Leading indicators are useful reference tools, but sometimes they can also mislead. The chart above, from the ACC’s excellent weekly report, seems to provide a good example of this problem.
The blue line shows the official Leading Indicator for the OECD area plus the 6 major non-OECD countries. It suggests that a strong recovery is underway. Yet actual global industrial production (the red line) is only showing a very weak recovery.
The problem is that the OECD Indicator has to use “expectation-dependent” indicators such as share and commodity prices. These have been on a roll recently, as financial investors bet on a V-shaped recovery. But as the blog has noted, at today’s levels, factors such as higher crude oil prices can actually slow down recovery, rather than support it.
Helping you navigate the new normal