Industrial production hits air pocket all over the world

If you think the U.S. economy has suffered the worst economic slowdown in generations, pity the poor Japanese, where manufacturing activity has dropped almost 15% in the past year, about twice the rate of decline in the U.S. As the old adage goes, "if the U.S. sneezes, the rest of the world catches a cold."

With massive and sharp cutbacks in production all over the world, it is time to start thinking of the rebound, since it could be surprising on the upside. Inventories are surely being depleted as everyone takes precautions in the face of a sudden reduction in consumer demand. But jobs and output in general have not declined by nearly as much as industrial activity, and China is now embarking on a $500 billion stimulus plan. New orders for industrial raw materials have arguably led to a 120% increase in the Baltic Capesize index of shipping costs in just the past month, confirming the signal we see in other commodity prices (e.g., the 8% rise in the CRB raw industrials commodity index in the past month) that global activity is beginning to rebound.

But the way the market is priced, if the reality ends up being simply that global economic activity is stabilizing (not growing, but no longer contracting), that would be bullish. A return to growth would be extremely bullish.