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Economy in Brief

OECD Leaders Up Again
by Tom Moeller June 12, 2006

The April Leading Index of the major 7 OECD economies rose 0.2% following a downwardly revised 0.1% increase during March. The leaders have risen 3.4% since the low last April and despite the recent slow gains, the six month growth rate of the index remained firm at 3.5%.

During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.

The leading index in Japan jumped 0.7% and that raised the index's six month growth rate to 3.2%, its best in over two years. Share prices and loans-to-deposits were firm as was construction of dwellings. The leaders' correlation with Japan's real economic growth has been a meaningful 40% during the last ten years.

The leading index for the European Union (15 countries) remained quite firm and rose 0.4% after a downwardly revised 0.3% March rise. That lifted the index's six month growth rate to 4.7%, the best since April 2004. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.

The German leading index improved 0.6% following a March gain that was revised down to 0.4%. As a result, the six month growth rate was 7.9% that was still the strongest rate of increase since December 2003. New orders remained firm and interest rate spreads were less negative. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume.

A leaders in France rose 0.2% in April for the third consecutive month. At a stable 3.9%, the series' six month growth rate is much improved versus the negative growth rates during the middle of last year. The future tendency of production improved despite still-languishing consumer confidence and depressed job vacancies.

The Italian leading index rose 0.4%, only the second monthly increase this year, and the series' six month growth rate rose to 1.1%. New orders rose sharply and consumer confidence improved.

The U.S. leaders fell 0.1% and reversed the slim 0.1% March up tick. The recent weakness lowered the six month growth in the leaders to 3.6% as consumer sentiment fell as did most other leading series except share prices. The correlation between the leaders' growth rate and real GDP growth has been a high 73% during the last ten years.

The UK leaders rose 0.2% after a 0.3% March gain that was half the initial reported rise. The six month growth rate at 1.7%, nevertheless, was the best in two years though consumer confidence fell to its lowest in three years.

The Canadian leaders fell 0.6% for the second consecutive month and were down for the third month this year. The weakness and the downwardly revised declines dropped the six month growth rate to -0.7%, the first negative reading since October. The correlation of the leaders' growth with Canadian real GDP has been 49% during the last ten years.

The latest OECD Leading Indicator report is available here.

OECD April March Y/Y 2005 2004 2003
Composite Leading Index  105.42 105.22 3.4% 102.85 102.38 97.99
 6 Month Growth Rate 3.5% 3.6%   0.7% 3.5% 2.6%
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