The widely-watched ISM manufacturing new orders index – a gauge of industrial momentum – rebounded from February / March falls to reach a 12-month high in April. The index, however, may be in the process of peaking out, based on the following considerations.
First, six-month real narrow money growth has slowed from a peak in October and typically leads economic momentum by about six months. (Real money, however, is still expanding, so does not support the long-standing recession calls of the ECRI, Hussman etc.)
Secondly, the recent pick-up in the ISM measure fits the historical cyclical pattern. This pattern suggests a peak in June followed by a gradual decline during the second half.
Thirdly, a leading indicator derived from the OECD’s US leading index appears to have peaked in January, consistent with a spring ISM top. (A March update of the indicator will be available next week.)
Fourthly, Korean manufacturing expectations often lead ISM new orders and have softened recently.
The suggestion from monetary trends of a slowdown rather than anything worse is supported by recent retail sales resilience.
Worries, meanwhile, that the labour market is softening are not supported by April data on withheld taxes – a timely but noisy proxy for wage incomes.
