Are global business surveys peaking?
Global industrial growth picked up in late 2010 but is expected to peak this spring, based on monetary trends – see previous post. This peak should be foreshadowed by a topping-out of forward-looking components of business surveys, such as the US ISM manufacturing new orders index. (The January ISM survey is released on Tuesday.)
Interestingly, an imminent softening in ISM new orders is also suggested by a comparison of the recent behaviour of the index with prior recoveries – see first chart. (The four-cycle average is based on movements around troughs in January 1958, December 1974, January 1991 and January 2001. The index reached another major low in June 1980 but the subsequent recovery aborted early, so this cycle is excluded from the comparison.)
US regional manufacturing surveys for January have been strong but hint at a peak in order flows – second chart. (The Dallas Fed survey is released on Monday so the latest survey averages use December readings.)
Korea is often a bellwether of the global industrial cycle. The Federation of Korean Industries manufacturing survey for January reported weaker expectations – third chart. This may reflect some cooling in China in response to recent stepped-up policy tightening. China's PMI new orders index fell in December and may ease further in January.
Current global monetary trends are not suggesting serious economic weakness while the ISM new orders four-cycle average strengthens again later in 2011. Investor behaviour, however, typically turns more cautious around peaks in economic momentum, even when the subsequent slowdown proves to be a "pause to refresh".
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