Global – CC&L Financial Group Ltd.

A cyclical forecasting framework implies that current economic events will contain echoes of developments at the same stage of previous cycles.

Similarities should be more pronounced at around 18- and particularly 54-year frequencies, corresponding to average lengths of the housing and Kondratyev inflation cycles respectively.

A previous post noted the similarity of Fed tightening episodes in 1967-69 and 2022-23. The Fed funds rate (month average) rose from peak to trough by 540 bp and 530 bp respectively, topping in August 1969 and August 2023, exactly 54 years later – see chart 1.

Chart 1

The US economy entered a recession at the end of 1969. GDP was recovering by Q2 1970 but suffered a second hit from a prolonged auto strike.

The Fed cut rates much more aggressively than recently but reversed course temporarily from early 1971 as the economy rebounded strongly and inflation remained high. The current Fed pause has occurred at the same cycle time.

Inflation fell sharply into 1972, mirroring a big slowdown in broad money growth two years earlier. The Fed resumed easing later in 1971, with the funds rate reaching an ultimate low in February 1972.

A possible scenario is that President Trump’s tariff shock triggers the recession “missing” from the current cycle, causing the Fed to ease aggressively later in 2025, with rates and inflation falling to lows in 2026 corresponding to those reached in 1972.

US disruption to global economic relations is itself is strongly reminiscent of policy developments 54 years ago. In August 1971, President Nixon shocked trading partners by suspending convertibility of the dollar into gold within the Bretton Woods system while imposing a 10% tariff on imports.

The backdrop was a US balance of payments deficit and an accelerating loss of gold from US reserves. According to a Federal Reserve history of the period, President Nixon blamed the deficit “on unfair trading practices and other countries’ unwillingness to share the military burden of the Cold War”. Sound familiar?

The “Nixon shock” triggered a crisis, with global policy-makers fearing that “international monetary relations would collapse amid the uncertainty about exchange rates, the imminent spread of protectionism, and the looming prospects of a serious recession”.

The crisis was resolved, at least temporarily, by the December 1971 Smithsonian Agreement, involving trading partners agreeing to revalue their currencies against the dollar in return for the removal of tariffs. “The net effect was roughly a 10.7 percent average devaluation of the dollar against the other key currencies … Foreign nations also agreed to comply with Nixon’s request to lessen existing trade restrictions and to assume a greater share of the military burden.”

Could a revaluation of currencies against the dollar be part of a “deal” to end the current crisis, once President Trump comes to recognise that the economic costs of his high tariff policy greatly exceed any benefits?

The Nixon shock occurred with the real trade-weighted value of the dollar at a similar premium to its long-run average to today. The shock accelerated a secular decline into and beyond the following housing cycle trough – chart 2.

Chart 2

Global money growth has picked up since late 2024 but remains subdued, while the stock of money is no longer in excess relative to nominal economic activity and asset prices. The monetary backdrop, therefore, appears insufficiently supportive to offset economic / market damage from US-led tariff hikes.

Prospective tariff effects, meanwhile, require a revision to the previous forecast here of a downside global inflation surprise in 2025 related to extreme monetary weakness in 2023. A price level boost this year is unlikely to yield second-round effects given disinflationary monetary conditions, so a near-term lift to annual inflation should reverse in 2026. The effect may be to extend the lag between the money growth low of 2023 and the associated inflation low from two to three years.

The elimination of a surplus stock of money has been mirrored by erosion of excess labour demand, with job openings / vacancy rates mostly now around or below pre-pandemic levels. Economic weakness, therefore, may be reflected in a rise in unemployment that eventually dominates central bank concerns about inflationary tariff effects, suggesting that current policy caution will give way to renewed easing later in 2025.

Global six-month real narrow money momentum – the key monetary leading indicator followed here – fell between June and October 2024 but has since rebounded, reaching a post-pandemic high in February. (The timing of the mid-2024 dip has changed slightly from previous posts, mainly reflecting annual revisions to seasonal adjustment factors for US monetary data.) Real money momentum, however, remains below its long-run average – see chart 1.

Chart 1

The lead time between real money momentum and manufacturing PMI new orders has averaged 10 months at the four most recent turning points. Based on this average, the 2024 real money slowdown and subsequent reacceleration suggest a PMI relapse in Q2 / Q3 followed by renewed strength in late 2025 – chart 2.

