Everybody Is Turning Higher Say OECD LEIs

In the OECD area everything is coming up roses. Some are more in bloom than others and some have more thorns than others but the OECD gave a very upbeat assessment to activity in the OECD areas.

OECD leading indicators ... “point strongly to growth in Italy, France, the United Kingdom and China, while tentative signals of expansion have emerged in Canada and Germany," the OECD said. "A recovery is clearly visible in the United States, Japan and all other OECD economies and major non-OECD economies," it added.

The OECD indicators selected in the table above all show strong (double digit) increases over the recent six months expressed as annual rates of growth. Simple three-, six- and twelve-month growth rates are positive across all these countries/groups with the exception of 12 month growth in Japan (see top panel of the table above). The OECD data are up-to-date though September.

Echoing this sentiment are the new industrial orders for September released today by Germany that find orders on the growth path for the seventh month in row. The problem for Germany is that now domestic orders have dropped for the second month in a row. The two month drop which amounts to a bit more than a 3% set back comes on the heels of a 9.5% monthly rate super spike in domestic orders for July. Still foreign orders continue to expand and Germany’s domestic orders are not along for the ride.

The OECD data show us why German export orders are rising: that export oriented economy exports goods globally and the whole OECD area is having a nice snap back. But Germany is still an important country in EMU, the largest economy there. Having the German domestic factory sector so weak on top of previously-reported weakness in German retail sales, is a clear warning sign to not get too carried away by optimism.

The OECD area is snapping back from a very ugly recession. But the recession was so ugly that the snap back can look strong but still fail to bring growth to a strong enough point to spur a drop in unemployment. That’s exactly what we seeing in the US. Despite a US MFG sector that has been posting good results, increases in industrial production and a rise to strong level for the MFG ISM, the US is not seeing job growth. Europe is finding some growth deficiencies as well. Today the UK got an unexpected visit from a higher PPI. The OECD area is not strong enough to be abele to cope with any inflation signals just yet. Let’s hope the UK PPI is just a rogue signal. Meanwhile, we need enough economy strengthening to create job, income and spending growth while allowing savings to make some headway as well. It’s a tall order that we are falling short on despite the growth path endorsed by the OECD.