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Economy in Brief

OECD Leaders Up Again
by Tom Moeller November 11, 2005

The modest 0.2% increase in the September Leading Index of the Major 7 OECD economies marked the fourth consecutive gain and it improved the leaders' six month growth rate to 1.1%, the best in twelve months.The increase reflected improvement in Japan & Europe but declines in North America.

During the last ten years there has been a 68% 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 leading index for Japan jumped 1.0%, the most for any month since early 2002, as share prices increased and the interest rate yield spread widened. The six month growth rate surged to 2.3%, the best since early 2004, and its correlation with real growth in Japan has been a meaningful 42% during the last ten years.

Leaders in the European Union (15 countries) rose for the fourth month and the 0.5% increase lifted the six month growth rate to 2.3%, the highest in a year. During the last ten years there has been a 60% correlation between the change in the leading index and the q/q change in the GDP volume index for the European Union.

German leaders increased for the fifth consecutive month. A 0.5% gain raised six month growth to 3.3% as new orders bounced back from an August drop and the business climate improved. The correlation between the leaders and the change in the German GDP volume index has been a low 19% during the last ten years.

The French leaders rose for the third consecutive month. The 0.5% increase pulled the six month growth rate into positive territory for the first time since March with a 0.3% growth rate and the correlation between the leaders with growth in France's GDP volume index has been a higher 43% during the last ten years. The Italian leading index showed perhaps the most meaningful monthly improvement with a 0.8% gain that followed an upwardly revised 0.9% August increase. The six month growth rate improved to 1.9%, the best since early 2004, although its correlation with GDP growth has been a low 0.9% during the last ten years.

The UK leaders increased just 0.1% but it was the fourth rise in as many months. The gain raised the six month growth rate to 0.2% and its correlation with real GDP growth has been 29% during the last ten years.

The U.S. leaders fell for the second consecutive month and the 0.3% decline lowered the six month growth rate to 0.3%, the worst since May. The correlation between the leaders and real GDP growth has been a high 58% during the last ten years. The Canadian leaders also fell and the 0.5% decline dropped six month growth to -1.0%. The leaders' growth also has been highly correlated with Canadian real GDP growth, to the tune of 49% during the last ten years.

The latest OECD Leading Indicator report is available here.

What Caused The Great Moderation? Some Cross-Country Evidence from the Federal Reserve Bank of Kansas City is available here.

OECD Sept Aug Y/Y 2004 2003 2002
Composite Leading Index  102.51 102.31 0.6% 102.03 97.59 96.30
 6 Month Growth Rate 1.1% 0.8%   3.5% 2.6% 2.2%
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