Understanding this indicator
Why do markets that seem so different sometimes turn together? A slowdown in demand can affect corporate earnings, industrial commodities, borrowing costs and exchange rates at the same time. Trade, supply chains and the movement of capital link these markets into one economic system. The Global Economic Cycle brings their shared movements into a single view.
The indicator is built in two stages. First, principal component analysis—a statistical way of finding common patterns—summarises each group of equity indices, sector indices, interest rates, currencies, commodities and manufacturing surveys. The six summaries are then combined using the same approach to identify their strongest shared movement. This keeps a single market from being the sole lens through which the global cycle is viewed.
For asset prices, comparing each month with a year earlier helps bring out changes that daily headlines can obscure. Interest rates are measured by their change over the year, while manufacturing surveys provide a separate reading of business conditions. The inputs are put on comparable scales before they are combined, so the result describes a common cycle rather than a portfolio return or a rate of economic growth.
Start with the broad rises, falls and turning points, then look across the individual dimensions. Are equities and commodities moving together? Are interest rates following a different path? Agreement helps reveal a widespread change; disagreement shows where the same economic cycle is being felt differently. The value of the indicator is this common frame of reference, rather than an assumption that every market must move at the same time.
The green line isolates the 3–4-year Kitchin cycle from the historical data; it is a fitted cycle, not a forecast of the next turn. The lower chart shows the 7–10-year Juglar cycle and the 15–25-year Kuznets cycle. Comparing these time scales can reveal why a shorter upswing sometimes sits within a much longer period of weakness. The two main-chart axes use different scales, so compare their timing and direction rather than the height of one line against the other. Historical curves may change as the data are updated.