Business conditions noticeably improved for the fifth consecutive month in early September, according to the Morgan Stanley Business Conditions Index (MSBCI). The index, which is one of a family of measures based on a monthly canvass of Morgan Stanley U.S. industry analysts, jumped to 74% last month, a new high in its brief 14-month history, and up 8 points from August. The breadth of improvement captured by this diffusion index is impressive:
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In September, analysts reporting improvement at companies under their coverage outnumbered those indicating deterioration by five to one. In August, that ratio was 3:1. Moreover, analysts' responses suggest that pricing power is making a comeback, that advance bookings are improving, and that credit conditions remain supportive of growth.
Although the brief history of the MSBCI rules out long-term cyclical comparisons, in our judgment these data are consistent with an ongoing healthy acceleration in the economy. As corroboration, the MSBCI has more often than not foreshadowed improvement in popular industry gauges, such as the Institute of Supply Management (ISM) index. And while there are legitimate questions about the sustainability of recovery, these data strongly suggest that Corporate America is now seeing improvement. A broadening recovery often hints at future strength, and thus the ongoing improvement in the MSBCI is another encouraging sign that this recovery is sustainable.
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