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Cyclical Outlook Diverges from Headlines
The tone of Davos meetings captures the mood of global movers and shakers. Virtually everyone there is so optimistic about economic growth that the economy doesn't even make the list of their top five concerns.
In sharp contrast, ECRI’s long leading indexes point to slowing global growth in 2018, and these are the same leading indexes that nailed the global growth upturn we discussed last year.
Yes, the synchronized global growth we’ve seen in 2017 has been great, but net-net U.S. is now sucking in other countries' goods exports more than ever before, weighing on U.S. GDP growth.
China is not immune to the 2018 global slowdown, and growth in our Chinese Leading Industrial Production Index has fallen to a 29-month low, so Chinese industrial growth is coming down.
In the U.S., despite lift from tax cuts, our leading indexes also see growth slowing, and please recall that a cyclical slowdown typically reduces GDP growth by a couple percentage points. Estimates of the tax cut boost to GDP are a fraction of one percent, so at best the tax cuts can soften the slowdown.
The bottom line: ECRI's cyclical indexes suggest that most people are looking the wrong way on economic growth.