China’s recovery is more robust than expected, which suggests the same could be true for the U.S.

Date: Friday, June 12, 2020
Source: Market Watch

Data that measure third parties in a range of industries suggest business activity is picking up steam

As the first big economy to emerge from the coronavirus shutdown, China has become the focus of a cottage industry trying to gauge the strength of its recovery and, in turn, understand what may lie in store for countries that are just starting to reopen.

Here’s a preview. We’re sitting on data that suggest that what’s currently happening in China is far more robust than what’s been reported and may soon be happening in America, too: a rapid economic recovery that will finally align the soaring stock market with conditions on the ground.

Some other recent data have been held up as signaling a potential V-shaped recovery in the world’s second-largest economy, which just suffered its first quarterly contraction since the 1976 death of Mao. As factories reopened, industrial production surged in April twice as fast as economists had expected. Shipments of smartphones to stores and other retailers within China jumped 17% in April from a year earlier, a time long before COVID-19’s emergence.

The data picture has been mixed, though, with April’s fastest drop in factory gate prices in four years suggesting that demand remains weak and a 7.5% decline in retail sales showing that consumers are still shy to spend. Data for May so far has underlined concerns that demand from exporters and consumers has yet to match the ramp-up in production.

Less-conventional data

There have been attempts to use less-conventional data as leading indicators for China’s recovery, including recording the daily flow of people around manufacturing centers, shopping malls and office buildings. Others have interviewed Chinese Walmart workers to get an early gauge of any rebound in consumer sentiment.

In the quest for more indicators on China’s economy, I can offer some of our in-house data that suggest a more rapid recovery was under way earlier than is widely assumed.

This data measure the activity of third parties that cover a wide range of industries: from life sciences to heavy industry to software from some of the biggest technology companies in the world. These companies sell very few of their own products. Instead, they rely on a sprawling network of agents, distributors and channel partners that leverage their relationships to complete sales and provide support for customers.

As such, their activity is one proxy for corporate sentiment and, in turn, broader economic health. Specifically, the data measure the number of new or renewed third-party supplier deals that come through our third party compliance technology and research processes. A possible lagging indicator of increased economic activity for the rest of 2020, given that those agents then go and sign up new business.

China versus Brazil

Our data show that resellers were already enjoying a brisk recovery in activity in February and March as China took tentative steps to reopen. Activity rose by 95% and 93%, respectively, in those months compared with a year earlier. As the virus receded, the economy revved up further in April, when activity rocketed by 190% year-over-year. Hong Kong also bounced back in March and April, with gains of 22% and 27%, respectively, after falling 14% in February.

In contrast, Brazil’s continuing lockdown as it struggles to mount an effective response to the virus is reflected in heavy falls in activity from January through May. In April, activity there fell by 74% from a year ago.

While this data is only a small part of the overall economic picture, it provides some indication that corporate sentiment will rebound rapidly once economies reopen. Our comparative data for the United States and Europe is somewhat skewed by client changes, making it hard to assess the year-on-year impact, though so far we’re seeing consistent increases over the past few months.

But as parts of the United States and Europe reopen, we would expect to see a similar rebound in this type of activity to that enjoyed by China. Perhaps it’s just a matter of pent-up demand that will soon normalize. Or maybe it’s the start of something much greater and longer lasting.

 

Read from the original source.

 

BROWSE MORE ARTICLES

E-MAIL TO COLLEAGUE

NOTIFY ME WHEN NEW ARTICLES ARE POSTED

SOUND FAMILIAR? HAVE A SLIGHTLY DIFFERENT ISSUE? CONTACT US