The G7 manufacturing PMI new orders index – a measure of global industrial momentum – slipped for a second month in March while remaining comfortably in expansion territory. The US component was again the strongest but there were upside surprises last month in Japan and the UK, while the Eurozone survey disappointed – see first and second charts.

The forecast here is that global industrial momentum will wane after May, based on a slowdown in real money supply expansion since November. This suggests that G7 PMI new orders will hold up over the spring and may reverse their February / March slippage. G7 retail sales grew solidly in the three months to February and often lead the PMI measure – third chart.

Outside the G7, the “official” Chinese new orders measure firmed last month, even after allowing for a positive seasonal effect – fourth chart. This contrasts with weakness in the alternative Markit measure but the official survey has tended to be more reliable historically.

The judgement here has been that it is too early to bet heavily on a global slowdown later in 2012 –  the monetary warning signal has yet to be confirmed by a fall in a proprietary leading indicator based on the OECD’s country leading indices, while annual real money growth is currently still above industrial output expansion, suggesting “excess” liquidity support for markets. Central banks, moreover, remain expansionary – fifth chart.

The next key data release will be a February update of the OECD leading indices on 10 April. A decline in the leading indicator, however, may occur in March (reading available in mid May) rather than February, based on an average three-month lag to real money expansion.