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Economy in Brief

OECD LEI's Point to Trouble Ahead
by Robert Brusca  December 12, 2011

The decay in the OECD LEIs is much more severe for EMU that for the US or for Japan. While the US and Japan indicators point to moderation (but still to trend or above trend growth) the EMU indicators point to a more severe slowing.

The EMU composite indicator is at a ratio to trend of 98.5 to trend, that means it is below trend by 1.5 percentage points. The US is at 100.9, still above trend. Japan stands at a ratio to trend of 101.3. Of course Japan’s trend has been muted after its decade-long battle with deflation. It continues to lose growth to trend even as it tries to recover from its tsunami, earthquake and nuclear disasters of earlier this year. Japan is holding onto growth, but is not gaining momentum in that fight.

Looking at some country detail in EMU we see that both France and Germany are nearly two percentage points below their respective trends. Italy stands 3.5 percentage points below trend. The UK is relatively better off at only 1.4 percentage points below trend.

Among the BRIC countries Russia and China still have ratios of current composite indicators to trend that are above 100 that point to continued above-trend growth (actually trend growth only for China). But Brazil is nearly six percentage points below trend and India which posted a decline in its IP in today’s data shows a current composite that is nearly seven percentage points below trend. Brazil and India give a new meaning to the acronym ‘Bric’ (Brick!).

While the percentage point declines in the trend-restored indicators have not worsened by much from six months to three months, the composite indicator to trend ratios have worsened noticeably. Six months ago the EMU ratio was positive at 101.3 but it is now at 99.3 and has been below 100 for three-months running. The US indicator has slipped from its level of six months ago, too, but is still steady over the last three months and above 100 (trend). Germany’s reading has slipped below 100 for two months running, for France, the index is deficient for three-months running; Italy’s ratio is light for four months running.

Spain continues to fight off the contraction signal clawing to a level just above 100 over the past four months despite a crushing burden of unemployment and an austerity program. Conversely, Greece’s sub-par growth signal has been in play continuously since March of 2010 although it has not been worsening.

The OECD signals show losses in momentum and a clear break with growth uptrends for a number of members. The Zone is now clearly indicating that sub-par (sub-trend) growth lies ahead and is threatening to have a real downturn emerge, not just a slowing, but that event is not yet baked in the euro-cake. Still, the EU summit may have whipped up some sour frosting; it does not seem to have done much to bolster sentiment for the region and that may be the final shove into the oven to complete the baking of that undesired euro-cake. Recession ahead? Could be.

OECD Trend-Restored Leading Indicators
  Growth:M/M Growth Progression-SAAR
  Oct-11 Sep-11 3Mo 6Mo 12Mo Yr-Ago
OECD -0.3% -0.4% -4.8% -5.2% -2.2% 2.9%
OECD7 -0.4% -0.5% -6.1% -6.3% -2.5% 2.7%
OECD.Euro-Area -0.8% -0.9% -10.0% -10.0% -6.1% 2.0%
OECD.Japan -0.4% -0.5% -5.3% -5.3% -1.8% 3.2%
OECD US -0.1% -0.3% -3.7% -4.1% -0.3% 3.7%
Ratios to Trend
  Monthly 6Mo Ago 12Mo Ago
Ratios to Trend Oct-11 Sep-11 Aug-11 Jul-11 Apr-11 Oct-10
US 100.4 100.4 100.5 100.7 101.2 100.3
UK 99.3 99.6 100.0 100.3 101.2 101.4
Japan 100.4 100.5 100.6 100.6 100.9 100.4
EMU 99.3 99.6 99.9 100.3 101.3 101.5
Germany 99.4 99.8 100.2 100.7 101.8 101.9
France 99.1 99.4 99.8 100.2 101.4 101.6
Italy 98.8 99.0 99.3 99.6 100.7 101.4
Greece 98.6 98.5 98.4 98.3 98.3 98.8
Spain 100.1 100.2 100.3 100.4 100.8 101.1
Slowdowns indicated by BOLD RED
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