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BUSINESS
orders for goods and services of all descriptions
remain one of the most reliable leading
indicators of future economic direction,
and recent readings show that orders have
been moving upwards, according to Export
Development Canada (EDC).
EDC
chief economist Peter Hall sees that the
upward movement spans multiple regions of
the world and a large variety of industries.
"Sustained growth going forward will
tell the tale for global growth," he
said.
While
he is pleased that the growing sophistication
of emerging markets is producing solid data
to work with, Mr Hall also finds more sustainable
reasons to be positive from assessing global
freight movements.
"If
orders are a strong signal, then freight
shipments shouldn't be far behind. After
all, inputs have to be shipped before stuff
can be made and delivered. Down at the bottom
of a pile of other cyclical indicators is
the US freight services index, and I'm happy
to say that but for a one-off interruption
last October, steady growth in this index
has now taken it beyond its previous peak
level in early 2005. If it's right, it is
saying good things about the world's growth
engine," he said.
"Leading
indicators have gained more prominence in
the post-crisis period, if only because
the on-again, off-again economy has intensified
scrutiny of shifts in momentum. But the
unusual circumstances that gave rise to
delayed recovery and the extraordinary stimulative
measures taken to rebuff weakness have distorted
certain indicators, forcing analysts to
pick their favourites," he said.
But
which ones can we rely on, and which ones
are telling us anything helpful at this
point in time
Mr
Hall feels that composite indicators - the
ones that combine a group of time-tested
leading signals - are still relied on as
economic barometers. "There's a lot
of excitement about their recent direction.
Take
for example the OECD leading indicator -
it has now risen for 12 consecutive quarters,
a rare moment that we have not seen since
the gush of stimulus that hit the economy
in 2009-10."
But
has this indicator been tainted by recent
distortions?
"Yes,"
he conceded. "Composite indexes usually
include a selected stock market index, a
money supply measure and a yield curve calculation
- long versus short-term interest rates.
Each of these has been influenced significantly
by fiscal and monetary policy moves, not
only in recent years, but in recent weeks.
The mere mention of tapering last May had
stock markets retreating and longer-term
yields rising - not to mention altered expectations
of growth in monetary aggregates."
One
of the big mysteries economists try to assess
is the voodoo economics of "quantitative
easement", a process by which the government
buys financial instruments, that is, contracts
to pay back sometime under various conditions,
from banks, in staggering trillion dollar
trenches.
The
hope of course is this pump-priming measure
actually primes the economy into long-range
robust growth in the hope that one day we
shall once again balance our very unbalanced
books. And now that further quantitative
easement is to ease off, short and mid-term
prospects come into more immediate scarifying
focus.
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