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Yellen Might Want To Check This Industry Before Raising Rates

Industrial Production & Export Boom Slowing

The economic boom has been underway for several quarters.

Industrial production and exports are up from  Taiwan, Japan, and South Korea. These companies are major semiconductor producers. They are a health gauge for the global economy… as semiconductors are a sign of growth.

You can see Korean and Japanese industrial production in an uptrend through April 2017.

Japanese industrial production and semiconductor billings have also been in an uptrend.

Taiwanese and Korean exports too.

Depending on the sustainability of the boom, central banks in Taiwan, Japan and South Korea can choose to tighten or to wait.  And it’s nice to have those options.

One reason they may want to wait: The boom may start to slow.

You can see semiconductor contract manufacturer growth is now trending down.

The last time foundry billings rolled over was in 2015. Taiwan’s GDP contracted -1.5%. Korea’s annual GDP slowed from 3.5% to 2.5%

In light of the leading qualities of semiconductors, the downtrends indicated by the major Taiwanese producers are reason to wait on any tightening.  

If the semiconductor cycle has peaked – essentially the cause of economic boom for Taiwan/Japan/S. Korea – then the signs will be apparent by the fourth quarter (Q4).

KEY TAKEAWAY: First, the financial risk from Fed rate hikes has been small and another one won’t jostle things too much.  

Second, there are reasons to doubt the sustainability of the current boom.  

Much depends on continued U.S. and Chinese growth, both of which are very much in doubt.  And, if semiconductor signals are right, we are already seeing signs of slower growth on the horizon.

 

Andrew Zatlin

Editor of Moneyball Economics

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