An often overlooked forward-looking economic indicator in production figures suggests a rebound in U.S. manufacturing is coming, and with it, “a broader economic pickup,” according to a top macro strategist.
“Very rarely do people focus on this input price component but it’s actually the only forward-looking data point in all the ISM data. It has an ability to forecast the business cycle with about a 15-month lead,” Kantrowitz explained.
Kantrowitz explained that the indicator, which tracks the costs of doing business, drops when input costs in general or interest rates (or both) fall.
“We found, in general, that the business cycle re-accelerates after you’ve had a drop in business costs,” he said. “Interest rates have come down and now, that’s going to reinvigorate manufacturing activity, which will ultimately lead to better earnings and a broader economic pickup,” Kantrowitz argued.
“I think the outlook is that we’re going to see a cyclical upturn in leading economic indicators,” Kantrowitz told Real Vision. “We’re already beginning to see some of that, some of the housing data has been strong now for a couple quarters. We expect now the manufacturing data to take over, to tick up.”
Other leading indicators that typically precede a business cycle rebound are increases in new housing starts and money supply expansion.
Both of these measures have picked up, with President Donald Trump hailing the recent surge in new home construction.
“Tremendous surge in new housing construction in December, 16.9%, biggest in many years!” The president wrote on Twitter.
U.S. home sales jumped to their highest level in nearly two years in December, the latest indication that lower mortgage rates are helping the housing market to regain its footing after hitting a soft patch in 2018.
The report from the National Association of Realtors on Wednesday followed on the heels of government data last week showing home-building raced to a 13-year high in December.