The OECD’s leading indicator indices continue to signal a stronger global economy in early 2013. There is a hint in the latest data that the pick-up will lose momentum in the spring but the bias here is to play this down, since it is at odds with a further rise in global real money supply growth at end-2012.
The OECD’s leading indicators are a useful forecasting tool but it is necessary to transform the raw data and ignore the OECD’s own commentary in order to obtain maximum value. When August figures were released in October, for example, the OECD opined that “most major economies will continue to see weakening growth in the coming quarters”. Yet a global indicator calculated here rose for a second consecutive month in August, clearly signalling an improving outlook – see previous post. Recognition of this improvement contributed to the strength of equities and other risk assets in late 2012.
The OECD has, belatedly, become less downbeat, stating today that November results show signs of a stabilising global economic outlook. The numbers, in fact, suggest solid growth in early 2013: the transformed leading indicator, which leads global industrial expansion by three months on average, continued to climb and is now at a robust level by historical standards – see first chart.
The data can be tortured further to yield a longer-range forecasting measure, termed here the “leading indicator of the leading indicator”, which signals growth turning points by an average five months. In contrast to the standard indicator, this edged lower in both October and November – second chart. The suggestion is that the growth pick-up will tail off in the spring, although the “double-lead” indicator has yet to signal material weakness.
Turning points in this longer-range indicator, however, usually follow or coincide with peaks or troughs in global six-month real narrow money expansion – the primary forecasting tool employed here. This remained robust in November – third chart – and early indications are that it rose further in December, reflecting US strength. A positive cyclical view will be maintained until global real money growth peaks.
