The global manufacturing PMI new orders index – a timely indicator of industrial demand momentum – eased to a 15-month low in November, continuing its decline from a May peak that was signalled by a July 2020 top in six-month real narrow money growth. With additional October data confirming a further fall in real money growth, the PMI orders slide is expected to extend into Q2 2022, at least – see chart 1.

Chart 1

The monetary slowdown signal is supported by the OECD’s leading indicators, November estimates of which are included in chart 2. The OECD indicators mostly exclude monetary aggregates and display a shorter lead time than money.

Chart 2

The November decline in global new orders reflected a slight firming in developed markets offset by EM weakness driven by a relapse in China.

The most striking feature of the global report was a further surge in the stocks of purchases index – a gauge of the pace of input stockpiling – to a record. Finished goods inventory accumulation, by contrast, remains “normal” – chart 3.

Chart 3

Input purchases by downstream manufacturers have boosted order flow for firms higher up the production chain. Such stockbuilding, however, is peaking and even a stabilisation at the current extreme pace would imply a drag effect on new orders – chart 4.

Chart 4

Cooling demand is starting to feed through to an easing of supply pressures. The supplier delivery times index recovered from an October record low (rise = faster), with an extension of an earlier turnaround in Taiwan, which typically leads, suggesting further improvement – chart 5.

Chart 5

Easing supply problems and a possible pick-up in finished goods inventory accumulation suggest that the PMI output index will catch up with and temporarily overtake new orders – chart 6. An improved supply / demand balance should also be associated with moderating price indices, which probably topped in October.

Chart 6

The judgement here is that markets will focus on softening demand / price momentum and “look through” a temporary output pick-up. Any reignition of the cyclical / reflation trade is likely to require a prior rebound in global real money growth.