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Economy in Brief

OECD LEIs Show Growth for the Most Part
by Robert Brusca  August 8, 2013

The OECD indices of Leading Economic Indicators show, for the most part, continuing growth in the OECD area and in its largest economies. Even so, there are irregularities.

The OECD reports on its indices as follows:

- The CLIs for the United States, Japan and the United Kingdom point to economic growth firming.

- In the Euro Area as a whole, the CLI continues to indicate a gain in growth momentum. In Germany, the CLI points to growth returning to trend. The CLI for Italy continues to signal a positive change in momentum while the CLI for France points to relatively stable momentum.

- The CLI for Canada points to growth close to trend rate.

- The CLI for India continues to show signs of a tentative positive change in momentum.

- The CLIs for Russia and Brazil continue to point to slowing momentum.

The data in the table above show that as of June the LEI indicators are below 100 for Austria, Belgium and France. Yet the OECD generously refers to France's index as pointing to 'relatively stable momentum.' France's index for June is above its level of six months ago but is below its level of 12-months ago. Austria is also is below its level of 12-months ago. Ireland is higher on a 12month comparison but lower on a 6-month comparison. On the whole, though, ratios show net progress in EMU on the 12-month and 6-month horizons. Despite some recent challenging data including for Greece, a new record high in unemployment that it just released, both Greece and Portugal show the relatively largest bumps up within EMU over the past 6-mos and 12-mos.

The US, the UK and Japan each show readings above 100 in June as well as net improvements relative to 6-mos and 12-mos ago. Japan shows the relatively strongest progress over six months; the UK has the relative best performance of this group over 12-mos.

China, as the OECD indicates, is slipping. Its index is net lower month-to-month and has been below 100 for three-months running, a period in which its indicator value has been steadily slipping even lower. China may have reported some better-than-expected export and import figures today, but the OECD LEI for China is not very encouraging about China's future. China's index is net lower over 6-mos as well as over 12-mos. It has the weakest ratios (current to past) on those two horizons of any country in the table.

While the OECD assessment may be a bit generous in its description for France (the OECD is headquartered in France after all) France is a borderline case in terms of the OECD metrics.

Diving deeper into the data, we also perform the exercise of ranking each of the LEI indicators for June in its historic queue back to August of 1990. On that basis Greece is the relative strongest with the US in second place, Spain in third place, Japan in fourth place and Portugal in fifth place among the countries in the table.

The clearly weakest country (this is an assessment of absolute weakness on the CLI scale not of momentum) is China whose ranking stands in the lower 29th percentile of its queue of values since 1990. The next weakest nation is Austria (40.7th percentile), followed by Belgium (42.5th percentile) which, in turn is followed closely by France (42.9th percentile). China is the weakest on this relative scale by a long shot.

The overall EMU ranking is in the 64th percentile of its queue. Ireland, Italy, Finland and Denmark are other EMU members in the table that stand above the 50th percentile of their respective historic queues. Germany stands in the 47.3 percentile.

The OECD data , viewed against the backdrop of improving PMI data and somewhat less blighted GDP performance in EMU, suggest that the upward momentum will continue and that the incipient European recovery is in gear. However, one clear caveat is that Europe is being lead a bit more by its past weakest members while its largest economics are floundering. The percentile standing for the two largest EMU economies (Germany and France) averages only a 45th percentile reading. The reading for the next two largest economies (Italy and Spain) averages the 80th percentile.

Moreover, the OECD measures are only creeping up. The ongoing progress may have some steadiness to it, but not yet much strength. The OECD data also confirm trends that we have reported on that were evidenced in other data sources: that evaluated as a group the BRIC countries are all doing relatively worse than the advanced nations. The slowdown in developed economy growth and in its domestic demand has put the BRIC counties that have been positioned to tap into G-7 growth to sustain their own export growth at a disadvantage. The BRIC countries all need to rethink their respective growth strategies.

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