Chart 2

Tariff effects – including payback for a front-loading of trade flows – are likely to magnify mid-year economic weakness and could push out or even abort a subsequent recovery: delayed central bank easing, a confidence hit to business / consumer credit demand and a near-term inflation lift could reverse the recent pick-up in real money momentum.

Previous posts, meanwhile, argued that stocks of (broad) money in the US, Japan and Eurozone are no longer higher than warranted by prevailing levels of nominal economic activity and asset prices, implying an absence of a monetary “cushion” against negative shocks. Excess money appears to be substantial in China but could remain frozen as US trade aggression and domestic policy caution sustain weak business / consumer confidence.

Chart 3 shows six-month real narrow money momentum in major economies. Chinese strength is a stand-out but may partly reflect payback for earlier weakness – momentum needs to remain solid to warrant continued (relative) optimism. A Eurozone recovery still leaves momentum lagging the US (where revised numbers show less of a recent slowdown), with the UK further behind. Japanese weakness is alarming, suggesting significant downside economic / inflation risk and consistent with recent lacklustre equity market performance.

Chart 3

European economic optimism has been boosted by a relaxation of German fiscal rules and a wider drive to increase defence spending. This is significant for medium-term prospects but has limited relevance for the near-term economic outlook, which hinges on whether an uplift from monetary easing will prove sufficient to offset trade war damage.

The two flow indicators of global “excess” money followed here are giving a mixed message: six-month growth of real narrow money has crossed above that of industrial output (positive) but 12-month growth remains below a long-term moving average (negative). This combination was associated with global equities slightly underperforming US dollar cash on average historically.

From a cyclical perspective, a key issue is whether the US tariff war shock brings forward peaks and downswings in the stockbuilding and business investment cycles, which are scheduled to reach lows in 2026-27 and 2027 or later respectively. The previous baseline here was that upswings in the two cycles would extend into 2026, a scenario supported by the current monetary signal of a rebound in economic momentum in late 2025.

The next downswings in the two cycles are likely to coincide with a move of the 18-year housing cycle into another low. Triple downswings are usually associated with severe recessions and financial crises. Such a prospect is probably still two years or more away but the US policy shock may have closed off the possibility of a final boom leg to current upswings before a subsequent crash.

Table 1 updates a comparison of movements in various financial assets so far in the current stockbuilding upswing (which started in Q1 2023) with averages at the same stage of the previous eight cycles, along with changes over the remainder of those cycles. Three months ago, US equities, cyclical sectors, the US dollar and precious metals were performing much more strongly than average, suggesting downside risk. By contrast, EAFE / EM equities, small caps and industrial commodities appeared to have catch-up potential.

Table 1

Q1 moves corrected some of these anomalies, with the US market falling back, Chinese / European equities performing strongly, US cyclical sectors lagging, the dollar falling and industrial commodity prices recovering. Precious metals, however, became even more extended relative to history, while small cap performance has yet to pick up.

The updated table suggests potential for further strength in EM and to a lesser extent EAFE equities, along with industrial commodities. Cyclical sector underperformance and dollar weakness could extend, while gold / silver appear at high risk of a correction. The larger message, however, is that, even assuming a delayed peak, the stockbuilding cycle has entered the mid to late stage that has been unfavourable for risk assets historically.

The suggestion of EM outperformance is supported by monetary considerations. Six-month real money momentum is stronger in the E7 large emerging economies than in the G7, while – as noted earlier – global real money is outpacing industrial output. EM equities beat DM on average historically when these two conditions were met, underperforming in other regimes – chart 4.

Chart 4

Recent outperformance of non-US equity markets may be a signal of the end of the bull market rather than a harbinger of broadening strength.

Previous analysis comparing returns in the current stockbuilding cycle with history suggested weaker prospects for risk assets, a reversal of US equity market / cyclical sector outperformance, a decline in the US dollar, stronger industrial commodity prices and a correction in precious metals. Several of these themes are playing out and appear to have potential to extend.

The stockbuilding cycle averages 3.5 years in length and last bottomed in Q1 2023, suggesting another low in H2 2026. The previous view here was that the current cycle would be longer than normal, to balance a shorter previous cycle (2.75 years) and to harmonise with the business investment cycle, which isn’t scheduled to bottom before 2027.

There is, however, anecdotal evidence of firms / importers stockpiling inputs / finished goods to avoid tariffs, raising the possibility of an earlier cycle peak and start to the downswing.

