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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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China and G7 Inflation


Key takeaways:

-    Global industrial growth downturn call

ECRI made the call in late 2017, before the trade war began, and before the Global PMIs turned down, because ECRI’s indexes lead the PMI. Two conclusions follow – one is that the slowdown is about much more than the trade war, as Chairman Powell finally acknowledged in his congressional testimony last week, and two, because our leading indexes haven’t turned up yet, the slowdown itself isn’t about to end anyway. 

-    G7 inflation cycle downturn

Last summer we called the inflation cycle downturn in the U.S., followed by a similar international call, and it’s only since earlier this year that there’s been grudging acknowledgment of that reality.

Despite the recent uptick in core inflation, that’s led to predictions of an inflation revival by many who were blindsided by the inflation downturn, our Future Inflation Gauges are still falling, particularly in the U.S. and Japan. 
 
-    China indexes show no industrial upturn

A piece of our prescient global industrial downturn call from late 2017 came from our China leading indexes that lead Chinese PMIs.

And early this year, when everybody was betting on a big boost in growth from Chinese stimulus that was north of a trillion dollars, those same leading indexes saw that the slowdown would continue anyway.

Our research showed that a good part of that stimulus went to shoring up China’s rust belt in the north and northeast, which is not very effective in boosting Chinese growth – but it does reinforce global overcapacity and international disinflation. 

-    India cycle recovery in sight

Contrary to consensus view that India’s economic growth will keep languishing, ECRI’s leading indexes point to a growth rate cycle upturn.

India cyclical recovery in sight, contrary to consensus view that growth will keep languishing. (RBI has cut three times).

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