Bill Evans discounts his own Leading Index

And so he should. To put it bluntly, it doesn’t work. Today’s (August) rose above trend:

Here’s why:

The growth rate in the Leading Index has increased from –0.8% in March this year to 3.0% in August. The main contributors to that growth improvement are: manufacturing materials prices (1.3 ppt’s); overtime worked (1.1 ppt’s); productivity (1.1 ppt’s); corporate operating surplus (0.6 ppt’s); dwelling approvals (0.3 ppt’s); and the all ordinaries index (0.2 ppt’s). Partly offsetting those gains was U.S industrial production (–0.6 ppt’s) and the real money supply –0.1 ppt’s).

Perversely, and for the umpteenth time, the LI does not mention China. Hence Bill Evans ongoing call for rate cuts despite his LI is spot on.

Shame the broader hasn’t caught on:

Er 20121017 Bull Leading Index

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.