OECD LEIs Turn On A Green Light For Recovery

The OECD LEIs are now jumpin.’ The rise is strongly accelerating across OECD countries; even Japan whose indicator is still falling is seeing a substantial shift in its negative growth rate to a substantially diminished pace of decline. The detailed progressive growth rates from 12-months to six months to three months show that the acceleration is well in force. The OECD’s preferred reading is on the six month growth rate. The US rate is now flat compared to declining at a 16% pace six months ago. The European index is up at a very strong 6.4% pace after dropping at a 12% rate six months ago. Japan is falling at a 7% rate after dropping at a 22% rate six months ago. What a difference a half year makes.

The United State’s own LEI from the Conference Board usually carves out lower recession lows than the OECD LEI for the US. The Conference Board indicator usually carves out higher highs in the transition to recovery, by a small amount, as well. In this recession however the OECD LEI for the US is much weaker than the low for the Conference Board’s measure based on percentage drops in the respective indices. As a result, while the OECD index has a bigger US turnaround from its low to its present value, the positive reading on the Conference Board LEI is far stronger that the current OECD LEI signal (the OECD measure is flat over six months).

Different measures capture different aspects of the economy’s weakness. Right now both of these measures have the same sort of positive momentum to different degrees but positive momentum nonetheless. It is interesting that the European economies are showing much more momentum in this framework. We will have to keep our eye on the economies and see if European economic performance can live up to the strong positive signal the OECD has for that region.