Business Conditions Haven’t Been This Good Since Last August

SAM RO

 JUL. 29, 2014

Morgan Stanley

Things are getting better in the U.S. economy.

At least, that’s the signal being sent by Morgan Stanley’s proprietary Business Conditions Index.

“The July MSBCI jumped 5 points to 77%, as the index recovered from a weak start to the year and is now at the highest level since August 2013,” said Morgan Stanley’s Vincent Reinhart. “The stronger July MSBCI is in line with regional manufacturing surveys reported so far and our expectations for a stronger July ISM Index.”

Reinhart pointed to optimistic expectations for capital expenditures and hiring plans.

“Not only have firms increased hiring, but analysts also expect the pace of gains to accelerate over the next three months,” wrote Reinhart.

Morgan Stanley

Regarding capex plans, the types of spending were skewed heavily toward technology spending.

All of this is in line with Wall Street’s expectation for the economy to heat up during the second half of the year.

“Layoffs are falling and bank lending is accelerating — two powerful statistical indicators of the economy’s building momentum heading into H2 14,”said UBS’s Maury Harris, who sees “three-handled” real GDP growth from now through 2015. “The major expected behavioral drivers continue to be pent-up demand and lagged positive credit impacts from earlier QE. From the Fed’s perspective, housing is a downside risk, although we believe recently tepid mortgage applications and new home sales should pick up with better job creation and related household formation.”

“Global growth is improving mildly, lowflation is here to stay, central banks remain accommodative, equity markets and the US dollar are grinding higher, and bond yields are going nowhere for now,” said Morgan Stanley’s Joachim Fels, discussing the big picture in a note on Sunday.

It’s all good.