The cycle indicators followed here do not currently support this alternative scenario. The annual change in G7 stockbuilding, expressed as a percentage of GDP, is usually significantly positive at cycle peaks but stalled just above zero in Q4. A more timely indicator based on business surveys was little changed through February – see chart 1.

Chart 1

The previous view – that a cycle peak is still several quarters away and a downswing will be delayed until 2026 – will, therefore, be maintained. This assessment is consistent with a recent rise in global six-month real narrow money growth, suggesting a recovery in economic momentum in late 2025 following Q2 / Q3 weakness – see previous post.

Risk assets typically rally strongly in the first half of a stockbuilding cycle, partially retracing gains in the run-up to the next trough. Table 1, reproduced from the earlier post, compares movements in the current cycle through end-2024 with averages at the same stage of the previous eight cycles, along with changes over the remainder of those cycles.

Table 1

US equities, cyclical sectors, the US dollar and precious metals had outperformed relative to history, suggesting a stronger likelihood that they would lose ground between end-2024 and the next trough. Areas that had lagged and appeared to have catch-up potential included EAFE / EM equities, small caps and industrial commodities.

Table 2 updates the comparison through 11 March. The US market correction and rallies in Europe / China have narrowed the US / EAFE and US / EM performance gaps but they remain wide relative to history. Other moves in the “right” direction with apparent potential to extend include weakness in cyclical sectors, a decline in the US dollar and a rise in industrial commodity prices.

Table 2

By contrast, there has been no correction of the “anomaly” of small cap underperformance, while unusual strength in precious metals has extended further.

The larger message is that, even assuming a delayed peak, the stockbuilding cycle has entered the mid to late stage that has been unfavourable for risk assets historically.

Recent policy upheavals may eventually prove inflationary but near-term risks are judged here to remain on the downside.

In common with conditions preceding the 2021-22 inflation upsurge, recent developments combine elements of a negative supply shock (tariffs, supply chain disruption, reduced US labour supply) with a potentially major demand boost (ramped-up European defence / infrastructure spending, US tax cuts).

The difference is that the earlier episode involved an immediate surge in money growth as fiscal blowouts were financed by money creation and central banks added fuel to the fire by slashing rates and launching large-scale QE.

Current fiscal developments will plausibly boost money growth as deficit financing needs expand and / or central banks and commercial banking systems are required to provide a greater proportion of funding to limit upward pressure on government borrowing costs. Unlike 2020, this will play out over years rather than months, however. Monetary financing is currently contributing little to G7 broad money growth, though has picked up in China – see chart 1.

Chart 1

Central banks, meanwhile, have turned more cautious rather than stepping on the gas, and policy uncertainty is suppressing business / consumer confidence, which may be reflected in less money growth support from private sector credit demand.

G7 annual broad money growth recovered further in January but, at 4.1%, is still below its 2015-19 average, which was associated with sub-2% headline / core inflation averages – chart 2.

Chart 2

Six-month growth is stronger, at an annualised 5.2%, but hardly ringing inflationary alarm bells.

Has potential economic growth fallen since the 2010s, so that a given level of money expansion is more inflationary than then? Arguments are mixed – possibly weaker labour supply expansion versus AI deployment and higher European investment spending.

The monetarist rule of thumb of a roughly two-year lag between changes in money growth and their maximum impact on inflation conceals significant historical variation but has worked near perfectly in recent years.

With annual money growth bottoming in H1 2023 and only now returning to a “normal” level, the suggestion was that annual inflation rates would fall further in 2025 and remain low through 2026.

Tariff hikes will have a price level impact but second-round effects are unlikely given the restrictive influence of earlier monetary weakness. A (small) lift to annual inflation this year should, therefore, reverse in 2026, raising the possibility that the lag between the H1 2023 money growth low and associated inflation low will extend to around three years on this occasion (still well within the historical range).

The forecast of a local peak in global industrial momentum – proxied by the manufacturing PMI new orders index – around end-Q1 appears to be on track. Monetary trends suggest a modest pull-back over Q2 / Q3 followed by renewed strength in late 2025. US policy actions threaten more pronounced and sustained weakness.

Global manufacturing PMI new orders rose further in February, moving above last year’s May peak to reach the highest level since March 2022 – see chart 1.

Chart 1

The upswing from a low last September, on the view here, reflects a rise in global six-month real narrow money momentum between September 2023 and April 2024 – turning points in money momentum have led the PMI by 10-13 months in recent years.

