The world earnings revisions ratio – the number of analyst upgrades to company earnings forecasts minus downgrades divided by the total number of estimates – turned negative in June for the first time since July last year. The ratio correlates closely with business surveys, suggesting that these will weaken over the summer – see first chart.
It is normal for output momentum to moderate and surveys to soften about a year into an economic recovery as the initial boost from the stocks cycle fades – second chart. The slowdown phase, on average, lasts about six months and is followed by renewed acceleration, although this conceals significant variation.
The emerging slowdown was foreshadowed by weaker real narrow money growth – third chart. Real M1 is still expanding and the rate of increase appears to have stabilised recently, consistent with the view that economic softening represents a "pause to refresh" rather than the start of a "double dip". Further M1 weakness, however, would demand a rethink.
