The December reading of Morgan Stanley’s proprietary Business Conditions Index* is out and the results are a bit counterintuitive, but overall they appear to be bullish.The headline index surged 15 points to 51% in December, which makes up for much of the 20 point slide we’ve seen in the last two months.
The tumble in October and November had been attributed to elevated uncertainty caused by the fiscal cliff.
Interestingly, “reports of uncertainty created by the fiscal cliff jumped dramatically in December to another new high,” according to Morgan Stanley’s US economics team.
“Given that fiscal cliff uncertainty is up and hiring plans deteriorated, it’s unclear what drove the year’s largest increase in expectations.”
As seen in the breakdown below, the manufacturing and services sub-indices both jumped. The expectations sub-index also exploded higher.
Like the markets, which are also up despite policy uncertainty, it appears that businesses think all of this fiscal cliff hubbub is just fleeting noise in an otherwise favourable business backdrop.
For the most part, economists and strategists agree that overall economic and market conditions are favourable. The only thing hanging over the market these days is the fiscal cliff.
Here’s a breakdown of the index:
Photo: Morgan Stanley
*From Morgan Stanley:
What is the MSBCI?
The Morgan Stanley Business Conditions Index (MSBCI) is an economic barometer that is based on an internal monthly canvass of our industry analysts in North America Equity Research. Though brief, this survey covers a wide range of topics pertaining to the companies under our analysts’ coverage. Specifically, the MSBCI is comprised of a “headline” index that measures general analyst sentiment as well as component indicators that gauge financing, advance bookings, pricing, hiring, capital spending, and expectations. Since its inception in June 2002, the MSBCI has served as a valuable and effective instrument for anticipating directional moves in the U.S. economy (see “Introducing the Morgan Stanley U.S. Business Conditions Index,” July 11, 2003).
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