Real money momentum, however, eased between April and October 2024 before rising to new highs more recently. The suggestion was that the industrial pick-up would pause over spring / summer 2025 but strengthen further into 2026.

The view that the PMI new orders index is at or close to a peak is supported by a February fall in an alternative indicator combining forward-looking components of national business surveys (ISM for the US, NBS for China, Ifo for Germany etc.) – chart 2.

Chart 2

The global earnings revisions ratio also exhibits a contemporaneous correlation with the PMI and declined last month.

The baseline scenario of a modest PMI correction followed by renewed strength has, of course, been called into question by recent US policy actions.

Monetary trends are, for the moment, still giving a reassuring message, with global six-month real narrow money momentum rising slightly further in January – chart 1.

This increase, however, was due to additional strength in China, with US / Eurozone narrow money measures stalling in January, as previously discussed. In contrast to the global (i.e. G7 plus E7) measure, G7 six-month real money momentum has been moving sideways since August – chart 3.

Chart 3

A recent back-up in Chinese money market rates, meanwhile, could presage less upbeat monetary data – chart 4.

Chart 4

A renewed fall in global real narrow money momentum would suggest more lasting / self-reinforcing damage from the US policy shock.

Reciprocal tariffs represent an indirect tax rise on cross-border trade in goods.

The US might be expected to suffer less damage from a global rise in tariffs than China and the EU because trade is a lower share of GDP.

Such logic, however, does not apply currently because conflict is occurring in US bilateral relationships rather than globally. So the share of GDP potentially affected by tariffs is larger for the US than China / the EU.

Goods imports from countries currently on President Trump’s tariffs hit list represent about 7% of US GDP, with a suggested 20% blended hike implying an effective tax rise of 1.4% of GDP ($410 bn) – see chart 1.

Chart 1

Assuming full reciprocity, Chinese and EU tariffs will affect imports accounting for less than 1% and less than 2% of their GDPs respectively – chart 2.

Chart 2

By contrast, Canada and Mexico will impose a much larger effective tax rise than in the US if they reciprocate Trump’s tariff rates (which is why they won’t) – chart 3.

Chart 3

A reasonable baseline assumption is that tariff burdens will be shared equally between domestic consumers and foreign producers. Assuming full reciprocity, the US would suffer more than China / the EU (but much less than Canada / Mexico) – see table.

Advocates of tariffs claim that their imposition will boost the dollar, resulting in an improvement in the terms of trade that offsets the effective tax rise on consumers. Tariff revenues will be available to cut taxes or reduce the deficit, for a net economic gain.

This is magical thinking and begs the question of why tariff-raising has not previously been recognised as an optimal economic strategy. Equally plausible is that tariffs will undermine US economic outperformance and weaken the dollar / terms of trade, compounding the hit to domestic purchasing power.

The forecast of global manufacturing acceleration into H1 2025 is playing out but lagged money trends suggest that the pick-up will stall over the spring / summer before resuming in late 2025. A trade war could turn a stall into a more serious set-back.

The global manufacturing PMI new orders index crossed back above the 50 level in January, reaching its highest level since May. An alternative indicator combining new orders or output expectations components of national business surveys (ISM for the US, Ifo for Germany, CBI for the UK etc) mirrored the PMI increase – see chart 1.

Chart 1

The forecast of a pick-up was based on a rise in global six-month real narrow money momentum from September 2023 through April 2024. Turning points in real money momentum have led survey turning points by 11-13 months in recent years. The survey lows in September 2024 arrived on schedule – chart 2.

Chart 2

The leading relationship had been the basis for an earlier forecast of a “double dip” in the survey indicators into H2 2024.

The upswing in six-month month real narrow money momentum, however, stalled between April and October 2024, before resuming in November / December. Based on recent lead times, this suggests a local peak in PMI new orders / the alternative indicator around March 2025 and a minor fall through Q3.The latest money numbers are giving a positive signal for late 2025.

This profile, of course, takes no account of possible trade disruption from a US-led global tariff war, which could accentuate mid-year weakness and might also affect monetary prospects (to the extent that negative confidence effects cause households and firms to defer spending, reducing their demand to hold narrow money).

An alternative explanation for the recent manufacturing pick-up is that demand / production has been pulled forward as importers stockpile ahead of new or higher tariffs. Inventories components of business surveys, however, don’t currently suggest unusual behaviour – chart 3.

Chart 3

The forecast of a minor peak in global manufacturing momentum this spring could imply relief for US Treasuries.

