01/18/2013 12:17 EST | Updated 03/20/2013 05:12 EDT

Buyers Control the Bucks. What Are They Saying?

Is business growing? Ask the buyers.

Want a hot gauge of economic activity? It's probably best to go to the front lines. There are many indicators of economic activity, but they don't all tell the same story. Some are just telling us what's happening now. Others lag the economy -- they are really good at repeating to us what we already know. But others lead activity -- they give us a peek at the future. One of those is the purchasing managers' index, now collected for a wide array of countries. What are these "buyers" telling us?

The story wasn't so great in the summer. Indexes for countries across the planet dipped below 50 -- the growth/decline mark -- signalling rough times in the coming six months. The deterioration was simultaneous, and made the world economy look like it was headed for a double-dip. Activity did not discriminate between developed and emerging markets -- few economies were spared the setback.

Are things now on the mend? It depends where you look. Western Europe is battling an austerity-led recession, and although its composite index has improved, it still forecasts a decline in manufacturing and service-sector activity in the coming six months. Japan's service sector index is back in the black, but its manufacturing index is sinking fast, in spite of the recent drop in the yen. Together, these economies add up to well over a quarter of global GDP, so the trend is disquieting.

But these battered behemoths are not spoiling things for the rest. In spite of their gloom, emerging markets -- even those that are particularly dependent on Europe and Japan -- appear to be on the up and up. Take China, for instance. Buyers in its manufacturing sector moved sharply into positive territory, hitting the highest Index level since mid-2011. Purchases, new orders and inventories were the big contributors to the gain, sentiments that were corroborated in recent Chinese trade data.

As gloomy as recent news has been, Brazil and India both experienced similar surges of stronger growth. Mexico, which has surprised many with its resilience, moved deeper into the growth zone. Among key emerging markets, only Russia faltered, with its manufacturing PMI dropping to 50 in December. Other Asian markets were generally, although not universally, up.

Closer to home, U.S. buyers shrugged off the summer blues quickly, as buyers stepped into action in September. New orders did a lot to bounce the manufacturing PMI back into the black, although Hurricane Sandy dampened some of the enthusiasm. The service sector never stopped growing -- it is less affected by temporary economic swings -- and gained strength toward year-end. New orders were up sharply in November and December, a very positive signal heading into the New Year.

Canada's manufacturers still seem to be in the throes of the summer lull, with the RBC Manufacturers PMI rising marginally in December following a six-month slide. Improvement in the U.S. is likely good near-term news for Canadian buyers, but a big move will require more impressive action stateside. Put the story together, and buyers still seem cautiously optimistic. They have ridden the ups and downs of the economy since the recession, and are unlikely to jump too far ahead of firm orders.

The bottom line? This prescient indicator seems to have erased its mid-summer scare, but it will need to add to recent gains to convince economy-watchers that recurrent soft spots are behind us.