Posts earlier in the year argued, based on narrow money trends, that the global economy would lose some momentum over the summer before reaccelerating in late 2017, led by the US. This forecast is on track, although the summer slowdown was milder than expected. Current monetary trends suggest another momentum peak in early 2018.

Changes in economic momentum are reflected in activity news surprise indices calculated by Citigroup and others. The Citigroup index covering the G10 developed economies peaked in January / March 2017 at its strongest level since 2011, turned negative between June and August but has surged since mid-September. The EM index has followed a similar profile but has been less volatile – first chart.

These movements were foreshadowed by monetary trends. The shift from positive to negative surprises over the summer followed a sharp fall in global six-month real narrow money growth between August 2016 and February 2017. Recent strong economic news, meanwhile, was signalled by a rebound in real money growth into June 2017 – second chart.

The surge in the G10 surprise index since mid-September has been driven by US economic data – third chart. US economic strength is consistent with a pick-up in real narrow money growth into August, discussed in several posts over the spring and summer. A post in June argued that the US surprise index would return to positive territory by the fourth quarter, converging with or overtaking the Euroland index – this remains likely.

June appears to have marked another peak in global real narrow money growth, which edged lower in July and August before falling sharply in September. The lead time between monetary trends and the surprise indices is variable but this suggests that economic news strength will fade in early 2018. Real money growth is around the middle of its range in recent years so is not yet signalling economic weakness.