October 28, 2022

The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi everyone. Alan Beaulieu from ITR with another edition of TrendsTalk. Thank you for joining me today. And today I want to look on the bright side and there’s a lot of times when we have to talk about inverse yield curve and interest rates of reserve board, all sorts of things that are heavy on our minds and heavy on your minds. But every once in a while it’s good to look at things that are going in the other direction. So let’s take a look. Leading indicators, as you know, are very important to us here at ITR. They tell us a lot and four lead indicators have taken a turn up. They’re now on green rise and that’s for Australia, Brazil, which is really cool, and Japan, and the Major Five Asia lead indicator is going up also. So the G7 lead indicator, not yet, JPMorgan Global PMI, not yet, ITR lead indicator, not yet, and the US lead indicator not yet, but those countries are showing lead indicator rise. And that’s very encouraging.

And the reason it’s encouraging is because, well, for one thing it goes against what most people’s vision is. Is that there’s this recession and there’s the war and it’s just dragging the global economy down and oil. And I mean, it’s not hard to get filled with all kinds of bad vibes and bad feelings, I understand that. But these leading indicators are telling us something else. They’re telling us that there is some light and it’s growing brighter. And when I look at the industrial production trend for Australia, for instance, the 3/12 rate of change is rising in phase B and the 12 month moving average is rising as for Australia Industrial Production.

When we look at Brazil, it’s still in recession, but that leading indicator is saying it’s going to start getting better. The 3/12 is rising in phase A in Brazil, but the data trend still decline and the 12/12 is -3.0 and in phase D. So, still in recession. Japan, well the 3/12 is just about ready to broach that zero line and move into phase B, but it’s still in phase A. And the data trend, it stopped declining in Japan. Now it’s too early to call it a low. I would not go there, but it’s pretty exciting to see that 3/12 rise in the 12 month moving average to stop declining.

In China, we have a 3/12. For China Industrial Production that’s 4.0 rising in Phase B and the 12 month moving average is rising at a record high level. World Industrial Production, which if you’ve seen in ITR presentation, we often will show you what’s happening in the World Industrial Production rates of change because that has a lot to do with what’s going to be going on with copper future prices, which has a lot to do with what’s happening with inflation or deflation or disinflation.

And right now the World Industrial Production 3/12 rate of change is at 3.2 and has established a very tentative low in June. So we have a phase CB is what we would call it. It’s really not ready to go green, but it certainly is tantalizing and looks pretty good. Or else I wouldn’t mention it. And here in the US, our US Industrial Production 3/12 rate of changes at 4.2. The 12 month moving average is rising. The 12/12 is at 4.5. This is some pretty good numbers, but here’s the kicker. Well, the 12/12 and the 3/12 are in phase C. I’d give those the CB designation too. I can’t call them a low yet. And we would not want to have you leave here thinking that we have bonafide lows in the US Industrial Production rates of change, but we have them moving up in the latest month.

And if that continues with enough velocity, then we will be calling them lows before long. That’s really encouraging, there’s some light here. And you hear us talk about retail sales deflated basis doing well record high levels on the 12 month moving total for the last couple months. Record highs deflated, pretty cool. Nondefense Capital Goods New Orders, deflated. Steeper than normal August rise from July. I mean, there’s good things going on. And there’s one more good thing I want to share with you, and that’s US exports to the world. A lot of you do business with people who manufacture, or distribute, or ship goods that leave the country. That’s almost 2 trillion worth of activity, 1.981 trillion. It’s at a record high level in rising. The 12/12 rated changes at 20.8, which means a 12 month moving total is 20.8% above the [inaudible 00:04:57] be level. It’s in phase C, so it’s still going down, but that’s a big number.

And here’s the kicker, The 3/12 rated changes at 22.5% above [inaudible 00:05:06] levels for this quarter. 22.5% above the [inaudible 00:05:09] quarter, and it’s in phase B, and it’s rising above the 12/12. You know what, that means the cyclical momentum in exports is shifting from phase C to phase B. The 3/12 is all kinds of exciting and already at record high levels. That’s an important part of the economy, my friends. And it means the world is buying what the US is making. It means that the world is improving and it means that the United States will be improving along with it. We have a bit of a COVID echo going on here in the United States and that all that tremendous spending we did created this sugar rush, if you will. And now we have the crash that follows after, a lot of industries are just not feeling the strength of what’s going on.

And some of that, we call that the COVID echo. It’s a hangover, if you will, after the party. But that will pass. And these signs of light that I’ve told you about Australia, Brazil, Japan, the Major Five Asia leading indicator, that’s all good news. Those 3/12 rates of change I was telling you about, that’s all really good news and is telling you that we are on track with our forecasts. For those of you that follow us regularly, you know our forecast is that we’re not going to slip into recession. GDP will continue to be flat to mildly positive Industrial Production will be going up, and that we’re going to find ourselves with economic expansion in 2023. Good news. Hope you have a great day. Thank you for joining us for this edition of TrendsTalk. I’m Alan Beaulieu with ITR Economics. Thank you.