If there’s a concern about the rally in global stocks, commodities and other riskier assets since the election of Donald Trump as US president, it’s been that it hasn’t been backed by hard economic data.
Yes, soft data — largely linked to sentiment — has screeched higher, fitting with the moves seen across financial markets. However, hard data — measuring what is actually happening on the ground — has not.
The hard data could still catch up to the soft data, it does tend to lag after all, but there’s a risk it won’t.
It’s understandable why some are a little nervous that the rally has got a little ahead of the economic reality.
However, in light of hard economic data overnight, we may just seen the first signs that improved sentiment is now translating to a lift in economic activity.
Air passenger traffic worldwide grew at the fastest pace in years in January.
According to the International Air Transport Association (IATA) — a group representing 265 individual airlines accounting for 83% of total air traffic — revenue passenger kilometres (RPKs) grew by 9.6% compared to a year earlier, the fastest pacer since April 2011.
RPKs are calculated by multiplying paying passenger by total distance travelled.
The sharp acceleration in RPKs over the past year is shown in the chart from the IATA above. It’s overlaid against the global purchasing managers index released by IHS Markit, seen my many as a soft, sentiment-driven economic indicator.
While the group says the timing of the Lunar New Year may have impacted the January result — as it has done with countless other data releases over the years as China’s economic prominence has grown — it believes that the underlying trend still points to strengthening passenger demand.
“The shifting timing of Chinese New Year is always a complicating factor for comparisons at this time of year,” says IATA. “We estimate that its relatively early timing this year could account for as much as 0.5 percentage points of the annual growth rate in January.”
That implies that year-on-year growth would have been closer to 9% without the influence of the early start to Lunar New Year — hardly a disastrous result.
And, as the group points out, the momentum in passenger traffic was already building in the latter parts of last year.
“The bigger picture is that the trend in seasonally-adjusted RPKs accelerated strongly over the final third of 2016 and into 2017,” it says. “Industry-wide RPKs have grown at an annualised pace of nearly 15% over the past three months.”
15%. Given passenger traffic reflects both demand from consumers and businesses, that’s a very encouraging signal for the health of the global economy.
This chart from IATA shows the year-on-year percentage change in international RPKs. From Asia and the Middle East, they grew by more than 10%.
And here’s the same chart, only for domestic RPKs. Again, massive growth from three of the four “BRIC” nations, Brazil being the exception.
Looking ahead, IATA says the main uncertainties for the remainder of 2017 is the extent to which lower fares will continue to stimulate demand and the strength of the global economy.
“Given that oil prices are currently around double their level of a year ago, the biggest stimulus to demand may have passed. As a result, the strength of the economic cycle will play an important role in driving the pace of global passenger growth in 2017.”
It’s only early days, but on that front things are currently looking good.