OECD Leaders' Gains Slower but Suggest Economic Growth

The Leading Index of the Major 7 OECD economies increased 0.2% in January. For December, the index increased 0.3% but that was revised down from a 0.6% gain reported initially. While the latest increases represent a slight slowdown from the 0.4% and 0.5% advances of October and November, the deceleration reflects weaker figures for the U.S., not elsewhere

During the last ten years there has been a 66% 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 U.S. leaders fell 0.1% during January and rose by a moderate 0.3% the prior month, a gain initially reported at 0.9%. The leaders' six month growth slipped, as a result, to 3.2% from 3.7% during the prior month. The correlation between the leaders' growth rate and real GDP growth has been a high 73% during the last ten years.

In Japan, the leading index rose 0.5% in January though the strong 0.5% gain initially reported for December was revised lower to 0.3%. Nevertheless, the index's six month growth rate improved to 2.8%, it's best in two years. The leaders' correlation with real economic growth in Japan has been a meaningful 40% during the last ten years.

Leaders in the European Union (15 countries) rose 0.4% after a 0.2% December increase. The rise lifted the six month growth rate to 3.8%, the best since May '04. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the GDP volume index for the European Union.

TheGerman leading index increased 0.7% for the ninth consecutive monthly increase and improved series' the six month growth rate to 7.0%, the best since February 2004. New orders have risen sharply and the business climate indicator has improved markedly.

A 0.2% increase in the January leading indicators for France represented an improvement from the 0.1% December gain (revised down from the initial estimate) and the 3.9% six month growth rate remained up from the negative growth rates of last Summer. Even the Italian leading index showed an improved no change from a 0.1% December decline and negative changes reported earlier were revised to slightly positive, all sufficient to lift the series' six month growth rate to 0.04% versus negative growth from early 2004 through all of last year.

The UK leaders also improved to plus 0.2% from slight decline during the prior two months and the six month growth rate rose to a slightly positive 0.2% from slightly negative growth during 2005.

The Canadian leaders surged 0.7% though the 0.8% jump during December was half the gain initially estimated. The six month growth nevertheless improved to 2.3%, its most promising since Summer 2004 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.