The sharp fall in the US Institute for Supply Management (ISM) manufacturing new orders index in January is consistent with the long-standing view here that global industrial growth would peak at end-2013 and moderate in the first half of 2014. Other G7 purchasing managers’ surveys were upbeat last month but the US often leads the cycle and the ISM decline more than offset strength elsewhere – see first chart.

A growth peak was expected because of a slowdown in global real narrow money expansion from spring 2013 – monetary trends lead activity by about six months, according to the Friedmanite rule. The money numbers, however, have yet to signal economic weakness – see previous post.

The shift from acceleration to slowdown should be confirmed by the global longer leading indicator calculated here from OECD country leading indicator data – a December update will be available on Monday 10 February. The global measure appears to have peaked in September – see here – and has led recent growth turning points by an average 4-5 months.

The global leading indicator comprises G7 and emerging E7 components. An attempt to replicate the OECD’s country calculations suggests that the G7 series fell significantly in December* – second chart. Indeed, the G7 indicator may have dropped to its long-run average – crosses beneath this average have been associated with weak equity markets historically, as explained here.

*This replication is experimental and has not yet been extended to the E7 component.