On Monday, the Conference Board released its index of leading indicators showing a surprise 0.3% increase. However, all of the benefit came from the increase in the money supply, and economists are questioning whether it should be used in the index at all.
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But over the last few years, one of the key components — the real M2 money supply — may have been distorting the index.
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“The negative correlation between M2 and economic activity is here to stay,” Bandholz said. “Therefore, the Conference Board should finally exclude real money supply from the list of leading indicators — or at lest allow for a negative correlation between M2 and economic growth.”
http://blogs.wsj.com/economics/2009/01/28/money-supply-reverses-course-as-an-indicator/
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