OECD leading indices confirm global lift, real money hints at spring growth peak
Simon Ward
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The OECD’s leading indices continued to recover at the margin in November, confirming an earlier signal of global economic improvement from real money supply trends.
The chart shows six-month growth rates of G7 plus emerging E7 industrial output and real narrow money together with a composite leading indicator derived from the OECD indices. Real money typically moves about six months ahead of output while the indicator leads by about three months.
The indicator was very weak last summer but moved back into positive territory in October and rose further in November, reaching its highest level since February. This suggests that the late 2011 recovery in global industrial momentum will be sustained in early 2012.
Six-month real money expansion, however, appears to have peaked in October, consistent with output growth topping out in the spring. Such a scenario would be confirmed by a peak in the OECD-based indicator in early 2012, probably January.
The view here of economic prospects for later in 2012 will be conditioned by the extent of any further real money slowdown. The hope is that a likely weakening of US monetary trends will be counterbalanced by a pick-up in the E7 and Euroland in response to recent and prospective policy easing.
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