40 countries, accounting for an estimated 89% of global gross domestic product (GDP), it provides a promising signal that the momentum in the global economy is continuing to build.

Few things show this improvement better than the heat map below from HSBC.

Source: HSBC

It shows the evolution in PMI readings from individual nations over the past three months, along with changes in the new orders and employment subindices in these surveys.

There’s a lot of green, especially dark green, which indicates that activity levels are not only improving but at a faster pace.

As a reminder, PMIs measure changes in perceived activity levels from one month to the next.

Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating, with the distance away from 50 indicating how quickly activity levels are expanding or contracting.

So things in September were pretty good, with all major nations aside from South Africa seeing activity levels improve from August.

A broad-based cyclical recovery is currently underway, at least based off these reports.

And, encouragingly, new orders also improved in most nations, pointing not only to strengthening demand but also the likelihood of firm activity levels in the months ahead.

With activity levels continuing to improve, there are also signs that inflationary pressures are starting to emerge, something that may have ramifications for global monetary policy settings should the trend in these surveys start to filter out into the broader economy.

This final chart demonstrates the lift in inflationary pressures, with previous strength in price inputs, such as raw materials, now starting to flow through to prices for end consumers.

Source: HSBC

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