A proprietary leading indicator of global growth derived from the OECD’s country leading indices rose in July for the first time since January, consistent with the forecast here of a revival in global industrial momentum from the autumn, allowing for an average three-month lead – see first chart.
An accompanying “leading indicator of the leading indicator”, moreover, rose for a third consecutive month, suggesting that the indicator itself will recover further in August and September – second chart. (The “double-lead” indicator is explained in a previous post.) This, in turn, implies that global firming will extend into year-end.
The basis for the forecast was a rise in global real narrow money expansion in June / July from a bottom in April / May – real money leads industrial output by six months and the leading indicator by three months, on average. The real money measure may have fallen back slightly in August, however, based on early data – third chart. So prospects for early 2013 may be clouding.
The suggested August real money slowdown reflects an upturn in inflation due to recent commodity price strength. Growth prospects for 2013 would be best served by monetary policy-makers stepping off the accelerator to cool commodity markets and contain the inflation drag on real money. Such an argument, of course, is dismissed by Dr Bernanke and his Fed acolytes, and the Bank of England’s target-missers.