The OECD’s Chinese leading indicator strengthened again in November, suggesting that the consensus is too pessimistic about economic prospects.

The OECD presents its leading indicators in “ratio-to-trend” form, i.e. a rise (fall) indicates that an economy will grow above (below) its trend rate. The Chinese ratio-to-trend indicator increased for a second month in November, having declined steadily over the two years to August. According to the OECD, the latest results “confirm the tentative signs of stabilisation flagged in last month’s assessment”.

While the ratio-to-trend presentation is preferred, the OECD also calculates a leading indicator of the level of Chinese industrial output. The chart compares six-month and rescaled one-month changes in this indicator with the six-month change in output. The six-month indicator change has been firming since February 2015, while the one-month rise in November was the largest since February 2013.

The leading indicator comprises six components: production of chemical fertilizer, crude steel, buildings and motor vehicles, overseas orders from the PBoC’s quarterly survey of industrial enterprises and Shanghai stock exchange turnover value. Since the components are non-monetary, the positive signal is independent of recent better money / credit trends.

An important caveat is that the OECD revises its leading indicators monthly, sometimes significantly. It would be surprising, however, if future changes revised away the recent reversal of direction.