The OECD’s composite leading indicators are useful for confirming signals about future economic activity from real money supply trends. The OECD, however, regularly misinterprets its own data.
A case in point is the release issued today to accompany August indicator results; this claims that “most major economies will continue to see weakening growth in the coming quarters”. Yet a forecasting indicator of global expansion calculated here by combining and transforming the OECD data rose for a second consecutive month – see first chart. Allowing for a typical three-month lead, this suggests that the six-month change in global industrial output will bottom in September and recover in October / November.
An experimental “leading indicator of the leading indicator”, moreover, rose for a fourth consecutive month in August, hinting at a further recovery in the indicator itself in September and October – second chart. (The “double-lead” indicator is explained in a previous post.) This, in turn, would imply that global firming will extend into early 2013.
These results confirm the positive signal from an earlier pick-up in global real narrow money expansion, first discussed here in July. This pick-up continued in August and will probably extend into September, so another peak in global growth is unlikely before next spring at the earliest – see post from last week.
The improving outlook signalled by monetary trends and leading indicator data has yet to be recognised by a consensus inclined towards bearishness because of ongoing Eurozone fiscal tightening and the risk of the US “going over the cliff”. The IMF faithfully follows the consensus and, according to press reports, will downgrade its global growth prediction this week – a further reason for optimism, given its forecasting record.