Three weeks ago – I wrote an article about the deeply inverted U.S. yield curve. And why it signaled further economic troubles ahead.

But – since then – things have only grown worse. . .

The Federal Reserve plans to continue tightening monetary policy (raising rates) – amplifying further stress at a time when the economy’s already rapidly eroding.

To give you some perspective – below are four leading indicators (aka economic factors that change before the rest of the economy does) showing just how bad the negative momentum is in the world economy.

Let’s begin. . .

First – the recent S&P Global Flash U.S. PMI (aka an indicator showing overall business activity) plunged deeper into contraction. Hitting its lowest point (45.0) since the worst of 2020.

(Keep in mind that anything above 50 is considered expansion. And anything below 50 is in contraction.)

All four of the major components are sitting at over two-year lows. . .

This is important because the U.S. PMI’s one of the most historically accurate leading indicators for estimating future growth.

Or – said otherwise – U.S. growth follows the general trend of the PMI.

And with the last two quarters in the U.S. showing negative growth (which almost always indicates a recession). It’s likely that there’ll be further downside according to the sharply contracting PMI index. . .

Second – another major U.S. indicator – the Conference Board Leading Indicator (aka the LEI) further declined in July.

In fact – the U.S. LEI’s dropped for the fifth straight month.

Most importantly – as many speculators know – it’s the rate-of-change (aka momentum) that matters most when gauging trends.

And as the chart shows – the U.S. LEI’s ‘six-month growth rate’ plunged towards historically recessionary levels. . .

For context- this is the sharpest decline the LEI’s seen (from peak-to-trough) in the last 20-years.

This is a troubling sign.

And – according to The Conference Board’s senior director of economics – Ataman Ozyildirim: “. . . Consumer pessimism and equity market volatility as well as slowing labor markets, housing construction, and manufacturing new orders suggest that economic weakness will intensify and spread more broadly throughout the US economy. The Conference Board projects the US economy will not expand in the third quarter and could tip into a short but mild recession by the end of the year or early 2023. . .”

Thus – the sharp plunge in the LEI’s momentum indicates further economic fragility ahead.

Third – the Cass Freight Index (aka CFI – a broad measure of freight shipments in North America) – has plunged back into net-negative territory over the last seven-months in 2022.

Because of higher prices, higher borrowing costs, and mounting consumer pessimism – demand for freight transportation has eroded quickly.

This recent plunge marked the sharpest rate-of-change drop in the last 12 years.

With such sharp declines over the last eight-months – it shows that momentum’s still to the downside.

And it doesn’t appear as if there’s any sign of this trend reversing. . .

And Fourth – the continued decay in South Korean Export Growth (aka SKEG).

South Korean exports have been steadily falling over the last year as the ‘boom’ cycle began transitioning into the current ‘bust’ cycle.

In fact – South Korean exports barely rose in the first 20-days of August as the global economy continued weakening.

What’s most telling is that shipments to China (the world’s second largest economy) fell by -11.2% in year-over-year terms.

This shows continued weakness in China’s economy. Which will be a major problem for world growth (since China alone makes up roughly 20% of the global economy).

Or – to put it into perspective: when China sneezes – the whole world catches a cold. . .

Now – many long-time readers know that I’ve written about SKEG before and its great importance for understanding macro-cycles.

But for those that need some refreshing – let me explain:

SKEG is a historically accurate indicator that leads both global growth and corporate earnings cycles.

The main takeaway is that – when South Korean export’s move sharply up or down – almost always global growth and earnings follow right behind it (with an eight-to-ten month lag).

That’s because South Korea serves as a major hub for international activity and corporate supply-chains.

Thus – when SKEG begins declining – it indicates global growth is waning. And that corporate profits will as-well.

So – if history indicates anything – expect global growth and corporate profits to see further declines (amplifying financial market stress). . .

So – in summary – it’s clear that there’s an ongoing global slowdown.

Both higher prices (due to post-COVID supply-side inflation) and higher borrowing costs (central bank tightening) have squeezed consumers dry.

The decline in ‘real’ earnings (aka income adjusted for inflation) has seen individuals grow much poorer over the last two years. Which will continue curbing demand.

But – the biggest issue here is the Fed’s tightening (aka hiking interest rates).

That’s because – since the 1980’s – global growths become more-or-less dependent on central bank easing or tightening.

And now – with the Fed aggressively tightening over the last eight-months – it’s putting significant downward pressure on economic growth, consumer demand, and asset prices.

The four leading indicators above all imply much more downside ahead for both the U.S. and global economy.

And – until these show signs of reversing (aka when the Fed begins easing) – I don’t believe things will get much better.

So – expect further deceleration in the global economy, mounting deflationary pressures, and growing market fragility.

And – as in most tightening cycles – eventually something will likely break within the overleveraged financial system.

Don’t say you weren’t warned. . .