The OECD trend restored leading indicators show a clear deceleration across major areas and countries. Despite this ongoing slowdown Central banks across the region generally are fighting inflation and seem to see it as a still-significant risk. Yet, the slowdown is pervasive. Even so, the OECD is only calling it a moderation and nothing more dramatic.

The decline in the overall indicator is clear and it is also clear that it has not yet weakened enough for the region to worry about recession.

The chart below shows a number of regions plotted together. And it is also clear that there is NO EVIDENCE that the rest of the OECD area has decoupled from the US at all. Besides that, Japan seems especially weak on this score.

While there has been some commentary that the rest of the world has more independent growth and could weather a US slowdown, the chart above shows NO evidence of a break in the link with the US on the LEI front using the OECD measures. In an earlier report we had showed how manufacturing in the US and in Europe remains tightly linked, at least statistically.

Since trade drives a lot of growth we should be wary of seeing new broken linkages. Even China which many see as a major ‘independent force’ also derives a lot of its growth from trade and since all regions send a large amount of exports to the US we have ample reason to doubt that the rest of the world could weather a slowdown in the US.

Central banks must continue to fight inflation since, should it get away from them, bad things would surely happen. The slowdown in growth across the OECD area makes policymaking by the central banks more difficult but it should not deter them from their true goal.