By SCOTT STODDARD , INVESTOR’S BUSINESS DAILY Posted 05/18/2011 04:26 PM ET
A global summer slowdown looms as a leading indicator of factory activity has turned down, according to a well-respected independent research firm.
The Economic Cycle Research Institute’s long leading indicator of global industrial growth peaked at 0.7 in August 2010, predicting a cyclical peak for industrial activity this summer. The index stood at 0.1 in March, near the lowest level since January 1980.
“There’s a downturn in global industrial growth in clear sight,” said ECRI managing director Lakshman Achuthan.
Output has already started to decelerate in the U.S., Europe and key emerging market countries such as China that have driven the global economic recovery. Yet Achuthan said he sees no sign of a renewed recession.
ECRI has a good track record of predicting turns in the business cycle. It spotted the last two U.S. recessions and surprised financial markets in April 2009 when it predicted the latest downturn would end that summer. The National Bureau of Economic Research, the official arbiter of U.S. business cycles, ultimately confirmed that.
The long leading global industrial growth index is comprised of about 60 components that Achuthan said represent diverse long-term drivers of global industrial cycles in some 20 countries, including China and India.
“We’ve found that, collectively, they paint a picture showing clear patterns that highlight the earliest antecedents of global industrial cycles,” he said.
Output in the 17-member euro zone unexpectedly fell in March, suggesting that Q1 economic growth may have been weaker than expected.
Production plunged in Japan following the March 11 earthquake and tsunami.
China’s industrial pace has slowed more than expected amid government efforts to cool inflation.
In the U.S., industrial output was flat in April after rising 0.7% in March, as parts shortages due to Japan’s earthquake hurt auto production. Manufacturing production fell 0.5%.
Factories have been a bright spot in a lackluster U.S. recovery, struggling with a still-weak housing market, tight credit and looming government budget cuts.
The Federal Reserve and the National Association for Business Economics have cut their U.S. growth forecasts this year. Achuthan said about half of all slowdowns in overall U.S. economic growth lead to recessions, though he and other economists said that a renewed downturn was unlikely.
Reduced factory activity has had the benefit of bringing down the price of industrial commodities such as oil, copper and lumber. The growth rate of ECRI’s industrial commodity inflation index plunged to a seven-month low of 18.2% in May from 31.2% in April.
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