The Bloomberg Professional Global Confidence Index, which surveyed more than 2,500 Bloomberg users, fell to 39.13 in July from 43.57 in June. The index was at 5.95 in March. A reading above 50 means optimists outnumber pessimists. The survey was conducted July 6-10.
Confidence in U.S. economy falls, as well
In addition, U.S. participants' confidence in the $14 trillion U.S. economy, the world's largest, also fell in July, dropping to 29.5 from 36.7 in June. Meanwhile, confidence in the Western European economy fell to 31.0 from 32.6. Confidence in the Asian economy was more optimistic, rising to 59.4 from 58.2; however, the Japan confidence index fell, to 34.1 from 38.8.
"I know that puts me in the contrarian camp, given the latest consensus that the bloom is off the 'green shoots,' with some questioning the arrival of the U.S. recovery this fall, but the way I read the data we're still on track for a recovery in Q3," Felson said. "I think the recent U.S. factory data confirms that the bottoming process is well underway, and I think we'll look back on this period one year down the road and say the recovery began in Q2/Q3."
Output at U.S. factories declined 0.4 percent in June, the U.S. Federal Reserve announced Wednesday, adding to signs that the nation's pronounced recession is bottoming. Also, the Empire State Manufacturing Index totaled a negative 0.55 in July - its highest level in a year, the New York Federal Reserve announced Wednesday.
A large economic 'hole' to fill
However, Felson took pains to point out that although he expects the U.S. recovery to start in Q3, and the global recovery shortly thereafter, investors should not lose sight of the large hole that the recession has dug -- a hole that's likely to weigh on output, corporate revenue, and earnings for a considerable time to come.
"The key will be when the U.S. economy stops shedding jobs and starts creating them. We've lost about 6.5 million jobs and that takes an awful lot of revenue and spending out of the system. And given that monthly net job gains probably won't start until Q2 2010 at the earliest, we can't expect large increases in earnings in 2010," Felson said. "So I guess what I'm saying is we're headed toward a recovery, but it's going to be a long slog, given the hole that's been dug."
Economic Analysis: A long slog indeed. Down about 6.5 million jobs, the U.S. economy would have to create 225,000 jobs per month for 5.5 years, just to get back to unemployment levels at the recession's start in December 2007. That's not realistic, and from an investment stance, it's best to keep expectations modest: economist Felson said a net 1.0-1.5 million job gain for 2010 is realistic, and enough to keep investor confidence strong. A roughly one million job gain by the end of next year doesn't sound like much, but given this recession's earlier track, it would represent a big step toward economic healing.