OECD LEIs Show StrongestSynchronized Revival Since 1975 Expansion

History tells us that gains this strong do not continue to accelerate like this for very long. Already the sequential growth rates are showing that the pace of growth is beginning to ebb even though the 12-month rates continue to accelerate. Despite that, the six- month growth rates, the horizon on which the OECD prefers to evaluate its indices, shows a slow down from the previous 6 months but still posts strong rates of expansion. The whole of the OECD area is still advancing at a rate of 8.6% over six months, the e-Zone is up at a 6.6% pace and the US is up at a 10.5% pace. Japan alone is still accelerating, to a pace of 8.6% over six months.

But economic recovery is not simply achieved by getting out of the woods with a strong LEI reading. As we have seen, Europe is dogged by debt problems from Greece to Portugal to Spain. The UK, in the midst of elections, has posted some very erratic economic figures including a recent spike in its PPI. Today Italy posted a sideways IP result with output remaining flat month-to-month. By itself that does not sound so bad, but Italy has a long way to go to restore output to its past cycle peak level. So a month of no progress is not a good result.

The OECD data tell us, however, that results are improving across the OECD area and that conditions in Japan are accelerating. For the time being it is still good news but it is still not good enough given all the post-cycle risks that continue to lurk and to chase after the outlook.

Five countries--Italy, Ireland, India, Kazakhstan and Mexico--reported February data on industrial production today.  One, Kazakhstan reported data for March.   We have put the various indexes on a common basis, 2003=100, so that growth of production can be compared.  Production in Italy in February, for example, at 84.8, was still well below its level of 100 in 2003.  And although production in Ireland has increased sharply in the last two months, it is only 20% above its 2003 level after seven years.  Industrial production data in Italy and Ireland since 2003 are shown in the first chart.

Industrial production in India and Kazakhstan declined 0.25% and 0.68% in February from January, but it has been increasing over the past year and is 15.0% and 10.4%, respectively, ahead of January, 2009.   Incidentally, production in Kazakhstan rose in March.  Both India and Kazakhstan have grown strongly in the past seven years and production is now 73% and 56%, respectively above their 2003 levels of production. 

In contrast to the performance of industrial production in India and Kazakhstan, that in Mexico, the other emerging country reporting today, has recently shown some improvement but it has grown only 10% since 2003.  Industrial production data since 2003 for the three emerging countries are shown in the second chart.

It should be noted that a common index base of production among countries enables one to compare the growth of production among countries, but it says nothing of the magnitude of output in the various countries.    

The Business Cycle Dating Committee at the National Bureau of Economic Research indicated that it's premature to call an end to the U.S. recession. Their latest communiqué can be found here.

Nevertheless, Haver Analytics has gone ahead and updated the business cycle shading in its charts, primarily for two reasons. We have chosen June 2009 as the end date for the recession: 1) The index of coincident economic indicators, which includes data covering nonfarm payrolls, industrial production, business sales and personal income, troughed in June. 2) Real GDP growth has been positive since 3Q '09 and likely was again positive last quarter. The 1Q data will be published later this month.