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.