A longer leading indicator of global industrial output growth rose slightly in April, breaking a five-month sequence of declines. This confirms a positive message from real narrow money supply expansion and suggests that the global economy will grow solidly through late 2013.
The first chart below shows a short-term leading indicator of global industrial activity based on OECD country leading index data together with a transformed measure designed to provide a longer lead at cycle turning points. This longer-term or “double-lead” indicator has signalled peaks and troughs in output growth an average of five months in advance in recent years versus three months for the short-term measure.
The double-lead indicator peaked in October 2012, declining modestly through March 2013. This downshift has been confirmed by an easing of the short-term measure since January. The behaviour of the indicators has been consistent with the long-standing forecast here that global industrial expansion would peak in spring 2013 and moderate over the summer.
The April rise in the double-lead measure, however, suggests that this slowdown will be modest and growth will pick up again from September. Monetary trends are giving the same message: global real narrow money expansion also reversed a five-month decline in April and is running at a level historically consistent with robust economic growth – second chart.
Markets looked vulnerable to a correction but current weakness may be temporary and limited, based on the favourable economic / liquidity assessment here.
In other news today, Japanese six-month real narrow money M1 expansion rose slightly in May but remains unexceptional by historical standards and relative to other countries – third chart. This suggests that QE has yet to gain significant traction, warranting caution on relative equity market prospects.