The low / stable inflation environment of the 2010s was associated with a strong positive correlation between Treasury yields and economic momentum. This broke down in 2021-22 as surging inflation became the dominant driver of yields – chart 4.

Chart 4

With inflation normalising, the 2010s relationship may be returning. Lows in the business survey indicator in May 2023 and September 2024 were reflected in nearby lows in Treasury yields.

An approaching local peak in the survey indicator coupled with expected further favourable inflation news could open up downside for yields into H2.

The cycles framework used here suggests a window for global economic strength in H2 2025 / H1 2026 as the stockbuilding and business investment cycles move towards peaks – see previous commentary. This scenario, however, requires confirmation from a pick-up in global real money momentum into mid-2025.

December money numbers are tentatively supportive. Six-month growth rates of narrow and broad money rose across the US, Japan, Eurozone and China – charts 1 and 2.

Chart 1

Chart 2

Based on monetary data covering 84% of the aggregate, global (i.e. G7 plus E7) six-month real narrow money momentum is estimated to have reached its highest since 2021 (October). The rise in nominal growth in December was partly offset by an energy-driven increase in six-month consumer price momentum – chart 3.

Chart 3

Several qualifications are in order. The positive signal from the recent pick-up relates to economic prospects for H2 2025, based on the usual six to 12 months lag. H1 performance is expected to be weak, reflecting stalled real narrow money momentum between April and October 2024.

Real money momentum, moreover, remains low by historical standards. A rise at least to the 2010-19 average is necessary to validate a late 2025 / H1 2026 economic “boomlet” scenario – chart 4.

Chart 4

The rise in longer-term interest rates in the US and Europe since the start of December, meanwhile, could slow or reverse the money growth pick-up.

Despite rising in November / December, US six-month real narrow money momentum remains below its August peak. With China / Europe catching up, US economic and / or equity market outperformance may fade or reverse – chart 5.

Chart 5

It is much too early to worry about a money growth revival fuelling another inflation pick-up. G7 annual broad money growth is still slightly below its average over 2015-19, a rate of expansion associated with below-target headline / core inflation outcomes – chart 6. The roughly two-year lag in the relationship suggests further downward pressure on inflation in 2025 and no serious upside threat before late 2026 at the earliest.

Chart 6

Monetary trends suggest that the global economy will remain soft in H1 2025, while inflation rates will fall further, undershooting targets. Cycle analysis holds out a prospect of economic reacceleration later in the year but risk assets might have limited further upside even in this scenario, although international / EM equities might regain relative performance.

Global six-month real narrow money momentum recovered from a low in September 2023 into Q2 2024 but has since moved sideways at a weak level by historical standards – see chart 1. Based on a normal six to 12 month lead, this suggests below-trend economic growth through Q2 2025, at least.

Chart 1

Economies exhibiting monetary weakness are at greater risk from negative policy or other shocks. As an example, a fizzling-out of a recovery in UK six-month real narrow money momentum in H1 2024 signalled an approaching growth stall but the Budget tax shock appears to have tipped the economy into contraction.

With job openings / vacancy rates back in pre-pandemic ranges, below-trend global growth is likely to be associated with greater deterioration in labour markets than in 2024. In economics parlance, a movement down the Beveridge curve may be approaching a gradient shift such that a further fall in vacancies will be associated with a significant unemployment rise.

A further issue for monetary economists is the “false” US recession signal of 2022-23. Most annual contractions in US real narrow money historically were associated with recessions, and all on the scale of the 2023 decline – see chart 2. On three occasions (highlighted), however, the interval between the start of the contraction and the onset of recession was unusually long, i.e. up to 32 months.

Chart 2

On inflation, the monetarist rule of thumb that price momentum follows the direction of broad money growth roughly two years earlier suggests a further slowdown into undershoot territory in H1 2025. Chart 3 shows the relationship for the Eurozone but the message of headline / core deceleration is the same for the US, Japan and the UK.

Chart 3

Global PMI output price indices in manufacturing and services are close to 2015-19 averages, when headline / core inflation averages were below target.

Financial market prospects, on the “monetarist” view, depend on whether there is “excess” or “deficient” money relative to the economy’s needs. Two flow measures of global excess money were used here historically – the gap between six-month rates of change of real narrow money and industrial output, and the deviation of the annual change in real money from a slow moving average. A “safety first” approach of holding global equities only when both measures were positive would have outperformed buy-and-hold significantly over the long run.

