The US economy hits the brakes

 Here's another indicator for the USA, showing how a recovery began, but has died.

The series depicted is my own US coinciding index, which is designed to coincide with the economic cycle.   You can see how growth slowed to the trough in 2023, started to pick up in 2024, and really accelerated in late 2024 and early 2025 before sliding again.  

Again, the slowdown up to 2023 was caused by the Fed raising rates, the recovery since then was caused by the diminishing impact of the rise in rates and the increasing impact of falling rates.  And the plunge since April is due to the uncertainty and damaging effect of Trump's tariffs and other policy initiatives.

Australian recovery probably OK

This chart shows YoY changes in my Australian leading and coinciding indices.  The leading index has been brought forward by 6 months, which gives us a forecast of what is likely to happen to the economy.  It suggests that economic activity is likely to accelerate.

However, my leading index is based on indicators which would normally lead recoveries and recessions.  There is no recent precedent for the damage wreaked by a trade war, and worse, by random changes in tariff levels, up one week and down the next.  These would be picked up by confidence indicators, both business and consumer.  But although consumer confidence rose sharply from 2023 lows, it has merely levelled off since January.   Business confidence is still holding up.  The most up-to-date activity indicators, the PMI series, are, so far, still rising.

Unlike the data in the US, which are already suggesting a slowdown at best and a recession at worst, Ozzie data still point to a recovery.   I'll go with that for now.

My Australian coinciding index

 I haven't updated my Australian coinciding index, which is designed to coincide with the business cycle, for a while now, for a variety of personal reasons, some small, some much larger.  At any rate, I have just updated most of the Australian time series I monitor, and have calculated my coinciding and leading indices.  

I thought I would just confirm that my coinciding index is still correlated with the Ozzie business cycle.  To measure the business cycle, I use an average of real GDP and real GDE (gross domestic expenditure).  For a commodity-based economy, GDE is a better guide to the business cycle than GDP, and is better capable of being influenced by monetary and fiscal policy.

I have expressed both time series (my index and the GDP/GDE average) relative to their moving trend. 

As can be seen, my coinciding index follows the GDP/GDE average closely, though my coinciding index is much further below the GDP/GDE benchmark over the last year than (I suspect) it should be, which may be an artefact of the deviation from moving trend calculation.  [See the second chart below.] Note that neither GDP nor GDE form part of my coinciding index because they are quarterly, and therefore published with a lag.

The MT at the end of the time series is estimated by fitting a OLSQ trend to the data from 01/2018 to 2025, i.e, the last 6.5 years, which have been greatly distorted by the covid crash and the wild rebound from it.  I will investigate whether a slightly longer period for the last few years should be used. [Update: I've tweaked the algorithm, which reduces the deviation below the long-term trend over the last 2 years, but I haven't updated the charts]

Anyway, it seems clear enough that my coinciding index is an accurate estimate of the business cycle.  Expressed as a YoY percentage change, my coinciding index has levelled off, but obviously at a big negative value (hence its continued fall relative to its longer-term moving trend)

Will the Ozzie economy recover from now on?  I suspect it will, but Trump's tariff shilly-shallying isn't just making it harder for business to plan ahead, it's also making it harder for economists to forecast!  All I can do is monitor the data closely, which I will do.  In the meantime, I believe that Australia has passed the lower turning point in the cycle, and although it won't be immune to Trump's idiocies, the recovery will be sustained.

China has further to fall

The chart below shows the year-on-year percentage change in my leading and coinciding indices for China.  A coinciding index is designed to follow the economic cycle, while a leading index is designed to lead the economic cycle.  In the chart, the leading index has been plotted with a nine months lag, so that its peaks and troughs approximately coincide with the cycle.  From 2014-2018, the leads were longer, and during China's repeated covid lockdowns over the last 3 years, they were shorter. 

The leading index appears to have troughed, consistent with recent shifts in monetary policy by the People's Bank of China.  But as always, these won't affect the economic cycle for several months.  It is likely that the real economy will only bottom in the middle of 2024. 

What does this mean for the world economy?  China's economic importance is overstated by its official GDP data, but I estimate that it is something between 10 and 15% of the world economy.  In my calculations, I use a weight of 11%, which is perhaps at the lower end.   This compares with the US at ~21%, the Euro Area/Zone of 17%, Japan at 6%, India at ~5% and the UK at 3%.  Because currencies move around a lot, these weights are based on PPP (Purchasing power parity) exchange rates.  (You might see news reports which give different weights, but these often use current exchange rates, which are volatile and can easily change direction.)

So, the US is embarking on a new economic upturn, Europe and the UK are still mired in recession, and Japan is beginning a slow recovery.  China's weak economy will retard world growth.  From an Australian perspective, it will also mean bad news for the prices of Australia's exports, including iron ore, which is already reflecting economic reality, and is falling fast.

China also faces major structural, long-term negatives for growth, but cyclical indices like my leading and coinciding indices aren't designed to pick these up.   Among the negatives China faces are its declining population, its massive housing crisis, and its continued skew away from private consumption.   Given these long-term structural issues, the traditional Chinese stimulus involving massive debt-financed residential housing and infrastructure development may not be feasible or even work.  

This chart shows the gap between the official GDP data and my GDP estimate.   My estimates, and those of other people, suggest that China's actual GDP is 1/3rd or more below its official level.  Note that my alternate GDP estimate is falling even though the government's estimate for GDP is still rising.

Japan economic cycle has peaked

 The chart below shows the official Japanese coinciding index through November, against the PMI index for Japan (December).  The PMI quite often leads at the cyclical peak, sometimes by several months, but usually has a shorter lead at the trough of the cycle.   The official leading index for Japan is falling, too, and so are some of my longer-leading indices.   Japan hasn't raised interest rates, and though like most other countries, its inflation has risen to 35 year highs, it hasn't risen as much as, say, the US's.  So one might expect that it could avoid a deep recession.  Still, it's strongly connected to the world economy.  We shall see.  What is clear is that the recession has begun.