Overview
The FLI Cycle Tracker extends a recovery with positive signals across sectors. The underlying economic momentum remains strong, even as a ‘reopening phase’ starts to mature.
The tracker moved deeper into the top-right quadrant in the most recent month, signalling quarterly growth that’s above trend and accelerating, although draconian Q2 lockdowns helped lower the base for comparison. The FLI quantitative ‘bet’ remains positive on risk and negative on duration for another month, near the 90th percentile of history.
However, overall activity remains well below where it was a year ago, reflecting the impact of social-distancing measures still in place. Year-on-year FLI growth, though improving, remains in very negative territory, having so far retraced less than half of its Q2 contraction. It’ll take some time to undo the damage inflicted by Covid-19 and to prevent the economic scarring from becoming permanent.
All sectors but one are showing accelerating growth above trend, with the only laggard being Consumer and Labour. Consumer confidence remains subdued, especially in the US, reflecting how people feel about their post-Covid employment and financial security. Hopefully, further economic recovery will shore up confidence for a self-reinforcing cycle of reflationary spending rather than disinflationary saving. But now is certainly not the time for fiscal policymakers to be taking away the punchbowl.
Interestingly, European measures seem to have a bit more momentum than those in America, perhaps due to US fiscal measures starting to expire. The US labour market is in a healthier position, with unemployment claims and overtime hours worked improving, although permanent unemployment (not included in the FLI) continues to rise sharply under the surface.
Business Surveys continue to lead the way, in both services and manufacturing, pointing to marginally positive year-on-year growth. Global Trade also manages to eke out positive year-on-year growth, with strength in both hard and survey data, having outperformed throughout the Covid recession. This pick-up in global trade has also buoyed Commodities, with strong acceleration in freightage costs and some improvement in survey-based indicators.
Lastly, Industrial Orders have improved but growth remains weak, driven by the extremely high inventory-to-sales ratio in Japan. This suggests some speed limit on future growth, as elevated inventories need to be worked down in some sectors.