The flow measures, however, remained mixed / negative in 2023-24, understating the availability of money to boost markets because they failed to capture a stock overhang from the 2020-21 monetary surge. To assess whether this stock influence remains positive, the approach here has been to use a modified version of the quantity theory in which the money stock is compared with an average of nominal GDP and gross wealth.

Chart 4 shows that an average of US nominal GDP and gross wealth remained below the level implied by the money stock through mid-2024, consistent with a positive stock influence on asset prices / the economy. Equivalent analysis for Japan and the Eurozone shows the same. In all three cases, however, the nominal GDP / wealth average moved ahead of the money stock during H2 2024, implying that stock and flow indicators are now aligned in suggesting a neutral / negative backdrop.

Chart 4

While monetary indicators suggest near-term softness, cycle analysis holds out a prospect of stronger economic performance later in 2025 and in 2026. A key consideration is that the stockbuilding and business investment cycles appear some way from reaching peaks, with the next lows unlikely before H2 2026 and 2027 respectively.

The last trough in the stockbuilding cycle is judged to have occurred in Q1 2023, with national accounts inventories data and business surveys suggesting that the upswing is around its mid-point – chart 5. The previous cycle was shorter than the 3.5 year average, so the current one could be longer, with a low as late as H1 2027. An associated downswing might not start until H1 2026.

Chart 5

The 7-11 year business investment cycle appears to have bottomed in 2020, although a case could be made that this was a false low due to the pandemic, with the last genuine trough reached following a mild downswing in 2015-16. On the more plausible former view, the next low is scheduled for 2027 or later, implying potential for a 2026 boom.

The longer-term housing cycle, which bottomed in 2009 and has averaged 18 years, is in the time window for a peak but significant weakness could be delayed until H2 2026 or later.

Monetary and cycle signals could be reconciled if near-term economic weakness / favourable inflation news triggers faster monetary policy easing and a strong pick-up in money growth into mid-year.

Would such a scenario be associated with further significant gains in risk assets? The history of the stockbuilding cycle suggests not.

Risk assets typically rally strongly in the first half of a stockbuilding cycle, partially retracing gains in the run-up to the next trough. Table 1 compares movements so far in the current cycle with averages at the same stage of the previous eight cycles, along with changes over the remainder of those cycles. US equities, cyclical sectors and precious metals have outperformed relative to history, suggesting a stronger likelihood that they will lose ground between now and the next trough.

Table 1

Areas that have lagged relative to history include EAFE / EM equities, small caps and industrial commodities, hinting at catch-up potential in the event of a delayed stockbuilding cycle peak and late (H1 2027) trough. This prospect would be enhanced by a reversal of unusual US dollar strength so far in the current cycle.

Still, any such catch-up might be a relative rather than absolute move against a backdrop of a maturing cycle upswing, a possible US market correction and neutral / negative excess money conditions.

November results confirm a September low in global manufacturing PMI new orders, with money trends suggesting a further rise through spring 2025, subject to tariff distortions.

The baseline scenario here has been that global industrial momentum – proxied by the manufacturing PMI new orders index – would bottom out in late 2024 and recover weakly into H1 2025. A manufacturing upturn was expected to be offset by loss of services momentum, with associated labour market weakness combining with favourable inflation news to support faster monetary policy easing.

The manufacturing part of the story is on track. The forecast of a late 2024 PMI new orders low was based on a recovery in global six-month real narrow money momentum from a trough in September 2023, taking into account a recent average interval of about a year between turning points in the two series. The new orders index reached a 22-month low on schedule in September, recovering solidly in October / November – see chart 1.

Chart 1

The turnaround has been mirrored by an alternative indicator based on national business surveys, although this bottomed one month earlier in August and has recovered by slightly less – chart 2.

Chart 2

Chart 3 highlights the recent relationship between swings in six-month real narrow money momentum and directional changes in the alternative indicator. Real money momentum recovered between September 2023 and April 2024 but has since stalled at a weak level by historical standards, falling back in September / October.

Chart 3

Assuming that the lead time remains at about a year, the suggestion is that a rise in the survey indicator / PMI new orders will level off in spring 2025, falling short of prior historical peaks.

Forecast uncertainty is higher than normal because tariff threats are distorting behaviour. Accelerated stockbuilding could result in a stronger near-term pick-up and earlier peak with a subsequent normalisation – or worse if threats crystallise.