Charts for the Beach

It’s time for our annual August report, “Charts for the Beach.” Each year we highlight five of our favorite charts we think consensus is currently overlooking. Remember to ask your RBA representative for your official RBA eyeglass cleaning cloth to keep your sunglasses spotless! Call by midnight tonight so you don’t forget. Supplies are…um… limited!

Leading indicators not lagging indicators

Leading indicators of the economy are those that lead GDP. Coincident indicators turn in tandem with GDP. Lagging indicators turn after GDP turns.

Although one would think that investors would follow leading indicators, they unexplainably have a fascination with lagging indicators. For example, inflation, the unemployment rate, and the Fed are all lagging indicators, but command a disproportionate amount of attention. Leading indicators, like initial jobless claims and building permits, rarely get mentioned.

At RBA, we follow leading indicators all around the world. Chart 1 shows the composite leading indicators for the US, Europe, Japan, and China. Note that China is the only one showing any positive momentum. This is one reason why our portfolios are significantly overweight Chinese equities.

OECD Leading Indicators
(July 8th Release)

Source: Bloomberg Finance L.P. OECD