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Economy in Brief

OECD Leaders Fell Broadly Again
by Tom Moeller June 14, 2005

The Leading Index of the Major 7 OECD economies fell for the third straight month, off 0.5%, the declines growing larger each month. The drop lowered the six month growth rate in the index to a negative 1.6%, the weakest in two years.

During the last ten years there has been a 69% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven countries in the OECD.

The leaders for the European Union (15 countries) declined for the fourth month in the last five and the six month growth rate went negative for the first time in two years. The German leaders fell hard for the third straight month, by 0.4%, and are down 1.3% from the peak last August due to continued weakness in new orders, a negative yield curve and a worsening business climate. The six month growth rate fell to -2.0%, the worst in three and a half years. The French leaders dropped a large 0.8%, after upward revisions to earlier months, pulling the six month growth further into negative territory as consumer confidence plummeted and new car registrations fell. The Italian leading index fell for the sixth consecutive month and the six month growth rate dropped to -1.6% due to souring consumer confidence and weaker order books.

The UK economic leaders fell a sharp 0.5% and are off 1.9% from the peak in February 2004. Six month growth fell to -1.9% due to a collapse in consumer confidence and higher interest rates.The Canadian leaders also fell with six month growth down to -3.5%, the worst in two years. The yield curve is sharply inverted but housing starts recently bounced upward.

The leading index for the US economy fell for the third straight month and six month growth was sharply negative at -1.7% due to a tighter yield curve and weaker consumer sentiment. The leaders for Japan fell for the fifth straight month and six month growth of negative 1.2% was the worst since early 2002.

The latest OECD Leading Indicator report can be found here.

OECD April March Y/Y 2004 2003 2002
Composite Leading Index  101.17 101.67 -0.8% 102.05 97.55 96.34
 6 Month Growth Rate -1.6% -0.8%   3.6% 2.5% 2.3%
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